Ping An Healthcare and Technology Co Ltd (SEHK: 1833), also known as Ping An Good Doctor, just reported earnings. Here’s why I think there’s more upside. –
As one of the main beneficiaries of Covid-19, the share price of Ping An Healthcare and Technology Co Ltd (SEHK: 1833), also known as Ping An Good Doctor, has grown by 89% since the beginning of the year.
In this article, I’ll take a look at the company’s latest earnings and gauge whether it can sustain the rally.
Overview of first-half results
Thanks to the outbreak of Covid-19, the company reported very upbeat first-half results.
Revenue from its signature online medical services has grown tremendously by 107% year-on-year in the first half of 2020.
Such significant growth led the company’s overall first-half revenue to grow by around 20% year-on-year.
Its monthly paying users (MPUs) has increased by 32% to almost 3 million in June 2020 as consumers switch to an online medical consultation model amid lockdown and social distancing restrictions in China.
The company’s first-half gross profit increased by almost 70% year-on-year with the margin improving from 22% in the first half of 2019 to nearly 30% in the first half of 2020.
Selling and marketing expenses continued to account for the largest portion of the company’s operating expenses. Selling and marketing expenses expanded by 80% year-on-year in the first half of 2020.
Its proportion has increased from around 50% in the first half of 2019 to almost 70% in the first half of 2020, as the company has been actively looking to acquire users.
Although the company is still not profitable, its first-half net loss improved by 22% year-on-year.
Is there still upside?
Similar to the market expectation that technology development and adoption will only accelerate thanks to Covid-19, reliance on online medical consultation platforms is a habit that’s been formed and is unlikely to reverse even after the pandemic.
With the support of the insurance leader, Ping An Insurance Group Co of China Ltd (SEHK: 2318), which is also its major shareholder, the company is in a unique position to monetise from insurance policyholders.
In my opinion, this is Ping An Good Doctor’s key differentiation as compared to its other Hong Kong-listed competitor, Alibaba Health Information Technology Limited (SEHK: 241).
Since the beginning of the year, the share price of Alibaba Health has increased by around 110% (vs. 89% in the case of Ping An Good Doctor).
It’s currently trading at around a 22x price-to-sales (PS) ratio (vs. 18x in the case of Ping An Good Doctor).
It seems that Ping An Good Doctor has underperformed Alibaba Health both in terms of share price gain and its valuation level.
But the focus of Ping An Good Doctor is actually not the same as Alibaba Health. Alibaba Health is more of an online pharmaceutical store given the dominance of Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) in the e-commerce sector.
Meanwhile the core of what Ping An Good Doctor does is based on its (artificial intelligence-driven) online medical consultation platform.
For consumers, seeing a doctor online is a much more significant behavioural change than merely buying medication online.
As such, in my opinion, the upside Ping An Good Doctor can offer is much more than that from Alibaba Health, especially now with Covid-19.
In the long run, I would expect the valuation of Ping An Good Doctor to catch up with and even surpass that of Alibaba Health.
In line with the market’s expectations, Ping An Good Doctor reported upbeat earnings.
As consumers’ behaviour has been changing in favour of what the company offers, and as the trend is not going to reverse after Covid-19, there is still more upside for the stock.
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 Alec Tseung doesn’t own shares of any companies mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020