【Company Research】PA Good Doctor (1833 HK) – Emphasis on its core online medical service capabilities

• Topline beat thanks to strong growth in online medical services. In 2020, PA Good Doctor’s topline increased 35.5% YoY, higher than our estimate of 28.1% YoY. Core online medical service revenue rallied 82.4% YoY to RMB1.57bn, contributing 23% of the total revenue. Net loss was RMB948mn in 2020, better than our forecast of RMB1,020mn. Adjusted net loss (excluding foreign exchange losses and gains and option expenses) was RMB516mn in 2020, vs RMB695mn in 2019. The Company has invested a lot in upgrading its channels, services, physician team, etc. Excluding the impact of these additional spending due to the strategic upgrades, net loss from the traditional business shrank by 65.6% YoY to RMB239mn.

 

• Significant margin improvement thanks to successful monetization efforts. Blended gross margin rallied by 4.1ppts to 27.2% driven by accelerating monetization and higher proportion of revenue from high-margin online medical service business. Online medical service recorded a high GPM of 56.2% (vs 44.2% in 2019) and contributed 47% of the Company’s total gross profit. Average conversion rate of paying users increased by 0.9ppts to 4.9% in 2020. Specifically, paying healthcare users accounted for 35.1% of the total paying users. Average daily prescriptions sold rose 88% YoY. As of end-2020, the Company had 372.8mn registered users, rising 18.3% YoY. MAU and MPU reached 72.6mn and 4mn respectively, representing a YoY increase of 8.5% and 34.1%, respectively.

 

• Emphasis on its core online medical service capabilities. PA Good Doctor further strengthened its leading position in online medical service industry. Average daily consultations reached 903,000 in 2020, up 23.9% YoY. As of end-2020, the Company’s in-house medical team reached 2,247 people, vs 1,409 in end-2019. In addition, contracted external doctors grew rapidly from 5,381 in end-2019 to 21,116 in end-2020. The Company aims to attract more renowned doctors to join its platform. Furthermore, the Company operates the largest number of internet hospitals in China. As of end-2020, PA Good Doctor has reached agreements with over 100 offline hospitals on jointly building Internet hospitals while 50 co-constructed/self-built internet hospitals have commenced operation. Meanwhile, the Company has enabled Social Health Insurance (SHI) payment (i.e. NRDL reimbursement) in one province and four cities in China. We believe PA Good Doctor will continue to be the No.1 online medical service provider in China given its consistent efforts in capability upgrades.

 

• Maintain BUY. We expect total revenue to grow 36%/ 38%/ 39% YoY in FY21E/22E/23E. We forecast net losses to be RMB1,261mn/ RMB1,016mn/ RMB730mn in FY21E/22E/23E. We maintain positive on the Company’s growth outlook, and derive TP of HK$142.77 based on a 10-year DCF model (WACC:9.3%, terminal growth rate: 4.0%). Catalysts: Faster-than-expected user growth; Regulatory loosening.