CLSA has issued a research report noting that Ali Health (00241) has lowered its revenue outlook for fiscal year 2027, mainly due to subsidy cuts and regulatory headwinds that have weakened nutritional supplement sales, while pharmaceutical sales remain solid with high-teens year-on-year growth.

The brokerage has cut its adjusted net profit forecasts for fiscal years 2027 to 2028 by 6% to 7%, and reduced its target price from HK$4.7 to HK$3.7, while maintaining an Outperform rating.

Management has revised its fiscal year 2027 revenue growth guidance downward from 10% to 15%, now expecting 7% to 10%, primarily reflecting regulatory headwinds in nutritional supplements and reduced subsidies.

However, management believes nutritional supplement sales have bottomed out, and as merchants adapt to new regulations, expects a return to single-digit year-on-year growth in the second half of fiscal year 2027.

Medical device sales declined in the first half of fiscal year 2027, and the decline is expected to narrow in the second half on a lower base.

Pharmaceutical sales maintained high-teens year-on-year growth in the first half, and management expects this trend to continue in the second half.

The company plans to reinvest subsidy savings into supply chain and fulfillment infrastructure to accelerate B2C and O2O integration and strengthen its omni-channel pharmacy platform.

Profit guidance remains unchanged at RMB 1.9 billion to RMB 2.3 billion, implying a year-on-year decline of 18% to flat performance.

Management also noted that despite leadership changes, the overall strategy remains unchanged, with omni-channel pharmacy retail and medical AI still serving as the two major strategic priorities.

CLSA has lowered its revenue forecasts for fiscal years 2027 to 2028 by 4% to 5%, and cut its adjusted net profit forecasts by 6% to 9%, to reflect weak nutritional supplement sales under regulatory pressure.

The brokerage believes Ali Health remains one of the two main beneficiaries of rising online pharmaceutical penetration, but prefers JD Health (06618) due to its more attractive growth prospects and valuation.