Sinohealth Earnings: Sharp Revenue Deceleration Reflects Inconsistent Adoption of Company Solutions

We maintain our fair value estimate of no-moat Sinohealth at HKD 4.20 per share after it reported first-half 2024 revenue of CNY 160 million which represents a 10% year-on-year growth, with only a 3% increase in clientele during the same period. Comparatively, first-half 2023 revenue grew 20% year on year. Although peak seasonality occurs for pharmaceutical and research corporates during the back half of the year due to fewer budget constraints, the sharp decline in clients to 869 from 1,288 sequentially is concerning. While we are encouraged by its operating margin expansion of 390 basis points year on year with signs of consistent profitability, we believe revenue deceleration for a startup in the digital healthcare data industry with low industry saturation carries risks. Its software-as-a-service segment grew 52% year on year but accounts for only 23% of total revenue and still lags previous company expectations of 60%-70%. Its events business generated CNY 39 million, growing 21% year on year and accounting for 24% of revenue, while its big data solutions segment declined 5% year on year despite a 40%-50% 3-year CAGR. Given how highly fragmented the digital healthcare industry remains, we are concerned with such declines as there will be more competition given AI innovation from peers.