【Company Research】PA Good Doctor (1833 HK) – Guidelines released for the reimbursement of online medical services
- On 2 Nov, National Healthcare Security Administration (NHSA) released detailed policies on allowing reimbursement for online medical services. This is the first detailed guideline with a specific timeline about implementing the reimbursement policies for online services. The NHSA requires all regional governments to finalize detailed regulatory rules for online medical reimbursement before year-end. Before this document, the Chinese authorities have already released multiple regulatory files about encouraging the development of online medical services and related reimbursement supports. The COVID-19 pandemic has further accelerated the process of regulatory loosening for online medical services. The purpose is to prioritize medical resource allocation and stimulate healthcare consumption.
- Gradually expanding reimbursement coverage for online medical services. According to the regulatory file, online medical services for revisiting patients with chronic or severe diseases will be first allowed for reimbursement. The file also pointed out that the reimbursement coverage will gradually expand to include more common diseases. We even expect the reimbursement will include online initial diagnosis for common diseases in the future. At the moment, the authorities only allow online medical services for revisiting patients. Meanwhile, online and offline medical services will share same reimbursement standards. Online medical consultation fees and related drug costs will all be reimbursed, except for drug shipping costs. Initially, reimbursement will be only available for local patients who receive services from local online hospitals. However, the policy stated clearly that that cross-region reimbursement (异地就医直接结算) for online medical services will become feasible in the future.
- PA Good Doctor being a first-mover benefiting from regulatory loosening. As of Oct 2020, the Company operates eight self-built online hospitals and 23 co-constructed online hospitals. Meanwhile, PA Good Doctor has successfully received medical reimbursement qualifications in seven cities/ provinces, including Qingdao city, Nanning city, Fuzhou city, Hefei city, Yinchuan city and Hubei Province. The Company has a dominant leading position in online medical service industry, with 67.3mn MAU as of June 2020. In 1H20, the Company’s online medical service business grew 107% YoY to RMB695mn, contributing 25% of total revenue and 46% of the gross profit.
- Maintain BUY. We maintain TP of HK$150.0 based on a 10-year DCF model (WACC:9.3%, terminal growth rate: 4.0%). Catalysts: Faster-than-expected user growth; regulatory loosening.
