As the expectation of interest rate cuts by the Federal Reserve gradually approaches, many listed companies are entering the period of mid-term performance disclosure. Among them, in the still challenging first half of 2024, Ping An Health achieved a high-quality performance report of turning losses into profits for the first time, with a significant improvement in profitability.
Just recently, Ping An Health also announced a major collaboration. The company has reached a strategic cooperation with Jointown Pharmaceutical Group, together creating a service chain system of "Internet + healthcare + pharmaceuticals," integrating their respective advantageous resources, promoting cooperation in enterprise health services, supply chain services, online medical healthcare services, and electronic payment for medical insurance innovation services. Additionally, the two parties will deepen their cooperation in the promotion of health products, and cross-border purchasing of high-quality health products, jointly driving the rapid growth of their respective business scales.
After the financial report was released, many brokerages have given bullish ratings to Ping An Health. The target prices given by the brokerages range from 11.40 to 15.61, indicating a considerable potential upside compared to the current market price. It is not difficult to see the positive outlook from professional institutions.
Chart 1: Brokerage ratings of the company after the release of the interim report
Data source: WIND, compiled by Gleam Hunt
At the same time, smart money is also actively investing. According to the data from WIND, southbound funds have been continuously increasing their holdings, and in the past 3 months, the cumulative holding ratio of Ping An Health through the Hong Kong stock connect has risen from 14.66% to 16.48% (data as of the close on September 4, 2024). The daily net inflow of northbound funds has repeatedly reached new highs, showing impressive performance.
So, what key information does this performance report reveal?
Chart 2: Company's Hong Kong Stock Connect Holdings Trend Chart
Data Source: WIND, compiled by GLH, Data as of September 4, 2024
Strategic upgrade shows results, net income turns loss to profit for the first time.
From a financial data perspective, even with significant external changes, Ping An Health can still navigate through cycles with significant effects of deepening strategic upgrades.
From the income side, Ping An Health shows resilience, with revenue of 2.093 billion yuan in the first half of 2024.
Benefiting from continued deepening cooperation with Ping An Group's comprehensive financial business, the company saw a 3% year-on-year growth in medical service revenue in the first half of the year, reaching 1.063 billion yuan. At the same time, the company actively expanded its retirement service business, with a 204.8% year-on-year growth in retirement service revenue in the first half of the year, reaching 47.314 million yuan.
From the expenditure side, Ping An Health's operational management effectiveness is significant, with a substantial decrease in expense input.
The company continuously optimizes resource allocation and personnel structure, strengthens production control, and improves operational efficiency through informatization, digitalization, and AI empowerment. In the first half of the year, sales and marketing expenses were 0.367 billion yuan, a year-on-year decrease of 18.6%. In addition, the company's management expenses for the first half of the year were 0.395 billion yuan, a year-on-year decrease of 47.8%.
From the perspective of profitability, Ping An Health has significantly reduced costs and increased efficiency, and its profitability continues to improve, with net profit turning from a loss to a profit for the first time.
With the continuous optimization of the company's business structure, the gross margin for the first half of the year remained the same as the same period last year, reaching 32.2%. Among them, the gross margins of health services and retirement services increased by 1.7 percentage points and 13.6 percentage points, respectively, compared to the same period last year.
It is worth noting that the company's net profit for the first half of this year reached 60.629 million yuan, marking the first half-year profit since its listing. The adjusted net profit also reached 89.739 million yuan, demonstrating impressive performance.
From an operational perspective, the company's strategic business is growing steadily and rapidly, achieving growth in both revenue and paid users.
In the F-side business, the company continues to integrate into the comprehensive financial business scenarios of Ping An Group, providing warm services to Ping An Group's customers and users, and the number of paid users continues to increase.
In the first half of 2024, the company's F-side strategic business recorded revenue of 1.115 billion yuan, a year-on-year increase of 3.4%. At the same time, the number of paid users on the F-side in the first half of the year was about 14.8 million, a year-on-year increase of 7%. As of the end of March 2024, for Ping An Group's individual comprehensive financial customers who have used the services of the Ping An Group's medical and retirement ecosystem, their average number of contracts and average AUM are 1.6 times and 3.6 times that of other individual customers.
In the B-side business, the company continues to enhance its service capabilities and product quality, providing professional and high-quality one-stop health management services for enterprise users, with significant growth.
In the first half of 2024, with the continuous improvement in the penetration rate of Ping An Group's corporate clients and the continuous growth of self-developed corporate clients, the company's B-side strategic business recorded a revenue of 7.131 billion yuan, a year-on-year increase of 58.8%. At the same time, the number of paid B-side users in the first half of the year was about 2.6 million, a year-on-year increase of 2%. Currently, the company has served a total of 1,748 enterprises, an increase of approximately 46% compared to the same period last year, occupying a leading position in the market.
Chart three: Company's main operational data
Data source: Company Announcement, Guosen Securities Compilation
How do we view the future outlook?
In today's capital markets, with factors such as significant fluctuations in forex, market sentiment remains low.
So, in the ever-changing market style, how should we view the future development of Ping An Health? I believe it can be explored from four dimensions: macro, policy, industry valuation, and company business model.
Firstly, from a macro perspective, the Federal Reserve's interest rate cut cycle may begin, and the healthcare sector, which is highly sensitive to interest rates, is expected to receive more attention and investment opportunities.
As the main global reserve currency, the US dollar will directly impact global liquidity through its monetary policy adjustments by the Federal Reserve. As a offshore dollar market, the valuation of the Hong Kong stock market is also more sensitive to changes in US dollar liquidity.
Open source Securities believes that as the Federal Reserve gradually enters an interest rate-cutting cycle, improved liquidity will help optimize the investment and financing environment, and is expected to bring greater valuation recovery potential to the medical and health sector, which is still at the bottom. Soochow Securities indicates that although aging has led to no changes in rigid demand, as the growth rate of the medical and health sector recovers, the sector is expected to strengthen in the second half of the year.
Secondly, from a policy perspective, the top-level design for home-based elderly care and digital health has certainty and continuity, providing strong support for the industry's development.
On August 3, the State Council issued the "Opinions on Promoting the High-quality Development of Service Consumption", which specifically mentioned "elderly care and child care consumption" as well as implementing and improving the policy of "Internet+" medical service medical insurance payment.
Regarding "elderly care and child care consumption", the document proposes to "vigorously develop the silver-haired economy, promote the development of smart and healthy elderly care industry, promote the construction of barrier-free public spaces, consumer places, etc., and improve the aging level of home furnishings. Accelerating the coordinated development of home-based and community-based elderly care services and the combination of medical care and health care, initiating actions to improve basic home-based and community-based elderly care services, and promoting vocational colleges to strengthen talent training."
Regarding "health consumption", the document proposes to "nurture and grow new types of service formats such as health examinations, consultations, and management. Promote the development of 'Internet+ medical and health', achieve mutual interconnection of medical data as soon as possible, and gradually improve the policy of 'Internet+' medical service medical insurance payment. Encourage the development of commercial health insurance products that satisfy diversified and personalized health security needs. Further promote the integration of medical care and elderly care, and support medical institutions in providing integrated medical care services."
Cinda Securities pointed out that the issuance of policies related to promoting the high-quality development of service consumption has catalyzed investment opportunities in the silver-haired economy, home-based elderly care, digital health, and other areas. These sectors deserve attention.
In terms of industry valuation, the current valuation of digital health is relatively low, making the sector attractive.
According to WIND data, the Internet Medical Index has fallen to a low level since its peak industry valuation, making it attractive in terms of valuation. As of September 4, 2024, the P/S (TTM) of the Internet Medical sector was only 1.11 times, which is far below the 4.6th percentile of the past five years and much lower than the opportunity value of 1.44 times.
Chart 4: Internet Medical Index P/S (TTM)
Data Source: WIND, compiled by GLH, Data as of September 4, 2024
In this regard, Puyin International pointed out in its investment forecast for the second half of 2024 that it is recommended to focus on leading enterprises in the internet medical industry with clearer business profit models and gradually emerging scale effects.
Nowadays, Ping An Health continues to deepen the construction of two major core hubs: family doctors and retirement stewards. Its unique business model has made significant progress in the deepening of the 2.0 strategy, making it a leading domestic medical, health, and retirement service provider.
In the field of family doctors, in the first half of this year, the company comprehensively upgraded its family doctor membership service brand "Ping An Family Doctor." Under the four upgrades in terms of service team, standards, models, and capabilities, the company has built a "11312" one-stop proactive health management service system. Users only need to go through one family doctor portal to enjoy high-quality services throughout the entire life cycle, including treatment for minor illnesses, management of chronic diseases, referral for major illnesses, and daily health management.
As of the end of June 2024, the company has established a team of approximately 0.05 million internal and external doctors covering 29 departments. It has signed nearly 2,900 expert doctors and has more than 14 million users with Ping An Family Doctor membership rights. The average annual frequency of use per person has increased by 8% compared to the end of 2023, reaching over 4 times. The coverage rate of proactive services is 100%, and the user satisfaction rate for medical consultations is over 98%.
In the field of retirement housekeepers, the company has further built a "Trinity" of intelligent housekeepers, life housekeepers, and doctor housekeepers in recent years, creating 10 major home retirement scene services that cover home care, providing users with a 7*24-hour, one-stop home retirement solution.
Currently, the company's home retirement services have covered 64 cities nationwide, adding 10 cities compared to the end of last year, and the number of equity users has increased by about 50% compared to the end of last year. At the same time, user experience continues to improve, with NPS increasing by 8.4 percentage points year-on-year. In the future, the company is expected to further explore and layout in three aspects: firstly, continue to build the role of a good retirement housekeeper, embedding the housekeeper into the entire journey of elderly care, and continuously deepening the housekeeper's ability building. Secondly, continue to build the "Five One" model in terms of supply capacity. Thirdly, continue to leverage AI practices, utilizing Ping An Health's deep resources and advantages in the medical field to expand institutional and community retirement in multi-modal scenarios.
Finally, from the perspective of company valuation, Ping An Health has strong growth potential and greater resilience.
Even though the recent performance of Ping An Health's stock price has been strong, from a longer-term perspective, the company's valuation is still relatively low. According to WIND data as of the close on September 4th, the company's PS (TTM) is 2.09 times, which is at a lower level in historical terms and has a high safety margin.
Chart 5: Ping An Health PS (TTM)
Data Source: WIND, compiled by GLH, Data as of September 4, 2024
Furthermore, when comparing Ping An Health's stock performance with its peers, the company has shown greater resilience in the capital market. According to WIND data, since the beginning of last year, although the overall Internet medical sector has experienced a pullback, among the top Internet medical companies listed in Hong Kong, Ping An Health's stock price has experienced the lowest pullback, demonstrating better risk resistance.
Chart 6: Hong Kong stock Internet medical trend since last year
Data Source: WIND, compiled by GLH, Data as of September 4, 2024
Note: Black line: Ping An Health, Pink line: Alibaba Health, Green line: JD Health, Blue line: Dingdang Health
Summary
If we take 2014 as the beginning of Internet medical, then the industry has been developing for 10 years. In the past ten years, many players have participated, but few have been able to profit successfully. The fundamental issue lies in whether their business models can be successful. As a excellent player in the Internet medical field, Ping An Health has explored a sustainable and high-quality development path, which has been confirmed in this performance period.
From the current perspective, combined with the market performance of Ping An Health, it is not difficult to see that the company is clearly undervalued. Obviously, on the one hand, it is due to the impact of the overall environment of the pharmaceutical industry in recent years, which has put pressure on the overall valuation of the company. On the other hand, it is due to the market's recognition of the company's business model.
Now, with the arrival of a new cycle of interest rate cuts by the Federal Reserve, the suppressed medical sector will usher in a new era. At the same time, Ping An Health, which has continuously demonstrated excellent operational performance, will continue to gain more market recognition for its profitable model and growth potential. With the continuous increase of market funds, the repair of the company's valuation is believed to be only a matter of time.
