Ping An Good Doctor's Long-Term Outlook Dictated by Slow User Growth; Retain HKD 18 FVE

We maintain our fair value estimate at HKD 18 for Ping An Good Doctor (trading under Ping An Healthcare) after the company reported first-half 2022 revenue of CNY 2.82 billion, which was 4% greater than the consensus estimate of CNY 2.71 billion, but represents a 26% decline year-on-year. The revenue decline was expected as the company is downsizing its e-commerce unit and transforming its business model to focus more on healthcare and wellness management services. Despite the downsizing of the e-commerce business that led to the revenue decline, gross margins rose, given that the e-commerce unit is a low-margin business that dragged down the overall margin profile. This offset the revenue reduction and we expect further margin uplift in second-half 2022, coupled with further year-on-year revenue reduction. We believe that these expectations are already priced in as the share prices of the firm are relatively flat despite the significant revenue decline. Despite the reset, we are not expecting robust growth or short-term catalysts.