(60 Pages, 92 graphs and tables)

• Yes, we see the recent announced policies with “extending social health insurance coverage to online medical services” and “decontrol of online prescription drug sales” will particularly benefit Ping An Good Doctor (PAGD) and AliHealth.
• We argue that strong parent companies’ supports and synergies to achieve better operating efficiency through economies of scale and cross-selling opportunities are underestimated by market, which result in lower profitability street estimates.
• We initiate the sector as BUY, and rate BUY for two market leaders PAGD/AliHealth with TP of HK$ 62/HK$ 11.

Latest policies are particularly favour online healthcare platform
“Extending social health insurance coverage to online medical services” and “Decontrol of online prescription drug sales” are two major policies in C2H19. We view these two policies particularly benefit PAGD on its online medical services with volume increase, and AliHealth on expanding to prescription drugs sales.
 
Strong parent companies set high entry barrier
AliHealth is getting strong traffic support from its parent company Alibaba mainly through Taobao and Alipay. PAGD is leveraging on Ping An Group’s large amount of business clients to create cross-selling opportunities. We believe strong parent companies supports set higher entry barrier for both AliHealth and PAGD.
 
On the way to better profitability
We expect AliHealth could expand its profit margin from additional revenue contribution from prescription drugs sales with minimal incremental opex given continuous support from Alibaba. PAGD is expected to turn to be profitable later in FY22 as its business-client focus with naturally thin margin, consistent efforts in building up in-house medical team, as well as membership products promotion.
 
Sector calls on leading players to outperform
We favour AliHealth than PAGD in the near term given it is well-positioned to capture the tailwind and further improve profitability, as well as cheaper valuation of 6.3x 1-yr forward PS than PAGD’s 7.4x. PAGD’s profitability still needs to take some time, but HMO potential along with strong synergy with Ping An Group leaves long-term opportunities.

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