Company Reports

We maintain our fair value estimate for Ping An Health at HKD 10 per share after it reported first-half 2024 revenue of CNY 2.1 billion, representing an 8% year-on-year decline. Revenue for the company has now declined year on year for the last six semi-annual reporting periods. While the decline for first-half 2024 was not as severe as full-year 2023, we are unsure how the company can turn around given that management previously hinted that we would begin to see revenue normalize starting in 2024 as the company transitions its business toward selling healthcare services and insurance rather than healthcare products. However, revenue continues to decline as health service revenue declined by 20% year on year while medical service revenue only increased by 3% at the same time.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term.

We lower our fair value estimate for Ping An Health by 44% to HKD 10 after it reported second-half 2023 revenue of CNY 2.4 billion, representing a 29% year-on-year decline. While a revenue decline was expected—as the company transitions its business toward selling healthcare services and insurance rather than healthcare products—we are alarmed by the user decline in the second half of 2023 to 40 million from 45 million in just six months, which highlights a lack of demand for the company’s services. Core users from the financial services side of its parent dropped by 10 million during the same period. Further compounding the issue, average pricing per corporate user declined by 34% year on year, indicating that there is also a problem with pricing power. The company indicated that there are still some nonstrategic users on its platform, implying there could be further user declines in the next year. We are unclear whether this will also imply further revenue declines, but this nevertheless highlights further near-term risks for revenue growth in the short term. Our new valuation is also lower than the company’s current net cash level and implies that there should be further expected loss at the current pace of operations. We expect further losses to continue for at least the next three to five years, with no visibility of breakeven.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to decline year on year in 2022.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to decline year on year in 2022.

We maintain our fair value estimate at HKD 18 for no-moat Ping An Health although first-half 2023 revenue disappointingly fell 20% year on year to CNY 2.2 billion, a 33% decline sequentially. Management indicates that restructuring is complete and the development phase of its new business began in July, so we should see a lesser drag to second-half performance. The market appears to like this news, with shares up over 5% on Aug. 25. At the current share price, we believe that the market is already assuming that the company can achieve modest growth, but we believe it may be too early to assume success. We note that average medical service revenue per client declined by 43% year over year in the June half, which suggests that robust long-term revenue growth may still be a challenge. We think the shares are fairly valued and would prefer to wait for more tangible signs of a durable growth recovery.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to decline year on year in 2022.

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.

We retain our fair value estimate of HKD 18 for Ping An Healthcare after the company indicated 2022 revenue will likely come in at CNY 6.1 billion. This is lower than its prior guidance of CNY 6.5 billion, given back in third-quarter 2022. This translates to a 16% year-on-year decline versus our previous estimate of a 12% decline. It appears widespread pandemic controls affected Ping An Health more than we expected in the second half of 2022. Despite an increase of 400 corporate clients during the year, average revenue per corporate client decreased to CNY 2,000 compared with CNY 4,100 in 2021 in our model—given weak spending sentiment for healthcare and checkup services, in our view. We think gross margin in the second half of 2022 should be flat versus the first half. While we believe both revenue growth and gross margins would modestly rebound in 2023 with the removal of COVID-19 measures, we view that these catalysts are already incorporated in the current valuation. We believe that the temporary spike in valuation during December 2022 was frothy and reaffirm our view that the lack of short-run catalysts will continue to pressure its valuation.

Ping An Healthcare and Technology, or Ping An Health, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to decline year on year in 2022.

Ping An Good Doctor, or PAGD, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to increase 6% year on year in 2022.

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.

Ping An Good Doctor, or PAGD, pivoted its business model at the end of 2021 to become more like a health maintenance organization, or HMO, model for where it now focuses on providing healthcare services to corporations and individuals, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and various services to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up and less on e-commerce. Despite the change, we still do not expect robust demand in the near term and expect revenue to increase 6% year on year in 2022.

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.

Ping An Good Doctor, PAGD, pivoted its business model at the end of 2021 to become more like an HMO model for where it now focuses on providing healthcare insurance and services to corporations, away from its previous model where it was a one-stop shop that provided online consultations, healthcare e-commerce, hospital bookings, and insurance to individuals. The platform still makes these online services available to single users, but its focus is now on adding incremental users via selling its HMO product through corporations signing up. Despite the change, we still do not expect robust demand in the near term and expect revenue to increase 6% year on year in 2022.