Initiating No-Moat Ping An Good Doctor With FVE HKD 18; Lack of Demand Hurts New Business Model

We are initiating no-moat Ping An Good Doctor with a fair value estimate of HKD 18, which is close to the current market value. We do not see any near-term catalysts that will cause valuation to increase sharply as we expect only modest growth in an underpenetrated market in which we estimate the company to only have about 1% market share. We do not see any differentiation in its core business that contributes to its lack of moat as it competes in a highly competitive industry with low switching costs. The company recently changed its business model and is no longer focused on healthcare e-commerce or online consultations contrary to the larger peers in the industry such as JD Health or WeDoctor, but instead it changed its focus to selling health management organization services to large corporations and enterprises that then offer the products to their employees. Essentially, the company is now focused on selling healthcare services, mainly private health insurance that historically has a lack of switching costs. We believe that the company changed its business strategy because it was competitively lagging JD Health and AliHealth in its e-commerce business and faced intense undifferentiated competition from the online consultation side. Despite the pivot in business model, we simply do not believe that there is enough demand for Ping An Good Doctor’s new services that will materially change the growth outlook and impact valuations from current levels.