Alibaba Health (0241.HK): TP Cut on Margin Pressure from Rising Investments; AI Strategy in Focus for FY26; Neutral
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Goldman Sachs downgraded Alibaba Health's FY26E earnings per share estimate by 11% and trimmed its 12-month target price by 8% to HKD 4.80, while maintaining a Neutral rating. The firm notes that while the long-term potential of AI healthcare supports the stock, escalating investments in AI capabilities and the pharmaceutical category will pressure near-term profitability. Alibaba Health's stock is down 3% year-to-date, outperforming the 11% decline in the Hang Seng Tech Index.
Goldman expects a slight profit decline in 2HFY26, reversing the margin expansion seen in the first half. This earnings compression stems from heightened AI investments, including training the Qinlizi model and acquiring data, alongside potential increases in originator drug discounts to remain competitive. These AI investments are projected to persist into FY27, focusing on data procurement, model training, and product pricing.
While improved advertising revenue and operating leverage from sales growth should partially mitigate these margin pressures, Alibaba Health's revenue growth continues to trail JD Health. Goldman forecasts FY26 sales growth of 15%, significantly below JD Health's pace exceeding 25%, reflecting weaker momentum in the drug category. The target price is based on an unchanged 28x FY27E P/E multiple. The upcoming FY26 results, expected in mid-to-late May, will place AI strategic details, particularly synergies with Alibaba's Qwen model, in the spotlight.