Daiwa Capital Markets: AI innovation and national policies drive the mainland internet healthcare sector, optimistic about ALI HEALTH and PA GOODDOCTOR

Daiwa Capital Markets' research report indicates that the mainland internet healthcare sector is entering a new phase, driven by factors such as technology giants accelerating AI innovation and national policy support, such as the online initial diagnosis pilot program launched in Beijing. Although facing challenges in profitability, leading companies are leveraging the AI ecosystem and innovative strategies to deploy long-term sustainable growth.

In terms of stock selection, the firm is optimistic about ALI HEALTH (00241.HK), maintaining a "Buy" rating and a target price of HKD 7.8; it is expected that under the continued growth momentum of innovative drugs and healthcare products, the deepening synergy with Alibaba (09988.HK), and the increasing prevalence of AI applications, ALI HEALTH's revenue and adjusted net profit compound annual growth rates for the fiscal years 2026 to 2028 will reach 13% and 24%, respectively.

Additionally, the firm is also optimistic about PA GOODDOCTOR (01833.HK), maintaining a "Buy" rating with a target price of HKD 20; it is expected that under the deepening synergy with China Ping An (02318.HK) and the ongoing empowerment of AI, the company's revenue and adjusted net profit compound annual growth rates for the years 2025 to 2027 will reach 16% and 56%, respectively.

At the same time, the firm maintains an "Overweight" rating for the mainland healthcare sector, preferring leading innovative pharmaceutical companies and contract research, development, and manufacturing organizations (CRDMOs), while also favoring internet healthcare companies that can effectively utilize real-world data to optimize AI algorithms to enhance service quality. Preferred stocks include BeiGene (06160.HK), Innovent Biologics (01801.HK), Hansoh Pharmaceutical (03692.HK), China National Pharmaceutical Group (01177.HK), Hutchison China MediTech (00013.HK), WuXi Biologics (02269.HK), WuXi AppTec (02359.HK), and ALI HEALTH.

Daiwa Capital Markets' investment ratings and target prices for pharmaceutical stocks are listed as follows:

Stock | Investment Rating | Target Price (HKD)

Hutchison China MediTech (00013.HK) | Buy | 32.5

Stone Group Holdings (01093.HK) | Hold | 8.5

China National Pharmaceutical Group (01099.HK) | Hold | 20

China Biologic Products (01177.HK) | Buy | 10.5

Innovent Biologics (01801.HK) | Buy | 130

PA GOODDOCTOR (01833.HK) | Buy | 20

WuXi Biologics (02269.HK) | Buy | 52

WuXi AppTec (02359.HK) | Buy | 152

ALI HEALTH (00241.HK) | Buy | 7.8

Shenwei Pharmaceutical (02877.HK) | Hold | 8.5

Hansoh Pharmaceutical (03692.HK) | Buy | 50 Fosun Pharma (03933.HK) | Buy | 20 Yuan

BeiGene (06160.HK) | Buy | 252 Yuan