Heavyweight capital backs hospitals operator

Mainland oncology group Hygeia Healthcare's initial public offering has attracted HK$136 billion margin financing subscriptions, with the retail tranche 608 times oversubscribed, as of Friday.

It intends to raise up to HK$2.22 billion and offered 120 million shares at an indicative price range between HK$17 and HK$18.50. The minimum investment amounts to HK$3,737.29 per board lot of 200 shares. Its trading debut is scheduled for June 29. The company intends to use the proceeds for upgrading three existing hospitals, establishing new oncology-focused hospitals in Shandong, Jiangsu and Fujian, and acquiring hospitals.

It has lined up a total of US$143 million (HK$1.12 billion) from nine cornerstone investors, such as Chinese billionaire Zhang Lei's Hillhouse Capital, and China Southern Asset Management.

The listing application came as healthcare stocks are under the spotlight as the coronavirus pandemic is raging across the world.

Hygeia ranked second among all private oncology healthcare groups in China in terms of revenue generated from oncology-related services in 2019, according to a commissioned Frost & Sullivan report.

The company manages a network of 10 hospitals across seven cities in six provinces in China.

Its shareholders include well-known investors such as New York-based private equity firm Warburg Pincus, Chinese private equity firm Boyu Capital, which was founded by the grandson of former Chinese President Jiang Zemin, CITIC Capital and mainland contract medical researcher WuXi AppTec (2359).

Fountain Grass, an affiliate of Warburg Pincus, invested in Hygeia in 2015 and holds 17.47 percent in the company.

Morgan Stanley Asia and Haitong International Capital serve as joint sponsors.

Hygeia said the recent coronavirus pandemic has no material adverse impact on the operation of the in-network hospitals, as the group's two radiotherapy centers in Hubei province only contributed about 1.2 percent of total revenue in 2019.

Full-year revenue increased by 28.4 percent year-on-year to 766.14 million yuan (HK$836.63 million) in 2018, and further surged by 41.73 percent to 1.08 billion yuan in 2019.

In 2019, hospital business accounted for about 87 percent of the total revenue, and about 12.4 percent of revenue was from third-party radiotherapy business.

Among the 11 in-network hospitals in operation, Hygeia's three self-owned hospitals - Shanxian Hygeia Hospital, Suzhou Canglang Hospital and Longyan Boai Hospital - contributed about 62.5 percent of total revenue in 2019.

Gross profit margin increased by 2.8 percentage points year-on-year to 31.2 percent in 2018, but fell 0.8 percentage points to 30.4 percent last year.

Average spending per inpatient visit last year increased by 9.8 percent to 11,485.30 yuan, compared with the same period a year before.

Selling expenses fell by 52.9 percent to 15.42 million yuan in 2019 from a year before, mainly attributable to lower promotion and marketing spending as the patient base expands, the company says.

Meanwhile, Hygeia recorded a net profit of 2.42 million yuan in 2018, following a net loss of 46.51 million yuan a year before.

Net profit last year surged by 15.44 times year-on-year to 39.76 million yuan.

Hygeia's in-network hospitals derive a significant portion of revenue by providing healthcare services to patients with public medical insurance coverage, and any delayed payment under China's public medical insurance programs could affect results of operations, the company warns.