20221103-招银国际-叮当健康-09886.HK-Pioneer_in_China_s_on-demand_retail_pharmacy_industry_66页_3mb

Dingdang Health (9886 HK) Summary

Core Content

Dingdang Health is a leading player in China's on-demand digital healthcare service industry, known for its hybrid online-to-offline (O2O) business model that integrates offline pharmacy networks with online services. The company provides a comprehensive range of on-demand healthcare products and services, including drug express, online medical consultation, and chronic disease management.

Key Information

• Market Position:
  • Largest product and service provider in China's on-demand digital pharmacy industry by revenue with a market share of 6.8% in 2021 (Frost & Sullivan).
  • Top-three service provider in digital retail pharmacy with a market share of 1.0% in 2021.
• Network and Partnerships:
  • As of Jun 2022, operates 350 smart pharmacies across 17 cities.
  • Connects with around 900 internal/external doctors, 427 pharmacists, 4,800+ pharmaceutical companies, and 2,600+ professional riders.
• Business Model:
  • Hybrid O2O model, differentiating from B2C-focused competitors like JD Health and Ali Health.
  • Emphasizes timely delivery and user-centric services.
• Revenue Growth:
  • Revenue is forecasted to grow at 24%, 33%, and 30% in 2022E, 2023E, and 2024E, respectively, with a CAGR of 29% from 2021 to 2024E.
  • Adjusted net loss is expected to narrow from RMB178mn in 2022E to RMB17mn in 2024E.
• Valuation:
  • Target price of HK$15.73 based on a 10-year DCF model (WACC: 9.7%, terminal growth: 3.0%).
• User Base:
  • 35.7 million registered users as of Jun 2022.
  • ARPU (average revenue per paying user) for pharmaceutical and healthcare business increased at a CAGR of 21.9% from 2018 to 2021 and accelerated to 53% YoY growth in 1Q22.
• Product Offerings:
  • Drug express services: 28-minute delivery in covered regions, with sales orders increasing from 14.1mn in 2018 to 60.5mn in 2021 (CAGR: 62.5%).
  • Prescription drugs account for 33% of pharmaceutical and health business revenue in 1H22.
  • Plans to expand product variety and service offerings, including home medical devices, cross-border e-commerce, and point-of-care testing.

Main Points

• Growth Strategy:
  • Focus on expanding user base, geographic coverage, and service offerings.
  • Utilizes both organic growth and acquisitions to enhance its smart pharmacy network.
  • Collaborates with third-party online platforms and hospitals to increase reach and brand awareness.
• Operational Efficiency:
  • Smart pharmacies generate higher sales per unit area compared to traditional offline pharmacies.
  • Revenue from online direct sales in 2021 was split as 31% from self-operated platforms and 69% from third-party platforms.
• Profitability Outlook:
  • Adjusted net margin was -3.3% in 1H22, but is expected to improve due to economies of scale.
  • Forecast to break even in 2024E.
• Technology and Data:
  • Proprietary technology platform with strong data analytics capabilities.
  • Uses data to customize strategies for each pharmacy in terms of site selection, scheduling, and operations.
  • Invested RMB96mn in R&D in 2021, or 2.6% of total revenue.

Investment Thesis

• Initiate at BUY:
  • Based on strong growth momentum and improving profitability prospects.
  • The company is positioned to benefit from the growing acceptance of digital healthcare services in China.
• Risks:
  • Uncertainty in future profitability.
  • Reliance on third-party platforms, which may limit control.
  • Regulatory changes could impact operations.

Strategic Resources

• Backed by Renhe Group, which provides a broad distribution network, strong retail sales capacity, and a reliable OEM supply chain.
• Founder Wenlong Yang has over 20 years of experience in the medical industry.

Key Highlights

• 24/7 Service: Offers 24/7 on-demand drug delivery and medication guidance.
• Ecosystem: Connects users, medical professionals, pharmacies, pharmaceutical companies, and insurance firms.
• Geographic Expansion: Expands into second-tier and selected third-tier cities.
• User Engagement: Focuses on multi-channel engagement and holistic healthcare services.

Financial Summary

Stock Data

• Market Cap: HK$15,990.4 million
• Total Issued Shares: 1,341.5 million
• Current Price: HK$11.92
• Target Price: HK$15.73
• Upside/Downside: 32.0%

Shareholding Structure

• Wenlong Yang: 49.2%
• China Merchants Bank: 7.1%