Medlive Earnings: Promising Growth but Antigraft Policy Lowers Our Outlook and Fair Value by 24%

We lower our fair value estimate for Medlive to HKD 10.00 from HKD 13.20, despite it reporting first-half 2023 revenue of CNY 173 million. This was a 31.5% increase year on year, in line with its full-year revenue guidance of 30% growth. While the stock reacted by gaining 6% on Aug. 30—which likely signals greater investor confidence that company operations are normalizing and recovering after the pandemic, where it lost 20% of clients in first-half 2022—we believe China’s antigraft crackdown in the healthcare sector could create new risks that could significantly lower near-term demand. While the company did not change its full-year guidance, our impression was that it was uncertain if it could meet its prior full-year guidance. We also believe that the lower demand and the uncertainty could lower Medlive's long-term steady-state operating margin of 30%. Given that the firm generates 91% of revenue from facilitating targeted pharmaceutical advertisements to doctors, we are pre-emptively lowering our revenue growth estimates for 2023 and 2024 to mid-20% from low-30%, which lowers our valuation.