PA Good Doctor (1833 HK) Summary
Core Content
PA Good Doctor (1833 HK) has adopted a new strategy, referred to as Strategy 2.0, aimed at focusing on corporate clients to drive high-quality growth. This shift is intended to leverage the company's family doctor services to connect corporate and individual customers, thereby expanding its high-margin business. The company's strategic move involves utilizing the resources of the PA Group, which has a substantial corporate customer base of approximately 70 million employees in China.
Main Points
- Strategic Shift: PAGD is transitioning its focus from individual to corporate clients, which is expected to enhance its revenue streams through higher ARPU (Average Revenue Per User) and lower traffic acquisition costs.
- Initial Success: As of June 2021, 48% of PAGD's traffic originated from B-end (business-to-business) clients, indicating the initial success of the strategy.
- Integrated Services: PAGD aims to provide comprehensive family doctor membership services that cover health management, chronic disease management, and offline medical services, with the goal of satisfying 80% of customers' healthcare needs.
- Regulatory Impact: The National Health Commission (NHC) has introduced tighter regulations on the internet healthcare industry, which require physicians to authenticate their identity and prohibit the use of substitutes or AI software. PAGD is well-positioned to benefit from these regulations due to its substantial internal and external medical team.
- Revenue Structure: Prescription drug sales account for only 15% of total revenue in the first half of 2021, suggesting that the company is moving away from this revenue source and focusing on membership services.
- Valuation and Forecast: Using a 10-year DCF (Discounted Cash Flow) model with a WACC (Weighted Average Cost of Capital) of 9.5% and a terminal growth rate of 3.0%, the target price has been trimmed from HK$73.80 to HK$57.00. The company is expected to see revenue growth of 7%, 20%, and 26% in FY21E, FY22E, and FY23E respectively, while net losses are forecasted to decrease from RMB1,542mn in FY21E to RMB575mn in FY23E.
- Share Performance: The share price has experienced a decline of -32.4% over the last month, -49.5% over the last three months, and -60.7% over the last six months, relative to the market.
- Ownership Structure: Key shareholders include Ping An Insurance (38.43%), Management (18.33%), Hopson (9.02%), and Other shareholders (34.22%).
Key Financial Information
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue (RMB mn) |
5,065 |
6,866 |
7,355 |
8,797 |
11,082 |
| YoY growth (%) |
52 |
36 |
7 |
20 |
26 |
| Net income (RMB mn) |
(734) |
(948) |
(1,542) |
(977) |
(575) |
| EPS (RMB) |
N/A |
(0.92) |
(1.34) |
(0.85) |
(0.50) |
| Consensus EPS (RMB) |
- |
- |
(1.40) |
(1.07) |
(0.68) |
| P/S (x) |
11.3 |
8.3 |
4.3 |
3.6 |
2.9 |
| ROE |
(7.4) |
(7.4) |
(10.2) |
(7.0) |
(4.3) |
| Net gearing (%) |
Net cash |
Net cash |
Net cash |
Net cash |
Net cash |
CMBIS Ratings
- BUY: Stock with potential return of over 15% over the next 12 months.
- HOLD: Stock with potential return of +15% to -10% over the next 12 months.
- SELL: Stock with potential loss of over 10% over the next 12 months.
- NOT RATED: Stock not rated by CMBIS.
- OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
- MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
- UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
Financial Statements Highlights
Income Statement
| Item |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue |
5,065 |
6,866 |
7,355 |
8,797 |
11,082 |
| Online medical services |
858 |
1,565 |
2,438 |
3,462 |
4,847 |
| Consumer healthcare |
1,112 |
1,383 |
1,667 |
2,051 |
2,604 |
| Health mall |
2,902 |
3,714 |
3,019 |
3,019 |
3,321 |
| Gross profit |
1,171 |
1,864 |
2,027 |
2,545 |
3,388 |
| Net profit |
(747) |
(949) |
(1,541) |
(977) |
(575) |
Cash Flow Summary
| Item |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Operating cash flow |
(504) |
(1,102) |
(1,196) |
(883) |
(423) |
| Investing cash flow |
4,477 |
(2,497) |
74 |
47 |
35 |
| Financing cash flow |
9 |
6,922 |
(7) |
(6) |
(6) |
| Net change in cash |
3,981 |
3,323 |
(1,130) |
(841) |
(394) |
Balance Sheet
| Item |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Non-current assets |
3,901 |
3,307 |
3,293 |
3,269 |
3,239 |
| Current assets |
8,478 |
15,256 |
13,770 |
13,021 |
12,897 |
| Current liabilities |
2,665 |
2,668 |
2,624 |
2,743 |
3,079 |
| Total net assets |
9,669 |
15,856 |
14,399 |
13,507 |
13,017 |
Key Ratios
| Ratio |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Gross margin (%) |
23 |
27 |
28 |
29 |
31 |
| Pre-tax margin (%) |
(14) |
(14) |
(21) |
(11) |
(5) |
| Net margin (%) |
(14) |
(14) |
(21) |
(11) |
(5) |
| ROE (%) |
(7.4) |
(7.4) |
(10.2) |
(7.0) |
(4.3) |
| ROA (%) |
(5.9) |
(6.1) |
(8.7) |
(5.9) |
(3.5) |
Analyst Certification
The research analyst certifies that all views expressed in the report accurately reflect their personal views and that no part of their compensation is related to the specific views in this report. The analyst also confirms that they have not traded in the stock covered in this report within 30 days prior to the report's release and will not do so within 3 business days after release.
Risk Disclaimer
There are risks involved in transacting in any securities. The information provided is not suitable for all investors and does not constitute individually tailored investment advice. Past performance is not indicative of future performance, and actual events may differ materially from those in the report. Investors are advised to consult with a professional financial advisor and to independently evaluate the investments and strategies mentioned.
