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Ping An Healthcare and Technology Co Ltd (SEHK: 1833), also known as Ping An Good Doctor, is a leading online health platform in China that was spun off from its parent company – Ping An Insurance Group Co of China Ltd (SEHK: 2318).
After initially declining following its listing in 2018, Ping An Good Doctor surged in 2019 and shares of the online health platform have risen recently due to the increased demand for online healthcare on the account of the coronavirus outbreak in China.
Meanwhile, parent Ping An Insurance has also rallied since Ping An Good Doctor’s IPO in May 2018. Given their varying business models and prospects, which stock is the better buy for investors; Ping An Insurance or Ping An Good Doctor?
Due to its immense scale, Ping An Insurance has been profitable, with profits rising every year from fiscal 2014 to 2018. For the six months ended 30 June 2019, it continued its profit streak, reporting an operating profit attributable to shareholders of the parent company of RMB 73.46 billion (US$10.51 billion).
As management is focused on growth, though, Ping An Good Doctor hasn’t been profitable over the past five years. For its interim 2019 results, the online healthcare services provider reported a net loss of RMB 274 million.
To Ping An Good Doctor’s credit, the company’s losses have narrowed in recent years. As its revenues rise, the company should benefit from operating leverage as expenditures such as advertising and research and development (R&D) account for a lesser percentage of overall sales.
For the near future, however, most investors don’t expect Ping An Good Doctor to be profitable due to the expectation that management will spend a lot of money to build the brand and improve technology services to capture as much market share as possible.
Winner: Ping An Insurance
In terms of growth, Ping An Good Doctor easily beats its parent Ping An Insurance.
For interim 2019, Ping An Insurance reported operating profit attributable to shareholders of RMB 73.46 billion which equalled growth of 23.8% year-on-year.
For the same interim 2019 period, Ping An Good Doctor’s sales rose an astonishing 102.4% year-on-year to RMB 2.27 billion.
Winner: Ping An Good Doctor
Potential versus profitability
Due to its faster growth rate and smaller base, Ping An Good Doctor definitely has more upside. China’s healthcare industry is huge, and the disruptive value created for online healthcare technology to improve efficiency in terms of the access and distribution of resources is very real. If management executes well, Ping An Good Doctor could be worth a lot more than what it trades for today.
Due to it already being profitable and more diversified, Ping An Insurance is less risky, though.
Because it has exposure to online healthcare, fintech, and insurance, its cash flows are more diversified and could prove to be more resilient in the event of a broader market downturn.
In terms of the battle between potential and profitability, a profitable fast-growing conglomerate is generally a safer bet than a hyper-growth stock that still requires management execution to unlock profits.
Winner: Ping An Insurance
Investing styles matter
With a business that is already profitable and more diversified, I believe Ping An Insurance is the better buy for more conservative investors.
Having said that, given its faster growth rate, the recent news over the new coronavirus, and a smaller base, Ping An Good Doctor could be the better buy for growth investors with a higher tolerance for risk.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.