On December 15, Beijing Chunli Zhengda Medical Device Co., Ltd. (hereinafter referred to as "Chunli Medical") issued a listing arrangement and preliminary inquiry announcement on the Hong Kong Stock Exchange, Chunli Medical intends to publicly issue 38.428 million A shares on the Shanghai Stock Exchange, accounting for 10% of the total share capital after the issuance, and the total number of RMB ordinary shares and H shares after the completion of the issuance accounts for 34.94% of the total share capital after the issuance, not less than 25% of the total share capital after the issuance, and the preliminary inquiry date is December 16. If successfully listed, Chunli Medical will become the first "A+H" enterprise in the domestic medical device industry.
According to public information, Chunli Medical, founded in 1998, is a leading manufacturer of orthopedic medical devices in China, the main business is the research and development, production and sales of implantable orthopedic medical devices, and the main products are joint prosthesis products and spine implant products. In March 2015, Chunli Medical raised 186 million yuan to be listed on the Hong Kong Stock Exchange. The second listing of "Back to A", Chunli Medical plans to raise another 2 billion yuan for the comprehensive construction project of orthopedic implants and supporting materials, the construction project of R&D center, the construction project of marketing network and supplementary working capital.
However, Caijing Network noted that since june 2020 announced the return to A-shares to the listing on the Science and Technology Innovation Board, Chunli Medical has not only been reduced by important institutional investors such as Morgan Stanley, Citi, JPMorgan Chase, Credit Suisse, and UBS, but also its stock price in the secondary market of Hong Kong stocks has also "fallen endlessly". Chunli Medical, which bears the gimmick of the first domestic medical device "A + H" stock, why is there such a situation? Is Chunli Medical's "back to A" secondary listing still worth the market's expectations?
The income structure is single, and the scientific research ability is not strong
According to the prospectus, in the first half of 2018-2021, the operating income of Chunli Medical was 498 million yuan, 855 million yuan, 938 million yuan and 718 million yuan, respectively, and the net profit attributable to the mother was 106 million yuan, 237 million yuan, 283 million yuan and 204 million yuan respectively in the same period; from 2018 to 2020, the operating income of Chunli Medical increased by 65.80%, 71.78% and 9.63% respectively, and the growth rate of the net profit attributable to the mother was 54.72% and 124.11% respectively. 19.69%, the performance growth rate declined significantly.
At the same time, Chunli Medical disclosed the 2021 performance forecast in the prospectus, and it is expected that the operating income for the whole year of 2021 will be about 950 million yuan to 1.148 billion yuan, a year-on-year change of 1.29% to 22.43%; and the net profit attributable to the mother will be 269 million yuan to 324 million yuan, a year-on-year change of -5.05% to 14.41%.
During the Reporting Period, Chunli Medical's main business income came from the sales of standard joint prosthetic products, customized joint prosthetic products and spinal implant products. Among them, the revenue of standard joint prosthesis products - hip during the reporting period was 357 million yuan, 595 million yuan, 672 million yuan and 342 million yuan, respectively, and the revenue amount accounted for 71.75%, 69.55%, 71.64% and 70.95% of the main business in each period; the sales revenue of standard joint prosthetic products - knee was 77.482 million yuan, 163 million yuan, 156 million yuan and 75.3956 million yuan, accounting for 15.56%, 19.10% and 16.62%, respectively. 15.65%, the total of the two accounted for nearly 90%, the source of income is relatively single.
Image source: Prospectus
According to the prospectus, on September 14, 2021, at the bid opening site of the first centralized procurement of artificial joints organized by the state, in the group A bidding unit of the knee joint of the heavy product, Chunli Medical's "knee product system" was quoted at 7980 yuan, the highest in the whole field, and failed to win the bid. The revenue of Knee Standard Products of Chunli Medical accounted for 15.56%, 19.10%, 16.62% and 15.65% respectively, and the gross profit margin was 64.11%, 64.84%, 72.09% and 79.00%, respectively. Chunli Medical admitted in the prospectus that the failure to win the bid had a great adverse impact on its knee business, and the knee joint revenue decline may exceed 90%. According to the previous China Network Finance report, the first year of Chunli Medical knee joint product procurement demand of 18909, involving a market size of about 151 million yuan, according to this estimate, the failure to win the bid or make Chunli Medical lose about 151 million yuan of market share.
According to the relevant report of punctuation information, Chunli Medical occupied 8.96% of the market share of China's joint implantable medical device market in 2019, ranking second among all local enterprises and fourth among all enterprises in China's joint prosthesis industry (including foreign enterprises). The failure of the bid will also affect the market position of Chunli Medical in the industry.
With market share to become the leader in the industry, how about the technical strength of Chunli Medical? According to the prospectus, from 2018 to 2020, Chunli Medical invested a total of 166 million yuan in R&D expenses, and the three-year cumulative R&D investment accounted for 7.24% of the cumulative operating income, and the R&D expense rate was lower than that of iKang Medical and Dabo Medical, which are comparable companies in the same industry, but higher than Sanyou Medical, Kailitai and Weigao Orthopedics. From the perspective of research and development results, as of September 29, 2021, Chunli Medical only has 20 invention patents and 14 Class III medical device registration certificates, which are in the last place among comparable companies in the same industry.
Earn money by raising prices, and conceal information by involving bribes
According to the prospectus, as of the end of 2020, the total assets of Chunli Medical were 1.540 billion yuan, and its asset size was far lower than that of the comparable companies in the same industry, Weigao Orthopedics (3.175 billion yuan), Kelly Tai (3.681 billion yuan), Dabo Medical (2.638 billion yuan), iKang Medical (2.527 billion yuan) and Sanyou Medical (1.671 billion yuan). At the same time, according to the above, the number of invention patents and Class III medical device registration certificates currently owned by Chunli Medical are also at the bottom of comparable companies in the same industry. So, what did Chunli Medical rely on to achieve its second largest market share of local companies in 2019?
According to the financial network combing observation, Chunli Medical mainly through the increase in the unit price of products to obtain revenue. According to the prospectus, in the first half of 2018-2021, the sales prices of major products such as Chunli Medical Standard Joint Prosthesis - Hip, Standard Joint Prosthesis Product - Knee, Spine Implant Products and other major products showed an upward trend. During the reporting period, the sales prices of the standard joint prosthesis-hip of Chunli Medical's main products were 1173.99 yuan / piece, 1268.32 yuan / piece, 1388.51 yuan / piece, 1429.66 yuan / piece, and the sales unit price of the other major product standard joint prosthesis product - knee was 1284.43 yuan / piece, 1220.55 yuan / piece, 1356.69 yuan / piece, 1559.53 yuan / piece, respectively.
So, is the price increase of Chunli Medical's main products year after year because of the increase in raw material costs? Not. According to the prospectus, the main raw materials of Chunli Medical include ceramic blanks, metal blanks, medical ultra-high molecular weight polyethylene and metal materials, except for medical ultra-high molecular weight polyethylene, the purchase prices of the remaining major raw materials are declining year by year.
In fact, relying on increasing the unit price of products can only bring short-term benefits to Chunli Medical, and it is not advisable in the long run. In this regard, it can also be seen from the weak performance growth rate of Chunli Medical in recent years.
In addition, the financial network noted that Chunli Medical also had a transaction of more than 10 million yuan with "0 people" customers in the year of establishment. According to the prospectus, in 2019, Chunli Medical and Shaanxi Intima Business Information Consulting Co., Ltd. (hereinafter referred to as "Intima") have a contract for sales services, which is valid from January 1, 2019 to December 31, 2019, and the amount of execution is 12.0065 million yuan, which has been fulfilled.
According to Tianyancha, INTIMa was established on January 22, 2019, and was simply cancelled on February 3, 2021 (not open, no creditor's rights and debts). In addition, INTIMay's 2019 annual report publicly disclosed that in 2019, in 2019, indyme's social security contributors were 0.
Image source: Sky Eye Check
In addition, Chunli Medical also disclosed in the prospectus that there may be a risk of commercial bribery and a risk of partner misconduct in the sale, but did not disclose whether specific behavior has existed. After consulting the China Judgment Document Network, Caijing Found that the downstream distributors of Chunli Medical did have commercial bribery behavior.
On April 30, 2020, the China Judgment Documents Network disclosed the "Criminal Judgment of the First Instance of Bribery by Xinyu Chuangsheng Trading Co., Ltd. and Wu Weimin Unit", exposing the insider trading between a medical device distribution enterprise and the president, and also involving a number of medical device manufacturers. According to the announcement, Wu Weimin, the actual controller of Xinyu Chuangsheng Commerce and Trade Co., Ltd. (hereinafter referred to as "Chuangsheng Commerce and Trade") in Jiangxi Province, paid a bribe of 2.3 million yuan to Zou Mou, president of Xinyu People's Hospital, and his son in order to win the bid for the procurement project. According to the judgment, Chuangsheng Commerce and Trade has been authorized by more than ten medical device companies such as Chunli Medical and Linhua Medical to sell medical devices in Xinyu People's Hospital. It is more noteworthy that Lin hua medical will be rejected at the IPO of the main board of the Shanghai market on May 27 this year, and in the on-site inquiry stage, the NDRC has asked Lin Hua Medical to explain whether there is commercial bribery, whether there is disguised sales through the rotation of dealers' funds, whether there is commercial bribery or improper profit transmission through business publicity fees and business activity fees.
The previous IPO fundraising project failed for ten years, and the major shareholders reduced their holdings after announcing the "return to A"
According to the prospectus and the third round of inquiry reply letter, in 2011, Chunli Medical and Beijing Biomedical Industry Base (hereinafter referred to as "Biomedical Base") signed the "Zhongguancun Science and Technology Park Daxing Biomedical Industry Base Stationing Agreement" and its supplementary agreement. According to the agreement, Chunli Medical was officially put into production and operation in March 2013, and since the first full tax year, it has achieved the goal of an annual GDP of not less than 795 million yuan and an annual tax payment of not less than 184 million yuan in three consecutive complete tax years.
In 2013, the agreement could not be completed. On March 11, 2015, Chunli Medical was listed on the Main Board of the Hong Kong Stock Exchange, and the net proceeds received from the global offering were about RMB186 million (excluding underwriting commissions and all related expenses), and it is proposed to use the net proceeds of the global offering of approximately 50.0% and approximately RMB92.93 million to develop the first phase of the daxing new production base. According to the "Global Sale of Beijing Chunli Zhengda Medical Device Co., Ltd." released by Chunli Medical on February 27, 2015, the construction of the first and second phases of the new production base in Daxing is expected to be completed around December 2016 and December 2018 respectively, and when the first and second phases are completed, it is expected to be fully put into operation around October 2019, with a total investment cost of about 510 million yuan.
However, according to Chunli Medical's 2020 annual report, the budget of the first phase of the expansion of production plants and facilities in Daxing Biomedical Industry Base (Daxing New Production Base) is 184 million yuan, and as of the end of 2020, the book balance of the project is 50.1061 million yuan, and the project progress is only 32.58%, of which 22.46 million yuan of H shares are used to raise funds for the first phase of the large-scale production base project, accounting for only 24.17% of the funds that can be used for the project. As of June 30, 2021, the amount of construction in the first phase of the expansion of the production plant and facilities of Daxing Biomedical Industry Base was 75.0774 million yuan, which was still unfinished. Chunli Medical said in the prospectus that it expects the project to be completed and settled in 2021-2022.
The previous IPO fundraising project failed for ten years, and it had to raise another 2 billion yuan back to A. Soon after the announcement of Chunli Medical's "back to A" news, morgan stanley, JPMorgan Chase, Citi, Credit Suisse, UBS and other important institutional investors have reduced their holdings, and their stock prices in the secondary market of Hong Kong stocks have also shown a cliff-like decline.
According to the previous announcement of Chunli Medical, the company proposed to submit an A-share offering application to the China Securities Regulatory Commission, the relevant China Stock Exchange and other relevant regulatory agencies at the board meeting held on June 5, 2020, and the number of A-shares to be issued will not exceed 38.428 million shares. Shortly after the news was released, on June 10, 2020, Chunli Medical was reduced by Morgan Stanley to a good position of about 436,700 shares at an average price of HK$50.0783 per share, involving about HK$21.872 million, and on July 31 of the same year, Morgan Stanley reduced its holdings by another 318,800 shares at a price of HK$60.7836 per share. According to wind data, at the end of June 2020, Morgan Stanley was still the fourth largest shareholder of Chunli Medical, but by the end of December 2020, Morgan Stanley had withdrawn from the list of the top seven shareholders of Chunli Medical.
Image source: wind
Caijing Network also noted that since Chunli Medical announced its return to the secondary listing of A-shares, in addition to Morgan Stanley, Citigroup Inc., Credit Suisse Group, JPMorgan Chase & Co., UBS Group AG and other well-known investment institutions have reduced their holdings, respectively, with a cumulative reduction of 1.3635 million shares, 2.779 million shares, 650,300 shares, 44,300 shares. It is worth noting that according to Chunli Medical's 2020 annual report, Citi, UBS and Credit Suisse are still its fourth largest, sixth and seventh largest shareholders, respectively.
The secondary market also does not seem to be optimistic about Chunli Medical's "return to A". According to wind data disclosure, since June 2020 Chunli Medical announced its return to A listing, its Hong Kong stock price first quickly rose to the highest point of 63 Hong Kong dollars / share in one month, and then the stock price fell all the way, as of December 16, before the press release, Chunli Medical reported 16.02 Hong Kong dollars / share, the stock price has fallen by 70%, the total market value of 5.53 billion yuan, since the announcement of the return to A listing, Chunli Medical market value has evaporated more than 16 billion Hong Kong dollars.
Wang Miaomiao/Wen