【Company Research】PA Good Doctor (1833 HK) – Building comprehensive healthcare ecosystem

One-stop portal of healthcare ecosystem. PA Good Doctor leverages on its sizable in-house medical team and its proprietary AI-based medical system to provide users with timely high-quality medical services, covering 24/7 end-to-end services including online consultation, prescription, referral, appointment, second medical opinion and 1-hour drug delivery. The Company also provides comprehensive consumer healthcare services, online health mall, health management and wellness interaction services. As of 2019, PA Good Doctor recorded 315.2mn registered users and generated 673.8mn consultation records, becoming the largest mobile medical application in China. PA Good Doctor enjoys significantly larger online traffic, higher user stickiness and larger new user acquisitions than other major online healthcare platforms. We believe PA Good Doctor’s dominant market position was mainly due to its strong competitiveness in online medical consultation services.

Significant synergies with Ping An Group. Ping An Group has an extensive customer base with approximately 200mn individual customers and 516mn online users by end-2019. PA Good Doctor worked with Ping An Group to provide insurance customers with value-added healthcare services complementary to insurance products. As of end-2019, the Company has accumulated over 2mn members, which laid a solid foundation for monetization in the future. In addition, leveraging Ping An Group’s 1.2mn life insurance agent network, PA Good Doctor effectively markets its products and services among customers of Ping An Group.

Riding the policy tailwind. Chinese authorities are taking increasingly active attitude to online healthcare industry. We believe policies will be gradually loosened in mainly three aspects: 1) allowing patients to receive initial diagnosis for common diseases from online hospitals; 2) permitting online sales of prescription drugs; 3) allowing basic medical insurance reimbursement for online medical consultations and purchase of prescription drugs. As a first mover, PA Good Doctor has operated various types of online hospitals and established close cooperation with many local governments.

Maintain strong growth momentum. We expect total revenue to grow 37%/ 44%/ 44% YoY to RMB6.93bn/ RMB9.95bn/ RMB14.31bn in FY20E/21E/22E, mainly driven by the fast-growing online medical services. Thanks to increasing economic scale, we expect the Company to book RMB709mn/RMB368mn net losses in FY20E/21E and RMB409mn net profit in FY22E.

Initiate BUY with TP of HK$149.5. We derive TP of HK$149.5 based on an 8-year DCF model (WACC:9.0%, terminal growth rate: 5.0%).