Alibaba Health Information Technology: Comprehensive Analysis and Future Prospects

UOB Kay Hian Private Limited

Friday, 15 November 2024

Alibaba Health Information Technology, the leading internet healthcare company in China, has shown an impressive financial performance in the first half of the fiscal year 2025 (1HFY25). This detailed analysis dives into the company’s recent results, growth drivers, financial metrics, and future prospects.

Company Overview

Alibaba Health Information Technology operates across eight categories of healthcare-related e-commerce on the Tmall platform. As of the fiscal year 2025, it is the prominent player in the internet healthcare segment in China.

Stock Performance

The company’s stock is currently trading at HK\$4.04 with a target price of HK\$5.00, indicating an upside potential of 23.9%. The stock has seen a 52-week high/low of HK\$6.30/HK\$2.59 and shows a significant positive trend over the past few months.

1HFY25 Financial Highlights

In the first half of the fiscal year 2025, Alibaba Health Information Technology reported a revenue growth of 10.2% year-over-year (yoy), reaching Rmb14.3 billion. The adjusted net profit surged by 52.2% yoy to Rmb978 million, aligning with the company’s and consensus estimates.

Revenue Breakdown

• Pharmaceutical Direct Sales Business: Revenue grew by 5.9% yoy to Rmb12.1 billion.
• Pharmaceutical e-Commerce Platform Business: Revenue surged by 67.5% yoy to Rmb1.7 billion.
• Healthcare and Digital Services Business: Revenue declined by 9.4% yoy to Rmb442 million.

Profit Margins

The gross profit increased by 23.2% yoy to Rmb3.5 billion, driven by higher revenue contributions from high-margin non-drug healthcare products, improved pricing capabilities, and the integration of the marketing business. The gross margin improved by 2.7 percentage points (ppt) to 24.8% in 1HFY25.

Segmental Performance

Pharmaceutical Direct Sales (1P) Business

This segment experienced moderate revenue growth of 5.9% yoy. The higher revenue contribution from non-drug healthcare products, which accounted for around 50% of the revenue in 1HFY25, was a significant growth driver.

Pharmaceutical e-Commerce Platform (3P) Business

The revenue for this segment surged by 67.5% yoy, primarily due to the injection of Alimama’s marketing business, which brought continued synergies and improved the completeness of the company’s platform business model.

Healthcare and Digital Services Business

This segment saw a revenue decline of 9.4% yoy due to the streamlining of certain innovative businesses. The direct sales stores had over 78 million members by the end of September 2024, with the number of stock-keeping units (SKUs) rising by 6.1% yoy to 810,000.

Future Growth Prospects

Alibaba Health Information Technology is guiding a revenue growth of 10% yoy for FY25 and double-digit growth for FY26. The company expects strong sales growth for non-drug healthcare products and over-the-counter (OTC) drugs despite weak economic conditions. The prescription drugs business is also anticipated to contribute to long-term sales growth with the introduction of new products such as Sinqi Pharma’s atropine eye drops and Organon’s Mercilon.

Market Share Expansion

The company expects continued market share expansion for its 3P business with the integration of Alimama’s marketing business, which is improving merchant customer experiences. The company is confident in achieving its FY25 revenue growth of 10% yoy and targets double-digit revenue growth for FY26.

Earnings Outlook

Alibaba Health Information Technology expects strong earnings growth in FY25-26, driven by improved profitability for the 1P segment and continued market share expansion for the 3P segment. The company anticipates a 15% and 31% compound annual growth rate (CAGR) for its revenue and adjusted net profit in FY25-27. The marketing business, with a high after-tax net margin of 75%, is expected to serve as a key earnings growth engine in the upcoming years.

Key Financial Metrics

Valuation and Recommendation

UOB Kay Hian maintains a BUY recommendation for Alibaba Health Information Technology, with a higher target price of HK\$5.00. The valuation is based on 2.2x P/S and 30.9x PE (1x PEG) for FY26F. The company is currently trading at 1.8x FY26 P/S and 22.2x FY26 PE, while its peer JD Health is trading at 1.2x FY25 P/S and 18.7x FY25 PE.

Share Price Catalysts

• Solid FY25 revenue growth
• Strong online demand for healthcare products
• Bright earnings outlook and continued synergies of the marketing business

Conclusion

Alibaba Health Information Technology has demonstrated robust financial performance in 1HFY25, with significant growth in revenue and profit margins. The company’s strategic focus on non-drug healthcare products, prescription drugs, and the integration of Alimama’s marketing business positions it for continued growth in the coming years. With a strong earnings growth outlook and a BUY recommendation from UOB Kay Hian, Alibaba Health Information Technology is poised to remain a key player in the internet healthcare industry in China.