Raising Alibaba Health's FVE to HKD 6.70 as Break-Even Achieved Ahead of Schedule

We are raising our fair value estimate for Alibaba Health, or AliHealth, to HKD 6.70 from HKD 6.10 after the company showed accelerated break-even ahead of its target date of fiscal 2024. The company reported fiscal first-half 2023 revenue of CNY 11.5 billion, a 23% year-on-year increase, and in line with PitchBook consensus. More importantly, recurring operating margins improved 600 basis points to a 0.3% loss year on year for the half year. While the company was noncommittal about long-term operating margins, we increase our margin assumptions to reflect break-even by the end of fiscal 2023, which raises our valuation. Given peer comps, we believe AliHealth could reach the low teens for operating margins in the long term, which is reflected in our model. Despite the increase in valuation, we believe that most of AliHealth’s upside is already reflected in the current share price after the Nov. 29 surge.