111 Inc

111 Inc (NASDAQ-GM: YI) is an internet medical and health Company providing health management services, drug purchasing and online medical services.

Investment Highlights – 111 Inc – Avoid at USD 23.56

• Despite the improved revenue performance in Q3 FY2020, the Company needs to manage operating expenses more effectively unless it will impact the financial performance in the near future.
• As per valuation metrics, EV/Sales multiple of the 111 Inc is currently higher as compared to the corresponding multiple of the Software & IT Services industry, reflecting overstretched valuations.
• The Company has a negative ROE (return on equity) of 20.2% in Q3 FY2020, which is significantly lower than the industry median of 3.6%. The Company has a negative ROE for the last 4 years.
• From the technical standpoint, 14-day RSI is in an overbought zone and is supporting downward movement (around 80 level), which means the stock price could decline in the short term.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.
• The Company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Recent News

On 5 February 2021, 111 announced that it has entered into a strategic partnership with Baiyi Doctor Group, owner of the largest doctor group in Jilin province in China, to use 111’s digital platform to provide doctor-patient management and SMART-enabled healthcare services in Northeast China.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 19 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter of the Financial Year 2020, driven by higher B2B revenue, the Company’s net revenue increased by 112.8%. The revenue also increased for nine months period of FY2020.
• The profitability for the period was impacted by higher operating expenses and reported a net loss of RMB 111,191 thousand and RMB 329,727 thousand.
• The cash balance as on 30 September 2020 increased to RMB 1,030,771 thousand (31 December 2019: RMB 581,281 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a slight improvement in financial performance in the third quarter and nine months period of the financial year 2020. Both the top-line and the bottom-line performance improved, while profitability margins remained in the negative zone. Despite the improved performance, the Company needs to have more control over its operating expenses unless it will have an adverse impact on financial performance in the near term. YI has improved liquidity position along with a well-positioned balance sheet. The Company’s operations are not materially impacted by the covid-19 pandemic, and its digital healthcare platform continues to build a healthcare ecosystem, which will benefit insurance companies, retailers, drug manufacturers and end consumers. The stock made a 52-week low and high of USD 5.20 and USD 45.88, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on 111 Inc at the closing price of USD 23.56 (as on 11 February 2021), and with support from few catalysts needs to be evaluated at a later stage such as a focus on executing business objectives and leveraging its ecosystem.

9F Inc

9F Inc (NASDAQ-GM: JFU) is a financial investment services Company based in China. The Company operates through a digital financial account platform and offering payment facilitation, online wealth management products and loan products.

Investment Highlights – 9F Inc – Avoid at USD 2.10

• The Company has reported lower revenue in H1 FY2020, and profitability remained in the negative zone.
• In the last one year, the Company delivered a negative return of ~77.66% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Cash Flow multiples of the 9F Inc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in an overbought zone and is supporting downward movement (around 71 level), which means the stock price could decline in the short term.

Key Risks

• The Company is also exposed to various operational and financial risks with cybercrime, regulatory changes, and foreign exchange fluctuations.
• Moreover, failure to adopt the technological changes can reduce the level of business. 

Financial Highlights – H1 FY2020 (30 June 2020) (released on 29 September 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, due to lower loan facilitation services, the net revenue declined to RMB 848,430 thousand.
• The profitability for the period declined, reflecting lower revenue and higher operating expenses and costs.
• The cash balance as on 30 June 2020 declined to RMB 3,651,788 thousand (31 December 2019: RMB 4,684,003 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Both the revenue and the profitability for the period declined significantly. JFU reported a decline in liquidity position and a poor balance sheet for the period. 9F needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The Company’s operations were impacted by covid-19 and are experiencing a recovery in the trading environment after the Chinese economy returned to growth. The stock made a 52-week low and high of USD 0.72 and USD 9.99, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on 9F Inc at the closing price of USD 2.10 (as on 11 February 2021), and with support from few catalysts needs to be evaluated at a later stage such as effective management of operating expenses.

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