Alibaba Health Earnings: Profitability Better Than Expected; Fiscal 2025 Guidance Reiterated

We maintain our fair value estimate for Alibaba Health at HKD 4 per share after it reported fiscal second-half 2024 revenue of CNY 14.1 billion, which was much better, at 13% above our estimate. More importantly, adjusted operating margin of 2.7% was significantly better than our forecast of negative 10%. Better-than-expected profitability was due to a significant decline in fulfillment expenses from improved operating efficiency. The company also reiterated its revenue guidance of a 15% increase year on year for fiscal year 2025, which was the same outlook from its update three months ago. In addition, it guided for adjusted net margin to expand to 5.0% next fiscal year, which is an improvement from 3.3% in fiscal year 2024. The margin uptick would be driven by further reductions in fulfillment expenses as a percent of sales. The share price responded to the improved profitability forecast by jumping 10%, and we are encouraged that the company is back on track with margin expansion. We forecast the adjusted net margin to reach high single digits on a steady-state basis, given peer expectations from its main competitor, JD Health.