Following, $JD HEALTH (06618.HK)$ it has been followed by the interim report. $DINGDANG HEALTH (09886.HK)$

In the first half of 2024, Dingdang Health's revenue was 2.271 billion yuan, a year-on-year increase of 0.92%, slowing down by 12.03 percentage points compared to the same period in 2023; during the same period, net loss was 0.084 billion yuan, a year-on-year reduction of 24.95%.

As residents' lives return to normal pace, a slowdown in revenue growth for pharmaceutical e-commerce is an inevitable outcome.

How to face the new situation of slowed growth is a test for Dingdang Health's management.

Currently, Dingdang Health is seeking to balance the inflow and outflow of funds.

On the one hand, Dingdang Health is still working to control costs. Cost in the first half of 2024 decreased by 3.1% compared to the same period last year;

On the other hand, Dingdang Health is continuing to invest in smart pharmacies and expand its distribution business to expand its revenue scale.

The actual results are yet to be tested.

Removed from the Hang Seng Composite Index.

In the pharmaceutical e-commerce industry crowded with giants like Alibaba, JD and Ping An, Dingdang Health is indeed struggling to survive.

Although not holding onto the thighs of top giants, Dingdang Health has made its way out by becoming a partner merchant to e-commerce platforms like Ele.me and Meituan.

Nowadays, Dingdang Health's revenue growth is gradually slowing down.

In the first half of 2024, Dingdang Health's revenue was 2.271 billion yuan, a year-on-year increase of 0.92%, a 12.03 percentage point slowdown from the same period in 2023.

The revenue growth of Dingdang's fast medicine business, which supports most of its revenue, has cooled down. In the first half of 2024, revenue was 2.21 billion yuan, up 1.2% year-on-year, a 12.2 percentage point slowdown from the same period in 2023.

Although the impact of the COVID-19 pandemic gradually faded away in 2023, various factors such as influenza have led to strong demand for patient medication, creating growth opportunities for Dingdang Health and other pharmaceutical e-commerce companies.

However, with the weakening of the impact of the flu and other factors, online demand has shown a downward trend.

A slowdown may be becoming the norm in the industry.

In the first half of 2024, JD Health's revenue was 28.804 billion yuan, a year-on-year increase of 6.04%, a 27.2 percentage point decline from the same period in 2023, marking the first half-year report since its listing where revenue growth fell to single digits.

With the current environment, pressure on revenue is an inevitable outcome.

Some internet pharmaceutical e-commerce platforms are improving their profitability by optimizing product mix. For example, JD Health increases its profit margins by seizing the first right to sell innovative drugs with higher unit prices.

In the first half of 2024, JD Health's non-IFRS net profit was 2.644 billion yuan, an increase of 8.54% year-on-year; the profit margin during the same period was 9.18%, an increase of 0.21 percentage points year-on-year. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

In contrast, Dingdang Health, which is still in deficit, will face greater pressure on the introduction of new drugs.

In the first half of 2024, Dingdang Health's non-IFRS net loss still reached 0.039 billion yuan, a decrease of about 10% year-on-year.

In April of this year, Dingdang Health launched the new drug "Zhilida" of Sanofi. However, JD Health had already taken the online first launch rights of the drug as early as March.

At present, Dingdang Health has been relatively strict in controlling costs.

In the first half of 2024, Dingdang Health's cost was 1.516 billion yuan, a decrease of 3.1% year-on-year. The gross profit margin during the same period was 33.1%, which was 9.5 percentage points higher than that of JD Health.

"The reduction in the cost of revenue is mainly due to the increased efficiency of the procurement system and changes in the product sales mix." Dingdang Health pointed out.

In order to expand the network of offline smart pharmacies, Dingdang Health still generously spends on sales expenses.

In the first half of 2024, the sales expenses of Dingdang Health could reach 0.486 billion yuan, accounting for 21.4% of the revenue, which was 16.4 percentage points higher than that of JD Health.

"This growth is mainly due to the expansion of smart pharmacy networks and the increase in sales and marketing activities." Dingdang Health pointed out.

As a B-side with insufficient performance, Dingdang Health's market pressure has soared.

On August 19th, Dingdang Health's decline reached 19.09%.

The main reason is related to the expected removal from the Hang Seng Index. The quarterly examination results show that Dingdang Health will be removed from the Hang Seng Composite Index on September 9th.

CICC believes that Dingdang Health may be removed from the Hong Kong Stock Connect due to reasons such as the decrease in market value and lack of liquidity.

Medical and health companies including Junshi Bio, Heart Medical, Sheng Nuo Medicine, and CanSino Biologics were also removed from the Hang Seng Composite Index.

On the afternoon of August 19th, Junshi Bio responded that its H shares as a Hong Kong stock connect stock were not affected by the adjustment of the Hang Seng Composite Index.

2B supplier.

Whether it can continue to increase its revenue scale may be the driving force for Dingdang Health to get rid of losses in the future.

The expected incremental space at present comes from the policy side. Since July of this year, Beijing and other places have loosened the payment of online drug purchase medical insurance.

At present, Dingdang Health has been selected as the first batch of pilot or platform cooperation online medical insurance payment merchants in Beijing, Shanghai, Shenzhen, and Foshan.

The market is eagerly anticipating how much incremental space online payments for medical insurance purchases can bring to Dingdang Health.

Dingdang Health is not satisfied with selling drugs directly to consumers, and continues to promote its business in the B-end market.

According to its channels, Dingdang Health's Fast Drug Business can be divided into three parts: online direct sales, distribution to merchants, and offline retail.

Online direct sales are the main source of income, with a revenue of 1.613 billion yuan in the first half of 2024, accounting for 71.03%, but growth has stagnated, with a year-on-year increase of only 0.44% in the first half of this year.

Compared with online direct sales, Dingdang Health's distribution business, which is targeted at merchants, has shown significant income growth. It generated a revenue of 0.274 billion yuan in the first half of 2024, up 11.5% year-on-year.

The distribution business is to sell drugs to merchants, who then sell them externally.

To some extent, this may constitute potential competition with Dingdang Health's online direct sales business.

For example, if Dingdang Health sells its similar drugs to other merchants, if the latter sets a lower end retail price, it may compete with Dingdang Health's direct sales business.

"We distribute our products through independent distributors over whom we have limited control and our sales under our direct sales channel may compete with the business of such distributors, which may give rise to cannibalization risks", Dingdang Health pointed out.

But once the distribution business takes off, it may bring scalable revenue to Dingdang Health.

As an example, 111 Inc. (9885.HK) aggregates drugs of different categories, directly targeting the pain points of individual pharmacies and primary medical institutions that lack sufficient bargaining power when purchasing small quantities of drugs from upstream dealers to reduce procurement costs. Its revenue has reached 16.974 billion yuan in 2023.

The market is still paying continuous attention to whether Dingdang Health can achieve a dual approach in the B-end and C-end markets.