Raising Sinohealth FVE To HKD 3.00; SaaS Still Expected To Drive Growth; Events Business Recovering

We are raising our fair value estimate for Sinohealth to HKD 3.00 from HKD 2.50 after the company showed that its data-driven publication and events business returned to normal operations, as it can freely hold physical exhibitions where patrons can buy tickets. Although revenue has not fully returned to precoronavirus levels, the 233% increase from first-half 2022 suggests that participants remain interested in the healthcare data solutions industry and could recover fully in 2023. We are slightly more encouraged about Sinohealth’s prospects given the recovery of one of its three main businesses, but this doesn't alleviate our main concerns over long-term adoption of its software. We believe in the long term, software as a service should still determine the majority of the valuation for Sinohealth. SaaS revenue grew 36% year on year, which is less than the 60%-70% CAGR that the company forecast before. Management indicated that SaaS clients could return to its forecast growth after the reopening, but we believe there could be risks to management’s forecasts and still have an unfavorable view of Sinohealth’s risk/reward. We believe there is still a lot of uncertainty given the industry remains fragmented, and adoption of its SaaS is not guaranteed with plenty of competitors that also provide Big Data solutions.