UBS raises Alibaba Health's target price to 4.7 yuan, maintains "Sell" rating

UBS research report pointed out that since lowering the rating of Alibaba Health (00241.HK) in May, the company's first-party platform sales (1P) have grown beyond the bank's expectations. However, it believes that this is more of a structural change in drug supply shifting from offline to online, rather than a strategic shift by the company to focus on first-party platforms or first-party platform drug sales. It also believes that leading companies in the industry can benefit from this structural trend early on.

UBS also indicated that the gap between Alibaba Health and its main competitor JD Health (06618.HK) is widening, with the latter seemingly establishing a competitive advantage in user awareness and drug supply chain, and gaining an edge in omnichannel layout. It believes that Alibaba Health currently corresponds to adjusted price-to-earnings ratios of 32 times and 27 times for the next two fiscal years, which may not fully support its forecast of a compound annual growth rate of 13% and 19% for revenue and adjusted profit from fiscal years 2025 to 2028, respectively.

UBS has changed its relative valuation method from price-to-sales ratio to adjusted price-to-earnings ratio, raising its profit forecast for Alibaba Health for fiscal years 2026 to 2028 by 17% to 21% to reflect stronger first-party platform sales growth. Based on a 23 times adjusted price-to-earnings ratio for fiscal year 2027, it raised the target price from HKD 3.8 to HKD 4.7, but maintained a "sell" rating