1 Healthcare Stock to Buy for the Long Term

Covid-19 has accelerated awareness in providing healthcare for all communities. China was already a step ahead in online healthcare services in the e-pharmacy (e-pharma) industry due to its imbalance in healthcare facilities between rural and urban districts.

With the combination of supportive government policies, increasingly mature online technology, and China’s healthcare ecosystem reforms, these factors have cultivated the growth of the underpenetrated e-pharma business.

It provided ease in seeking medical consultation and medication orders through online platforms amid the coronavirus outbreak.

With so many e-pharma companies to choose from in the stock market right now, which one of them is the most promising?

I’m going to explore why I think Alibaba Health Information Technology (SEHK: 241) – one of the heavyweights in China’s digitised healthcare industry – is a potential stock to hold for the long term.

Narrowed net loss, strong parent company

Alibaba Health’s net loss in the first quarter of 2020 narrowed significantly by 82% year-on-year.

Revenue and net profit grew by 88.3% and 114.8% year-on-year respectively, mainly driven by the rapid growth of the pharmaceutical direct business and pharmaceutical e-commerce platform business.

Being backed by Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) means Alibaba Health can ride on the back of the strong e-commerce platform and huge affiliated user base. This given the company the edge to dominate the e-pharmaceutical industry.

Three key drivers

The potential growth of Alibaba Health can be broken down into the following factors.

First, the acquisition of Ali JK (Alibaba’s healthcare-related business) has created a direct benefit to Tmall’s pharmaceutical e-commerce platform which now provides more diversified products to users.

The acquisition will drive the consumer shift to shop online for non-prescription drugs, health supplements, baby and maternity-related products and many more.

As a result, the latest annual gross merchandise value (GMV) was pushed to more than RMB 83.5 billion (US$11.72 billion), and annual active consumers increased by 30 million to more than 190 million users as compared to six months ago.

Second, Alibaba Health became one of the first pilot enterprises approved by the government to conduct cross-border e-commerce pharmaceutical product business in China. This alone has created a significant first-mover advantage for Alibaba Health.

The company’s sales should prevail as it is backed by its strong e-commerce parent company and a structural shift in consumer behaviours towards e-commerce consumption catalysed by the coronavirus outbreak as well as today’s millennial lifestyle.

The pharmaceutical direct online store business’s revenue increased by 92.4% year-on-year, and direct online stores’ active consumers increased by 11 million to 48 million as compared to six months ago.

Third, Alibaba Health currently has more than 15,000 medical institutions, and 4,300 hospitals in 17 provinces that are featured on Alipay’s “Ali Health Medical Health Service Channel”. These are connected to their medical insurance services.

As payments for online drug prescriptions are now linked to users’ medical insurance accounts, these services boosted the net total number of frequent active users on the channel to 390 million as of Q1 2020, and is expected to grow in the long term.

Foolish summary

Adding all these factors together, it makes Alibaba Health very competitive in the e-pharmacy business when compared to Ping An Healthcare and Technology Co Ltd (SEHK:1833), also known as Ping An Good Doctor, where its core business focuses on in-house doctors, online consultation services and related services.

As the Chinese government strives to make healthcare widely affordable and accessible to all parts of China, internet medical services could be the key enabler to their goal.

Alibaba Health can leverage its parent’s core strength to carve out a lead in the e-pharmacy segment.

It will, therefore, continue to receive a boost in revenue as it provides healthcare services powered by a massive e-commerce platform and artificial intelligence (AI) to resolve the nation’s healthcare bottlenecks.