Alibaba Health Information Technology Ltd (SEHK: 241) shares have had a great 2020. But can they keep going up over the long term? –

While the coronavirus has stretched traditional medical services around the word to breaking point, the virus has also fostered a boom in online medical services in China.

The industry is now predicted to be worth RMB 90 billion (US$12.9 billion) in 2020, with Tencent Holdings Ltd (SEHK:700) and Alibaba Group Holding Ltd (NYSE: BABA) (SEHK:9988) as the lead sponsors of building up this new healthcare ecosystem.

Tencent, for example, has used WeChat Intelligent Healthcare to help patients to conveniently book and follow up their checkups, and also read medical reports (as well as pay bills) through WeChat.

On the other hand, Alibaba Health Information Technology Ltd (SEHK: 241), Alibaba’s healthcare subsidiary, has focused on the prescription drug market – which contributed to 84.76% of the former’s 2020 first-quarter revenue.

Innovative business model

Confronted by the coronavirus pandemic, Ali Health has been enjoying the new normal of patients avoiding physical contact and introduced a mobile application that enables customers to upload a photo of their prescription, then receive price bids from retail pharmacies.

The patient will then pay through Alipay after the customer chooses which retailer they prefer. This launch has been a huge success in Hebei Province and facilitated the purchase of prescription drugs that were around 20% below average market prices.

With this online prescription app, Ali Health would hold a market share of around RMB 21 billion in the prescription drugs space.

The above success will complement Ali Health’s already-positive internet healthcare business which generates RMB 38.4 million, which was up 221.2% year-on-year.

With these astonishing business results, the internet + healthcare services business model is fundamentally strong and should continue to grow in post-coronavirus China.

Policy tailwinds

Given the news from the General Office of the State Council in China to further optimise Chinese brick-and-mortar businesses, the government proposed to add eligible internet medical services to the medical insurance reimbursement scheme.

This news, released earlier this week, has boosted internet healthcare stocks like Ali Health and the popular online tele-medicine provider Ping An Healthcare and Technology Co Ltd (SEHK: 1833), also known as Ping An Good Doctor.

Other than favourable local government policy, the FTSE China 50 Index reviewed its portfolio and added Ali Health as a result of its game-changing role in China’s digital economy.

With strong support from its parent Alibaba, Ali Health is riding on the digitalisation wave to enhance its healthcare infrastructure.

With the recent share placement of HK$8.1 billion (US$1 billion) early this year, CEO Zhu Shunyan has been working on expanding its pharmaceutical products to foods for special medical purposes on Tmall’s Pharmaceutical Platform.

This brings direct benefits to Ali Health and strengthens the source of product supply to the business.

Foolish conclusion

Alibaba Health’s business performance in the second half of the 2020 fiscal year was better than market expectations, mainly driven by the strong growth of its pharmaceutical self-operated business and Internet medical services.

Under favourable policies, Ali Health will continue to grow its online drug sales and internet medical services in the future, outperforming its peers in earnings. On the back of this, I believe the share price will continue to advance over the long run.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Edmund R doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020