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Summary of ALI HEALTH (241 HK) Company Report

Core Content

This report provides an in-depth analysis of ALI HEALTH (241 HK), focusing on its business strategy, financial performance, and valuation. The company is part of the Alibaba Group and operates under the "New Retail" strategy, which aims to integrate online and offline services to create a comprehensive healthcare ecosystem.

Main Business Areas

ALI HEALTH's business is divided into four key areas:

1. Pharmaceutical Business: Combines self-operation and platform services, with a focus on expanding offline pharmacy capabilities through online tools and O2O strategies. It also includes the "Ma Shang Fang Xin" product tracking platform.
2. Internet Healthcare: Offers services like appointment booking, payment, and health consultation through platforms such as Alipay. It aims to integrate online and offline services for a seamless healthcare experience.
3. Smart Healthcare (AI): Leverages AI and big data to enhance healthcare services, including the development of the ET Medical Brain 2.0 and Cloud HIS systems.
4. Consumer Healthcare: Targets aesthetic medicine, physical exams, vaccinations, and oral health, aiming to become a leading O2O platform for consumer healthcare services.

Key Financial Highlights

• Revenue Growth: 1HFY19 revenue grew by 111%, driven by strong performance in both self-operation and platform businesses.
• Revenue Projections:
  • Consolidated revenue is expected to grow from RMB2,443mn in FY18 to RMB18,713mn in FY22.
  • Adjusted net profit is projected to increase from RMB59mn in FY19 to RMB860mn in FY22.
• Valuation:
  • Maintained BUY rating with a target price of HK$8.1.
  • SOTP valuation includes a 20% capital allocation premium.
  • The company's financial metrics are used to estimate future performance and growth.

Strategic Initiatives

• "New Retail" Strategy:
  • Empowers pharmacies to expand service radius and shorten delivery times.
  • Enhances compliance through tracking codes and improves efficiency with cloud services.
• Collaboration with Alipay:
  • Launching a medical assistant on Alipay to enhance online healthcare services.
  • Integrating with Alipay's ecosystem to drive user engagement and streamline services.
• Technology Integration:
  • Utilizes Alibaba Cloud and Damo Academy for AI and big data solutions.
  • Develops in-house and open platforms to support diverse healthcare needs.

Market Position and Growth Potential

• Market Penetration:
  • The pharmaceutical e-commerce market in China has a low penetration rate of 2% in 2017.
  • The company currently holds 50% of the market share and aims to increase it further.
• Regulatory Support:
  • Positive policies from NMPA support the growth of online pharmacies and internet healthcare.
• Competition and Synergy:
  • Strong synergies with Alibaba Group provide a competitive edge.
  • The company is well-positioned to capture market share in the OTC/healthcare supplement market.

Financial Metrics

Investment Ratings

• Industry Rating: OVERWEIGHT (expect sector to outperform the market over the next 12 months)
• Company Rating: BUY (expect stock to generate 10%+ return over the next 12 months)

Conclusion

ALI HEALTH is positioned to benefit from the "New Retail" strategy and strong integration with the Alibaba Group, offering significant growth potential in the pharmaceutical and healthcare sectors. The company's financial performance has shown strong improvement, and its strategic initiatives are expected to drive further growth and market share expansion.