Ping An Health Earnings: Reducing Fair Value by 44%; Lackluster Demand Suggests Secular Low Growth

We lower our fair value estimate for Ping An Health by 44% to HKD 10 after it reported second-half 2023 revenue of CNY 2.4 billion, representing a 29% year-on-year decline. While a revenue decline was expected—as the company transitions its business toward selling healthcare services and insurance rather than healthcare products—we are alarmed by the user decline in the second half of 2023 to 40 million from 45 million in just six months, which highlights a lack of demand for the company’s services. Core users from the financial services side of its parent dropped by 10 million during the same period. Further compounding the issue, average pricing per corporate user declined by 34% year on year, indicating that there is also a problem with pricing power. The company indicated that there are still some nonstrategic users on its platform, implying there could be further user declines in the next year. We are unclear whether this will also imply further revenue declines, but this nevertheless highlights further near-term risks for revenue growth in the short term. Our new valuation is also lower than the company’s current net cash level and implies that there should be further expected loss at the current pace of operations. We expect further losses to continue for at least the next three to five years, with no visibility of breakeven.