The price gouging is fined, the third-generation license is missing, will the listing of Aviaf, which has a dominant share, go smoothly?
Author: Mu Qing, Editor: Xiao Shimei
On December 22, 2023, Avieve (full name: Aviave Hospital Management Group Co., Ltd.) submitted a report to the Hong Kong Stock Exchange, wanting to become a successor to Jinxin Fertility (01951. HK), the next assisted reproduction company listed on the Hong Kong Stock Exchange.
However, at present, private hospitals are losing ground in the competition with public hospitals, Aviaf's revenue ceiling seems to have appeared, and at the same time, it has also been punished by regulators for price gouging, etc., which makes the results of this sprint full of uncertainty, however, if Aviave wants to continue to develop, Aviave has to push itself into the spotlight as soon as possible.
[Dominant equity, lack of third-generation license]
Founded in 2006, Aviave is a one-stop assisted reproductive technology (ART) and assistive services provider, currently managing four hospitals, namely Zhanjiang Jiuhe Hospital in Guangdong Province, Tianjin Aiwei Hospital in Tianjin, Jieyang Aiwei Hospital in Guangdong Province, and Kunming Aiwei Hospital in Yunnan Province, covering 15 provinces in China.
According to the Frost & Sullivan report, in 2022, Avieve conducted a total of 6,706 IVF cycles, ranking fourth among China's private assisted reproductive technology service providers, accounting for 0.9% of the total in China in the same year.
▲Aviaf's market position, source: prospectus
The first thing that makes people lose their eyes when they start to understand Aviaf is its corporate structure, which has a dominant shareholding. Aviaf is a proper family business, its Hong Kong listed entity is Aviave Hospital Management Group Co., Ltd., and its domestic operating entity is Shenzhen Aviave Hospital Management Group Co., Ltd., from the equity penetration, it can be seen that the actual controller Ren Jizhong, Zhang Xiaowen and his wife hold a total of 91.81% of the equity of the listed entity, and if it penetrates to the operating entity, then the Ren Jizhong family holds nearly 95% of the equity.
Companies with a high proportion of actual controllers are indeed prone to the problem of one-word words, making many systems and processes useless. This will have serious hidden dangers for listed companies. A complete system process is an important prerequisite for the standardized operation of listed companies.
In addition to the dominance of one share, another problem that cannot be ignored is that the company does not currently have a third-generation IVF license. It is reported that at present, in clinical practice, assisted reproductive technology has been updated and iterated to the third generation. Among them, the first generation is the conventional IVF technology, which is also the main technology used by Aviaf, the second generation is the ICSI technology, which is mainly suitable for male infertility, and the third generation is PGT, which requires chromosomal screening of embryos or pre-embryo transfer diagnosis.
▲ Three generations of technical situation, source: prospectus
Because the third-generation technology has chromosomal screening and pre-transplant diagnosis, it can better meet the social values of eugenics, so it is more popular with patients. The lack of a third-generation license will have a great adverse impact on the subsequent operation of Aviaf, and in the face of the growing third-generation assisted reproduction cake, Avieve is not eligible to participate in the sharing.
At present, most of the third-generation licenses are public hospitals with excellent comprehensive strength, and private hospitals are indeed losing ground in the competition with public hospitals.
[The decline is highlighted, and the revenue ceiling has appeared]
According to the prospectus, from 2020 to the end of June 2023 (referred to as: the reporting period), the operating income of AVIE was 369 million yuan, 420 million yuan, 407 million yuan and 230 million yuan respectively, and the company's net profit was 46 million yuan, 95 million yuan, 65 million yuan and 34 million yuan respectively. It can be seen that 2021 is the ceiling of revenue and net profit in the reporting period.
▲Aviaf's revenue and net profit in recent years, source: prospectus
According to Frost & Sullivan data, the number of couples with infertility problems in China is actually rising, from 55.4 million in 2018 to 56.7 million in 2022, an increase of 2.35%. However, the overall penetration rate of the domestic assisted reproduction market is not high, as of 2022, the penetration rate is only 9.2%, which is far from the more than 30% in European and American countries.
In the prospectus, Avieve also mentioned that this problem is mainly due to the cultural differences between China and the West, and the low acceptance of assisted reproduction in China, so that the overall market size has not grown much in the case of the increasing number of infertile couples. Against this backdrop, Aviave's profitability indicators such as return on equity and return on assets have also continued to decline.
▲ Aviave's profitability ratio in recent years, source: prospectus
It is understood that in 2022, in the field of assisted reproduction, public hospitals will occupy about 90% of the market share, and the remaining hundreds of private hospitals will share the remaining share.
As of the end of June 2023, Aviaf had less than $108 million in cash and equivalents on its books. On the one hand, the listing of Aviaf can bring funds to bring financial security for the company's operation and application for the third-generation license, and on the other hand, through the listing, it can also better help its own business by opening up its popularity.
However, the ideal is very plump, and the reality is very skinny. The company's compliance loopholes are also a big hidden danger.
[Fined for price gouging, there are compliance loopholes]
The compliance review of a company has always been an important part of the listing review process. Legal and compliant operation is an important part of the company's long-term operation.
However, Tianjin Aiwei Hospital (Limited Partnership), a subsidiary of Aviaf, was twice fined by the Tianjin Hedong District Administration for Market Regulation for price gouging, publishing illegal medical advertisements and infringing on consumer rights.
▲Tianjin Aiwei Hospital was punished twice, source: Tianyancha
In the prospectus, Avieve itself mentioned that failure to comply with the laws, rules and regulations on medical treatment and advertising in the course of its operations may result in the company facing penalties or fines, and may even revoke the relevant license to provide specific medical services or even the practice license of the medical institution.
A very important condition for patients to choose a hospital is to see how the hospital's reputation is, and there is no need to say that there is negative news about these bullying patients, which damages the company's image.
Finally, the author also made some comparisons between Avi and Jinxin Reproduction, another Hong Kong-listed company. It can be seen that in terms of revenue scale and growth, Avieve is far inferior to Jinxin Reproduction. If calculated according to the latest price-to-book ratio of 0.694 of Jinxin Reproduction and the net assets of 714.5 million yuan as of the end of June 2023, if Avieve is successfully listed, its reasonable market value may be less than 500 million Hong Kong dollars.
▲ Comparison between Jinxin Fertility and Aviaive, source: public information collation
At present, Avieve is eager to go public, and wants to push himself into the spotlight and enhance his popularity, not only for financing, but also for future business expansion, but, on the whole, the author believes that it seems that it is not a good time to go public.
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The content of this article related to listed companies is the author's personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.), and the information or opinions in this article do not constitute any investment or other business advice, and Market Value Watch does not assume any responsibility for any actions arising from the adoption of this article.
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