Ping An Healthcare's Profitability Improves but Long-Term Growth Questions Remain; Retain HKD 18 FVE

We keep our HKD 18 fair value estimate after Ping An Healthcare reported second-half 2022 revenue and profitability in line with previous company guidance released in February. Revenue of CNY 3.33 billion was in line with our and PitchBook expectations of CNY 3.27 billion and reflects a 7% decline year on year. The firm also reported second-half 2022 recurring operating loss of CNY 526 million, also in line with our expectations. Profitability improved as recurring operating loss margin narrowed 1,000 basis points to negative 16%. While the results were unsurprising given previous guidance, it is surprising that the company hopes to break even in 2023. While breakeven is not out of reach, it will hinge on the company adding incremental corporate clients at a similar rate as the second half of 2022, when it gained 210 clients. We believe that average revenue per corporate client also needs to remain relatively stable in 2023 for breakeven, given it declined 36% year on year in 2022. We are modeling Ping An Healthcare to achieve operating profit in 2024, but believe there could be downside risk to our valuation if it cannot add enough clients or its revenue per client goes down significantly.