Alibaba Health (0241.HK): Cutting topline growth due to weaker non-drug categories; Reinvesting in supply chain for B2C and O2O integration; Neutral

We lower Ali Health revenue/net profit estimates by -4%/-6% for FY27E and cut TP by -14%, mainly to reflect its weaker non-drug categories growth impacted by stricter regulation on oversea nutrition products and high base from national subsidies for medical devices, despite still decent growth for drugs. Notably, company has proactively scaled back price subsidies for non-drug categories and reinvested saved S&M expenses into supply chain development and fulfillment capabilities enhancement to accelerate B2C and O2O integration, highlighting company's long-term strategic vision on developing towards an omnichannel pharmaceutical retail platform. We remain Neutral on ALH as we see the potential longer-term upside from deeper integration of B2C and O2O pharmacy business operation alongside progress of Hydrogen Ion App is balanced by its near-term topline pressure. What to do with the stock: We lower our FY27-29E revenue forecasts by -4%, primarily reflecting the scaling back of subsidies