Company Reports

We view no-moat Medlive as a leader in the digital healthcare marketing industry with about 21% market share, according to its prospectus. We expect Medlive's 3-5 year revenue CAGR to be 20% starting in 2023, respectively, driven by incremental clients in its precision marketing solutions but short-term anti-graft policies may affect demand. Medlive revenue correlates with the growth of China’s healthcare industry, which is expected at 10% per year between 2021 and 2026 according to iResearch, as industry expansion should lead to larger advertising budgets. The digital marketing business is expected to be the lion share of revenue long term. We expect net margin expansion to 30% and believe that Medlive can reach its target by leveraging the know-how from its joint venture with M3, which has already provided the operational blueprint from its success and dominance in Japan. The company has the largest physician user base among its peers, but it remains to be seen whether this will lead to revenue acceleration. Medlive’s success will be predicated by whether it can continue to grow its client base and if its advertising products are effective enough to justify greater budgeting from its clients.

We raise our fair value estimate for Medlive to HKD 11 per share from HKD 10 after it reported first-half 2024 revenue of CNY 243.4 million, representing a 40% year-on-year growth. We believe that anti-graft concerns that discouraged Medlive’s ability to reach out to new clients have now likely normalized, given that the company increased its corporate customer base by 24 clients year on year to 158 and the number of projects that it was tasked with marketing by 83 products to 336 during the same time. There was also a more active user base as paid clicks increased 40% year on year to 5.98 million, and the average MAU increased to 2.5 million from 2.2 million. The increase in activity on the platform should reflect the easing of policy headwinds as the crackdown in the healthcare sector since late 2023 has disincentivized many physicians to prescribe and sign contracts for new drugs as they do not want to appear to be receiving kickbacks. Medlive saw an operating margin expansion of 420 basis points year on year as revenue scaled up, driven by its corporate solutions business specializing in targeted drug advertising, which accounts for 93% of revenue.

We maintain our fair value estimate for Medlive at HKD 10 per share after it reported second-half 2023 revenue of CNY 238 million, representing 31% year-on-year growth. More importantly, we are encouraged that its client base returned to growth and increased by 52 clients—a 40% year-on-year increase—which was a turnaround from the first half of 2023, where Medlive's client base declined from the end of 2022. The number of physicians on the platform also increased to 4.0 million from 3.7 million a year ago, and paid clicks increased to 9.7 million from 7.2 million. The number of healthcare products advertised on the platform also increased by 35% year on year to 386 from 284. We are positive about the increase in activity on the platform and believe it represents mitigation of policy headwinds, as antigraft measures in the healthcare sector earlier this year disincentivized many physicians from prescribing and purchasing new drugs on concerns of being questioned by the government. The number of new clients should reflect a renewed interest in drug development in the pharmaceutical sector. Given that Medlive receives 91% of its revenue from the business that facilitates targeted drug advertising, we think this should provide near-term tailwinds to the firm.

We recently spoke with the management teams of several healthcare companies to get an update on the progress of the anticorruption movement in China’s healthcare sector to assess how this could affect companies under our coverage for the long term. We believe that this will likely become a long-term driver for companies that provide data-driven studies to facilitate research and drug promotion, such as Medlive and Yidu, as they provide doctors a legitimate medium for them to prescribe medicines that could otherwise be perceived as taking kickbacks from pharmaceutical companies. We believe that the anticorruption movement is likely a positive for the long-term clinical development of drugs and this should provide transparency for hospital policies. As for healthcare e-commerce companies such as JD Health and Alibaba Health, we believe the initiative is likely to have less of an impact on their revenue growth in the long term, as they rely on greater healthcare retail demand. However, we think the policies could provide greater consumer confidence for online retail—and we estimate penetration of healthcare e-commerce is low at 5%-10% in China.

We lower our fair value estimate for Medlive to HKD 10.00 from HKD 13.20, despite it reporting first-half 2023 revenue of CNY 173 million. This was a 31.5% increase year on year, in line with its full-year revenue guidance of 30% growth. While the stock reacted by gaining 6% on Aug. 30—which likely signals greater investor confidence that company operations are normalizing and recovering after the pandemic, where it lost 20% of clients in first-half 2022—we believe China’s antigraft crackdown in the healthcare sector could create new risks that could significantly lower near-term demand. While the company did not change its full-year guidance, our impression was that it was uncertain if it could meet its prior full-year guidance. We also believe that the lower demand and the uncertainty could lower Medlive's long-term steady-state operating margin of 30%. Given that the firm generates 91% of revenue from facilitating targeted pharmaceutical advertisements to doctors, we are pre-emptively lowering our revenue growth estimates for 2023 and 2024 to mid-20% from low-30%, which lowers our valuation.

We view no-moat Medlive as a leader in the digital healthcare marketing industry with about 21% market share, according to its prospectus. We expect Medlive's 3-5 year revenue CAGR to be 30% 2023, respectively, driven by incremental clients in its precision marketing solutions but short-term anti-graft policies may affect demand. Medlive revenue correlates with the growth of China’s healthcare industry, which is expected at 10% per year between 2021 and 2026 according to iResearch, as industry expansion should lead to larger advertising budgets. The digital marketing business is expected to be the lion share of revenue long term. We expect net margin expansion to 30% and believe that Medlive can reach its target by leveraging the know-how from its joint venture with M3, which has already provided the operational blueprint from its success and dominance in Japan. The company has the largest physician user base among its peers, but it remains to be seen whether this will lead to revenue acceleration. Medlive’s success will be predicated by whether it can continue to grow its client base and if its advertising products are effective enough to justify greater budgeting from its clients.

We are increasing our fair value estimate for Medlive to HKD 13.60 from HKD 12.40 after the company reported second-half revenue of CNY 182 million, reflecting an 18% year-on-year increase. These results assuage our concerns after the first half of 2022 showed sluggish year-on-year revenue growth of just 1%, which we thought was due to lack of demand and the impact of competition due to the fragmentation of the industry. However, we now believe the slowdown was due to the temporary effect of healthcare clients cutting advertising and marketing costs during the pandemic. Our more optimistic tone reflects Medlive’s addition of 84 clients during the second half of 2022, bringing its total to 130 clients. We believe the significant uptick in client onboarding reflects the growth trajectory in the near term and expect further incremental clients to be onboarded to its portfolio. In addition, the company also added 103 new products from its clients to the marketing solutions business. The company guided to a 3 to 5-year revenue CAGR of 30%, and we believe that Medlive's revenue growth appears to be maintainable for now as the company expects to increase the amount of contracted revenue per client in the near term as it deepens relationships with older clients.

We view no-moat Medlive as a leader in the digital healthcare marketing industry with about 21% market share, according to its prospectus. We expect Medlive's 3-5 year revenue CAGR to be 30% 2023, respectively, driven by incremental clients in its precision marketing solutions. Medlive revenue correlates with the growth of China’s healthcare industry, which is expected at 10% per year between 2021 and 2026 according to iResearch, as industry expansion should lead to larger advertising budgets. The digital marketing business is expected to be the lion share of revenue long term. We expect net margin expansion to 30% and believe that Medlive can reach its target by leveraging the know-how from its joint venture with M3, which has already provided the operational blueprint from its success and dominance in Japan. The company has the largest physician user base among its peers, but it remains to be seen whether this will lead to revenue acceleration. Medlive’s success will be predicated by whether it can continue to grow its client base and if its advertising products are effective enough to justify greater budgeting from its clients.

We are maintaining of fair value estimate at HKD 12.40 for Medlive after the company reported only a 1% year-on-year revenue increase for the first half of 2022. Medlive attributed the modest increase to lockdown headwinds and believes that robust growth will return in the second half. We believe the stock is fairly valued currently, and before we increase our fair value estimate, we would like to see Medlive to return to at least double-digit growth again.

We view no-moat Medlive as a leader in the digital healthcare marketing industry with about 21% market share, according to its prospectus. We expect Medlive revenue to increase 19% and 24% in 2022 and 2023, respectively, driven by incremental clients in its precision marketing solutions. Medlive revenue correlates with the growth of China’s healthcare industry, which is expected at 10% per year between 2021 and 2026 according to iResearch, as industry expansion should lead to larger advertising budgets. The digital marketing business is expected to be the lion share of revenue long-term. We expect net margin expansion to 30% and believe that Medlive can reach its target by leveraging the know-how from its joint venture with M3, which has already provided the operational blueprint from its success and dominance in Japan. The company has the largest physician user base among its peers, but it remains to be seen whether this will lead to revenue acceleration. Medlive’s success will be predicated by whether it can continue to grow its client base and if its advertising products are effective enough to justify greater budgeting from its clients.

We are initiating on Medlive with a no-moat rating and a fair value estimate of HKD 12.40.

We view no-moat Medlive as a leader in the digital healthcare marketing industry with about 21% market share, according to its prospectus. We expect Medlive revenue to increase 19% and 24% in 2022 and 2023, respectively, driven by incremental clients in its precision marketing solutions. Medlive revenue correlates with the growth of China’s healthcare industry, which is expected at 10% per year between 2021 and 2026 according to iResearch, as industry expansion should lead to larger advertising budgets. The digital marketing business is expected to be the lion share of revenue long-term and leads to an attractive net margin profile of 20% for the company. The company expects net margin expansion to 30%, similar to pre-pandemic levels, and we believe that Medlive can reach its target by leveraging the know-how from its joint venture with M3, which has already provided the operational blueprint from its success and dominance in Japan. The company has the largest physician user base among its peers, but it remains to be seen whether this will lead to revenue acceleration. Medlive’s success will be predicated by whether it can continue to grow its client base and if its advertising products are effective enough to justify greater budgeting from its clients.