Growth Remains Slow For Flagship SaaS Product but Client Base Increasing For Sinohealth

Sinohealth is in the middle of its ramp-up phase and management guided for overall revenue to increase approximately 25% on a three-year CAGR from 2022-25. We expect revenue growth to be driven by its SaaS segment through the acquisition of incremental clients in the long term, but in the near term its data insight solutions segment is the backbone of the business and accounted for the 63% of revenue in first-half 2022. The DIS business should serve as a bridge for Sinohealth until it can reach greater adoption of its SaaS product, where revenue generation is likely on a recurring subscription basis. For now, Sinohealth is vulnerable to low switching costs as the data insights segment resembles more of a consultancy, where fees are charged on a per-project basis. While management indicated that it has a 95% retention rate of its “core” clients, there is no contractual obligation for clients to remain with Sinohealth. The addition of SaaS should help build a backlog of contracts and provide some visibility for Sinohealth. SaaS represents only 14% of revenue in first half 2022 but the company is optimistic for the business and guided to 50% growth on a three-year CAGR.