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Why Alibaba Health (0241.HK) down after the announcement of 2021 fiscal year result?

Alibaba Health Information Technology Limited (0241.HK) is a integrated pharmaceutical e-commerce platform in China. Its business unit “Tmall Medicine” is currently the largest pharmaceutical e-commerce platform in China. Alibaba Health also is the largest online medicine retailer in terms of drug sales amount. On 25 May 2021, Alibaba Health announced its annual results with positive earning and strong growth in 2021 fiscal year. However, its stock price was down for 6.8%. Why Alibaba Health down after the result announcement?

Result of 2021 fiscal year

In the Reporting Period, Alibaba Health ‘s revenue growth by 61.7% from RMB 9,596.4 million to RMB 15,518.4 million. All business units showed a strong growth in 2021, pharmaceutical direct sales business growth by 62.5%, pharmaceutical e-commerce platform business growth by 67.9%, medical and healthcare services business growth by 12.4% and digital infrastructure business2 growth by 34%.

Gross profit increased by 62.1% from from RMB 2,231.3 million to RMB 3,617.2 million. Gross profit margin maintained at 23.3%.

Operating expense growth by 64.4% from RMB 2,293.7 million to RMB 3,558.6 million.

Net Income turned from RMB (15.6) million to RMB 3,42.6 million. Earning per share improved from RMB (0.06) cent to RMB2.63 cents. Adjusted earning per share increased from RMB 0.0156 cent to RMB 0.0467 cents

Alibaba Health’s Valuation

Even Alibaba Health shown strong growth and turn net lose into profit, the result still can’t exceed investor’s expectation. This may be the reason why stock price down after the result announcement.

As the closing price was HKD 21.85 on 25 May 2021 with RMB/HKD exchange rate around 1.2341, PE ratio for Alibaba Health is about 673. Adjusted PE ratio is about 379.

Conclusion

Is Alibaba Health overvalued? 379 adjusted PE ratio sounds terrified. However, if compare with Alibaba Health’s close competitor’s JD Health International Inc. (6618.HK), it seems whole industry are fairly priced by the market. The adjusted PE ratio for JD Health International Inc. is 391 which similar to Alibaba Health.

With 379 adjusted PE, the upside potential for Alibaba Health seems to be limited. The high PE ratio can only be justified by strong growth. Potential investor should hold their action and pay attention on business growth for upcoming result.

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