Medlive Adds Significant Number of Clients in Second-Half 2022

We are increasing our fair value estimate for Medlive 02192 to HKD 13.60 from HKD 12.40 after the company reported second-half revenue of CNY 182 million, reflecting an 18% year-on-year increase. These results assuage our concerns after the first half of 2022 showed sluggish year-on-year revenue growth of just 1%, which we thought was due to lack of demand and the impact of competition due to the fragmentation of the industry. However, we now believe the slowdown was due to the temporary effect of healthcare clients cutting advertising and marketing costs during the pandemic. Our more optimistic tone reflects Medlive’s addition of 84 clients during the second half of 2022, bringing its total to 130 clients. We believe the significant uptick in client onboarding reflects the growth trajectory in the near term and expect further incremental clients to be onboarded to its portfolio. In addition, the company also added 103 new products from its clients to the marketing solutions business. The company guided to a 3 to 5-year revenue CAGR of 30%, and we believe that Medlive’s revenue growth appears to be maintainable for now as the company expects to increase the amount of contracted revenue per client in the near term as it deepens relationships with older clients.

One slight concern is the significant operating margin decline as recurring operating margin (share-based compensation costs included) declined to 20.5% from 24.8% year on year due to lower gross margins combined with a 23% increase in operating expenses due to higher platform maintenance charges and greater headcount. We do not expect marketing and personnel costs to trend back down and forecast 12%-16% increases per year for operating expenses. Although our fair value increase reflects more robust growth, we believe there could still be some risks as many, but attainable, levers will need to be pulled to achieve its target.