Key takeaways:
- Yuanxin Technology has filed for a Hong Kong IPO a second time, aiming to set itself apart from rivals with its wide range of medical services
- The company’s revenue grew 65% last year, but its losses are growing even more quickly
By Li Yaoyao
Once verboten for many medical companies due to listing rules that banned money-losing applicants, Hong Kong has welcomed such high-growth firms since waiving that requirement in 2018. What started as a stream has quickened more recently, as companies pick the city due to increasing hostility towards Chinese firms in their other favorite listing ground in New York.
The latest in that growing swell is Beijing Yuanxin Technology Group Co. Ltd., which filed its Hong Kong listing application last week. Founded in 2015, the company provides one-stop healthcare and other value-added services using its online and offline platforms. It is China’s biggest prescription-drug-focused healthcare payment platform as measured by operating revenue in 2020, according to research cited in its prospectus by Frost & Sullivan.
Yuanxin’s listing attempt is the second for the company, which initially filed a prospectus last October. But it failed to complete the listing within the required six-month window, prompting a second try with the latest filing.
Founded by an industry veteran with two decades of expertise in the internet healthcare industry, Yuanxin has grown from its modest roots with registered capital of just 1 million yuan ($152,500) to soak up millions of dollars in additional funds from major investors.
It completed its F-round funding last August, securing 1.5 billion yuan in one fell-swoop. Its A-list of investors includes the likes of Tencent (0700.HK), Sequoia Capital, Qiming, CITIC, CICC and BOC International. Internet giant Tencent, a big supporter of web-based healthcare, is its second biggest investor with nearly 20% of the company’s shares, while Sequoia is third with 15.75%.
The company plans to use money from the listing to develop its comprehensive out-of-hospital patient services and enhance its technology platforms and data analysis abilities over the next two to three years. It will also focus on developing innovative new healthcare services over the next three to five years.
The company’s prospectus shows its operations consist of three major pillars: out-of-hospital comprehensive patient services, provider-enabling services and innovative healthcare services. The company says it’s committed to building a well-coordinated healthcare platform to provide comprehensive, personalized and targeted services to patients.
Out-of-hospital patient services is easily the biggest breadwinner, providing pharmacy, healthcare and wholesale drug procurement services outside the usual hospital setting. Yuanxin mainly provides the first two kinds of services through its own brick-and-mortar network of pharmacies and via Miaoshou Physician, an online platform providing healthcare and pharmacy services and one of the first licensed internet hospitals in China. By the end of 2021, the company had a total of 264 pharmacies across 30 provinces.
Miaoshou Physician had 40.2 million average monthly users at the end of last year. Out-of-hospital patient services accounted for 97.9%, 97.5% and 94.6% of the company’s total revenue in the past three years, respectively. Yuanxin has recorded strong overall revenue growth in recent years, with the figure rising 64% to 5.9 billion yuan last year from 3.6 billion yuan in 2020.
Innovative services
Another part of its business is services that enable hospitals to operate more efficiently in areas like smart systems and long-term patient management. That operation has grown rapidly to 47.2 million yuan last year, but still accounted for just 0.8% of total revenue that year.
Last but not least, its innovative healthcare services aim to provide targeted and innovative solutions to empower other industry actors like pharmaceutical and insurance companies. Specific services include providing medical case management and service packages to patients, marketing services to pharmaceutical companies and insurance-related services such as claim processing, third-party management, pharmacy benefit management and marketing promotions.
Revenue from innovative healthcare services is still quite modest, but has also grown from 1.9% of total revenue in 2019 to 4.6% last year. So, the contribution of its second and third business pillars to overall revenue, though limited, has been on the rise over recent years.
Despite rapid growth in all three of its main focus areas, Yuanxin’s losses are growing even more quickly. The company’s net loss nearly quadrupled to 757 million yuan last year from 201 million yuan in 2019, while its adjusted loss ballooned at a similar pace to 622 million yuan from 172 million yuan over the same period.
Hong Kong-listed companies with similar business models include Ping An Good Doctor (1833.HK), Alibaba Health (0241.HK) and JD Health (6618.HK), which have price-to-sales (P/S) ratios of 3 times, 3.8 times and 2.5 times, respectively, based on their latest data. Yuanxin was valued at 27.5 billion yuan after its latest funding round, giving it a price-to-sales (P/S) ratio of 4.6 times based on its 2021 revenue. Such comparisons suggest Yuanxin’s shares could trade at a relatively big premium compared with its peers.
The company has many competitors with overlapping business portfolios, though each has its own unique mix. Many internet giants have built their own healthcare platforms like Alibaba Health and JD Health, but most are little more than online drugstores. Then there are the likes of Chunyu Doctor and Ping An Good Doctor, which are online diagnostic platforms heavily reliant on doctors who are active on those platforms.
Yuanxin’s out-of-hospital patient services set the company apart, and its newer businesses, while small at the moment, could hold bigger promise over the longer term. The company aims to be more of a one-stop shop for patients’ healthcare needs, providing the range from pharmaceutical to insurance products. Its more comprehensive approach might explain its valuation premium.
That said, the ever-present danger of increased regulation over China’s internet companies is growing in the current environment, presenting a very real risk for investors looking at this kind of innovative high-growth company. Whether the benefits outweigh the risks is question that only investors can answer as the company forges ahead with Hong Kong’s newest medical IPO.
