Our target price for AliHealth shares of HK$9.5 is derived from an NPV-based sum-of-the-parts analysis of the group’s businesses. We ascribe values as follows: a) HK$6.0/sh for the direct sales business; b) HK$2.4/sh for e-commerce platform business; c) HK$0.3/sh for the healthcare and digital services business; and d) HK$0.7/sh for net cash. Our NPV analysis for the different segments factor in revenue and earnings forecasts up to 2033E, and we assume a WACC of 8.3% based on a terminal growth rate of 3%.

We apply a High Risk rating to AliHealth shares given the potential policy risks. Downside risks that could impede the stock from reaching our target price include: 1) failure to maintain close ties with Alibaba Group; 2) policy headwinds in the internet healthcare industry; 3) uncertainties in the emerging business segments; 4) severe competition; and 5) brand name risks.