Asia’s Healthcare Firms Eye 15% Growth via Digital Sales Post-Covid

Key Takeaway

• Alibaba Health aims for 15% revenue growth through fiscal 2025, driven by digital services and cloud-based hospital infrastructure.
• Apollo Hospitals' HealthCo turned a surprise profit and sold a 17% stake to Advent International for $297 million, planning to add 2,000 beds.
• Alibaba Cloud expands into Mexico and plans new data centers in Malaysia, Thailand, and South Korea amid efforts to return to double-digit growth.

Healthtech Bright Spots

Healthtech companies like Alibaba Health Information Technology Ltd. and Apollo Hospitals Enterprise Ltd. are emerging as potential bright spots amid a post-pandemic lull. Alibaba Health's growth is expected to be supported by its digital segment, as sales of prescription drugs and Covid-19 related products have slowed due to high bases set in the previous year. According to Bloomberg Intelligence, Alibaba Health may post a marginal increase in annual revenue, partly due to muted performance in pharmaceutical direct sales. Revenue is projected to expand at a steadier 15% through fiscal 2025. The company is pushing into cloud-based hospital and infrastructure services, driven by Alibaba's robust healthcare ecosystem, which could help reduce its reliance on drug sales in the long term.

Apollo Hospitals' HealthCo, which runs the health app and pharmacies, will be in focus after turning a surprise operating profit last quarter. The healthcare firm agreed to sell a 17% stake in the unit to private equity firm Advent International for $297 million, although the valuations implied by the deal disappointed investors. Apollo Hospitals plans to add 2,000 beds over the next four years at a cost of 30 billion rupees, aiming to capitalize on the growing market for private healthcare in India's cities. Management has attributed this growth in part to increasing access to private health insurance.

Regional Earnings Overview

As the earnings season in Asia draws to a close, Chinese corporates have remained lackluster, with the ongoing property crisis dragging down real estate firms. However, some optimism is emerging over the Chinese government's newest efforts to revive the economy. In Southeast Asia, Indonesian banks have shown strong quarterly results supported by robust loan-book expansions, according to Bloomberg Intelligence. In contrast, Thailand's banks remain pressured by weakening asset quality due to high household debt in the country.

In Japan, a record number of companies have announced higher dividends and buybacks to prop up shareholder value amid cautious earnings outlooks and a market on the verge of a correction. This trend reflects a broader strategy to maintain investor confidence despite the challenging economic environment.

Alibaba's Cloud Expansion

Alibaba announced on Thursday that it has expanded the availability of its cloud computing products to Mexico for the first time. The company also plans to build new data centers in key markets, including Malaysia, Thailand, and South Korea over the next three years. Selina Yuan, President of Alibaba Cloud’s international division, emphasized the company's commitment to international growth, stating, "We want to have ... more efforts and investments for our international data centers."

This expansion follows a turbulent period for Alibaba Cloud, which included scrapping a planned initial public offering and undergoing a management reshuffle. Despite these challenges, Alibaba's cloud division remains a critical focus for the company. Growth has slowed significantly in recent quarters, but Alibaba executives expressed optimism during a recent earnings call that the cloud division would return to "double-digit growth" in the second half of the current fiscal year.

Street Views

• Citi Analyst for CSPC Pharmaceutical (Bullish on CSPC Pharmaceutical):

  "Recovery is expected to pick up as the firm saw five new product approvals in 2023, with more planned in the next few years. Its management is also expecting to see double-digit revenue growth returning in fiscal 2024."

• Nuvama Analysts for Apollo Hospitals (Bullish on Apollo Hospitals):

  "Apollo Hospitals’ fourth-quarter profit is poised to surge more than 80%, helped by HealthCo. Hospital occupancy is expected higher, but margins will be compressed by higher spends related to marketing and doctor costs."