20180529-招商证券_香港_-阿里健康-00241.HK-Developing_full-range_healthcare_enabling_capabilities,_with_growing_parent_support_7页_1mb

ALI HEALTH (241 HK) Summary

Core Content

Ali Health, a subsidiary of Alibaba Group, has been actively developing its full-range healthcare enabling capabilities, with significant support from its parent company. The company has acquired Tmall's healthcare online marketplace assets, which now account for approximately 60% of Tmall Medicine Hall’s GMV in FY18. This acquisition is expected to enhance Ali Health's ability to provide full-channel marketing capabilities to healthcare merchants, thereby strengthening its leadership in healthcare e-commerce.

Main Points

• Acquisition of Tmall Healthcare Assets:
  Ali Health acquired Tmall's healthcare online marketplace assets (medical devices, healthcare products, adult products, and healthcare services) through the issuance of new shares to the parent company. This acquisition allows Ali Health to control around 60% of the GMV on Tmall Medicine Hall.

• Strategic Implications:
  The acquisition is seen as a sign of Alibaba Group's strong support for Ali Health as its flagship healthcare platform. It also provides Ali Health with enhanced marketing, IT, pharmacist, and government relationship capabilities to better serve healthcare merchants.

• Regulatory Environment:
  The Chinese regulators are exploring a cloud-based exchange system for RX information, which could create new opportunities for Ali Health in the healthcare sector.

• New Target Price (TP):
  The TP has been raised to HK$8.1, reflecting a 13% potential upside from the current price of HK$7.15. This increase is attributed to the 20% capital allocation premium applied to the SOTP valuation due to the growing strategic optionality and support from the parent company.

• SOTP Valuation:
  The SOTP valuation includes multiple components such as e-commerce, marketing, and R&D investments. The valuation for e-commerce is based on a 30x FY22 EV/EBITDA multiple, while marketing is valued at 6x FY22 EV/Sales. The R&D investment is capitalised at 2/3 of the accumulated R&D spending from FY19 to FY22.

Key Financial Information

Financial Metric	FY18 (RMB mn)	FY19E (RMB mn)	FY20E (RMB mn)	FY21E (RMB mn)	FY22E (RMB mn)
Consolidated Revenue	2,443	5,094	8,204	12,656	18,713
Adjusted Net Profit	10	59	266	511	860
EPS Fully Diluted (RMB)	0.00	0.01	0.03	0.05	0.09
PER adj (x)	4315.2	1168.4	265.5	138.0	82.0
PBR (x)	17.5	26.1	23.7	20.1	16.1

Strategic Rationale

• Ali Health now controls the majority of healthcare-related merchant relations on Tmall.
• The acquisition enables the development of full-channel marketing and promotion capabilities.
• Enhanced IT services, pharmacist services, and government relations support are expected to benefit healthcare merchants.
• The company is set to collaborate with 60 out of 100 top 3A hospitals in 2018, indicating deeper integration with the healthcare ecosystem.

Market Position and Growth

• Ali Health's e-commerce segment is growing rapidly, with a 70% GMV growth in Tmall Medicine Hall compared to 29% in Tmall overall in FY18.
• The company's revenue and profit are projected to grow significantly over the next few years, with a 109% YoY increase in FY19E and 61% in FY20E.
• The company's profitability is improving, with an adjusted net profit margin increasing from 0% in FY18A to 4.0% in FY21E.

Investment Rating

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

Conclusion

Ali Health is leveraging its parent company's support and strategic assets to expand its healthcare e-commerce capabilities. The acquisition of Tmall's healthcare marketplace assets is a significant step in this direction, offering potential growth and enhanced market leadership. The updated SOTP valuation reflects a more optimistic outlook, with a target price of HK$8.1. The company is expected to benefit from the evolving regulatory landscape and its integration with the broader Alibaba Group ecosystem.