Chongqing Shanwaishan Blood Purification Technology Co., Ltd. (hereinafter referred to as "Shanwaishan" or the "Company") applied for listing on the Science and Technology Innovation Board on November 4, which was accepted by the Shanghai Stock Exchange. The company intends to publicly issue no more than 36.19 million shares in this listing, and plans to raise 1.247 billion yuan, with Western Securities as the main underwriter.
In 2020, Shanwaishan achieved a turnaround. On the other hand, the company's operating net cash flow continued to be negative, mainly due to the large increase in accounts receivable and inventory. In addition, the risk of price reduction of the company's products with volume procurement is also worth noting.
Turnaround in 2020 Operating net cash flow continues to be negative
Shanwaishan is mainly engaged in the research and development, production and sales of blood purification equipment and consumables, and provides chain hemodialysis medical services. The company's products include hemoperfusion machines, hemodialysis machines, continuous blood purification equipment and hemodialysis concentrates, hemodialysis dry powder and other blood purification consumables, which are used in the treatment of various acute and chronic renal failure, uremia, multi-organ failure and poisoning and other diseases.
In the first half of 2021, blood purification equipment is the company's most important source of income, accounting for about 60.01% of the main business income. Followed by blood purification consumables and medical service business, the main business income accounted for 20.94% and 18.37% respectively. Observing the changes in the proportion of the main business income of the company's various businesses since 2018, it is found that in addition to the blood purification equipment business, the proportion of the main revenue of other businesses has shown a downward trend.
Figure 1: The proportion of main business income of each business outside H1 Mountain from 2018 to 2020
From 2018 to 2020, the operating income of Shanwaishan rose from 113.8484 million yuan to 254.4083 million yuan, an increase of more than 1.2 times; in the same period, the company's net profit attributable to the mother after deduction of non-deductions rose from a loss of 30.2612 million yuan to a profit of 14.9992 million yuan, achieving a turnaround.
Figure 2: Operating income, net profit attributable to the mother and net profit attributable to the mother after deduction of non-attribution, H1 Mountain Waishan from 2018 to 2020
However, it is worth noting that although Shanwaishan has achieved a turnaround in 2020, the company's operating net cash flow continues to perform poorly. According to the data, the company's operating net cash flow in 2020 and the first half of 2021 was -18.5715 million yuan and -10.6064 million yuan, respectively, which were significantly lower than the net profit attributable to the mother in the same period.
Figure 3: Net profit attributable to the mother and operating net cash flow of H1 Mountain outside the mountain from 2018 to 2020
Accounts receivable and inventory turnover rate are lower than those of the same industry Pay attention to the risk of price reduction with volume procurement
The study found that an important reason for the poor performance of operating cash flow in Shanwaishan is the sharp increase in the company's accounts receivable and inventory amounts since 2020. The company explained that with the continuous expansion of the company's production and operation scale, the procurement of raw materials and product preparation has increased accordingly, the accounts receivable have also increased, and there is a certain time difference between the upstream and downstream payment and collection settlement, resulting in the net cash flow generated by the company's operating activities being negative.
Figure 4: Accounts receivable and inventory amounts of H1 MountainWaishan from 2018 to 2020
As of the end of the first half of 2021, the company's accounts receivable amount was 118.3961 million yuan, accounting for more than 90% of the account age within 1 year (including 1 year), and the cumulative provision for bad debts was 3.6581 million yuan; the total inventory amount was 68.5693 million yuan, mainly composed of raw materials and inventory commodities, and the total inventory price decline provision was 44,900 yuan.
Compared with comparable companies in the same industry, the turnover rate of accounts receivable and inventory turnover in Shanwaishan is also significantly lower.
Figure 5: Accounts receivable and inventory turnover ratios of H1 mountains and comparable companies from 2018 to 2020
In addition, among comparable companies in the same industry, in addition to Baihe Medical, the provision policy for bad debts in accounts receivable of Shanwaishan is more relaxed. According to the prospectus, the proportion of bad debts within 1 year, 1-2 years, 2-3 years, and 3-4 years in Shanwaishan is 2%, 8%, 15% and 30% respectively. In contrast, the accrual ratios under the same account age of Baolite, Sanxin Medical, Jianfan Biological and Tianyi Medical are not less than 5%, 10%, 30% and 50%.
Another risk facing the mountain is to reduce the price of the purchase with volume. On July 31, 2019, the General Office of the State Council issued the "Reform Plan for the Governance of High-value Consumables", proposing to explore centralized procurement according to categories for high-value medical consumables with large clinical consumption, higher procurement amount, more mature clinical use, and production by many enterprises. Up to now, the company's distribution products hemodialysis pipelines, blood perfusion devices, etc. have mainly carried out volume procurement in Anhui, Shaanxi, Liaoning and other provinces. Affected by the second impact, the sales price of the company's related products declined, adversely affecting the company's blood purification consumables distribution business.
In addition, with the continuous listing of self-produced hemodialyzers and blood perfusion devices in Shanwaishan, if these products are included in the scope of procurement and won the bid in areas where the purchase of quantity is carried out, there is a risk of a sharp decline in sales prices.
Listed on the New Third Board in 2016 Hillhouse's partnership holds 12.96% of the shares
The predecessor of Shanwaishan was Chongqing Shanwaishan Technology Co., Ltd., which was established in 2001. In 2015, Shanwaishan Limited was changed to a joint-stock limited company. The company was listed on the National SME Share Transfer System in 2016 and terminated in October 2018.
The controlling shareholder and actual controller of Shanwaishan is Gao Guangyong. As of the date of signing of the prospectus, Gao Guangyong directly held 32.34% of the total share capital of Shanwaishan. In addition, Gao Guangyong indirectly controls 3.67% of the company's share voting rights through three employee shareholding platforms: Yuanwaiyuan, Chongqing Dexiang and Chongqing Derui. Therefore, Gao Guangyong's total direct and indirect control of the company's voting rights is 36.01%.
Other shareholders holding more than 5% of shanwaishan's shares include Liu Yunjun, DaJian (acting in concert with Liyuan Jiankun and You Xinnong), Zhuhai Xiuheng and Huagai Xincheng. Among them, Zhuhai Xiuheng is a limited partnership of Hillhouse Capital, holding 12.96% of the company's shares.
In October 2020, the newly registered capital of Shanwaishan was 12,254,545,500 yuan, and Zhuhai Xiuheng, Xiangjiang Industrial Investment, Liyuan Jianhuan and Xiong Yan subscribed for 7,586,147,000 shares, 1,750,649 shares, 1,750,649 shares and 1,167,100 shares at a price of 17.14 yuan per share, with a total investment of 210 million yuan. From this calculation, the valuation of Shanwaishan at that time was about 1.86 billion yuan.
In this listing, Shanwaishan plans to raise 1.247 billion yuan, mainly for the industrialization project of blood purification equipment and high-value consumables, the construction project of blood purification research and development center, the construction project of marketing network upgrade and remote operation and maintenance service platform, and the supplementary working capital.
Figure 6: The use of funds raised outside the mountain
Blood purification equipment and high-value consumables industrialization projects are the most important fundraising projects, and the proposed investment amount is close to 70% of all raised funds. It is estimated that after the completion of the project, it can produce 24 million blood purification consumables (sticks) per year, including 12 million hemodialyzers, 6 million hemodialysis concentrates, 6 million hemodialysis dry powders; 12,500 blood purification equipment per year, including 10,000 intelligent hemodialysis machines, 2,000 multi-organ life support systems, and 500 peritoneal dialysis machines.
It is worth noting that as of the end of 2020, the total production capacity of blood purification equipment in Shanwaishan is 2,000 units, with a capacity utilization rate of 89.30% and a production and marketing rate of 81.58%. The company's blood purification equipment production capacity expanded by this fundraising is more than 6 times the existing production capacity, and it is worth noting whether it can be digested in the future. In addition, the hemodialysis machines and peritoneal dialysis machines involved in the company's project have not yet obtained medical device registration certificates. （CJT）
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