Alibaba Health Earnings: Margin Expansion Intact as Platform Begins to Integrate Advertising and AI

We maintain our fair value estimate of HKD 6.70 for Alibaba Health after it reported fiscal first-half 2024 revenue of CNY 13.0 billion which was 3% more than our estimate and represents 13% year-on-year growth. More importantly, its operating margin expanded 230 basis points to 2.0% year on year which is encouraging as it made progress toward its long-term steady-state target of high-single digits. The company refrained from providing guidance but given the readthrough from JD Health, its main peer, we estimate full-year revenue to increase at a slower pace as online healthcare e-commerce platforms are expected to experience many lower sales from pandemic-related items. However, we expect sales to normalize next year and for non-pandemic-related items to grow at 25%-30% year on year as indicated by its peer. The company briefly mentioned that its goal was to have absolute net profits increase by 20%-30% each year. We reiterate our positive outlook that Alibaba Health should see further scale and margin expansion while enjoying a dominant market share position within healthcare e-commerce which requires both logistics and licensing infrastructure to enter. The company expects some consolidation in the industry in the next one to two years as smaller peers may not be able to operate efficiently.