- Strong growth in core online medical service business while non-core health mall business remained largely flattish. PA Good Doctor recorded RMB2.74bn total revenue in 1H20, up 21% YoY, and MAU rose 7.3% YoY. The core online medical service business delivered 107% YoY growth to RMB695mn, contributing 25% of the total revenue and 46% of the total gross profit. The non-core health mall business recorded 4% YoY growth, accounting for 55% of the total revenue and 17% of the total gross profit. The Company has strategically directed online traffic towards online medical services instead of health mall. In 1H20, gross margin improved significantly by 8.3ppts YoY to 29.9% due to accelerating monetization and higher proportion of revenue from high-margin online medical service business. Total net loss shrank from RMB273mn in 1H19 to RMB214mn in 1H20, accounting for 30% of our full-year net loss forecast.
- Accelerating monetization driven by membership service income. In 1H20, average conversion rate of paying users increased by 1.4ppts to 5.1% thanks to successful monetization of membership services. In 1H20, the Company’s existing membership products generated over RMB420mn revenue, surging over 200% YoY. In early 2020, the Company upgraded Health 360 membership product to Health Guard 360, providing additional health allowances for customers with critical illnesses at an unchanged price. As of mid-2020, the Company has provided over 500 corporate customers with one-stop Private Doctor Membership services. The Company’s fast-growing membership service revenue relied on high-quality services provided by a sizable 1,836 inhouse medical staff team and 5,978 external doctors.
- Being a first-mover benefiting from regulatory loosening. In Apr 2020, PA Good Doctor became the first and so far the only internet healthcare service provider that connected to the online SHI payment system of Hubei Province. As of mid-2020, 14 municipal SHI systems in Hubei were connected with this platform. The Company also obtained the SHI qualification license for building its own internet hospital in Yinchuan city.
- Maintain strong growth momentum. We expect total revenue to grow 29%/ 44%/ 44% YoY to RMB6.53bn/ RMB9.38bn/ RMB13.52bn in FY20E/21E/22E. The Company may continue to invest in the expansion of medical staff team and promotion activities. We forecast net losses to be RMB639mn/RMB268mn in FY20E/21E and expect RMB364mn net profit in FY22E.
Maintain BUY. We derive TP of HK$150.0 based on a 10-year DCF model (WACC:9.3%, terminal growth rate: 4.0%). Catalysts: Faster-than-expected user growth; Regulatory loosening.
