Imaging specialist to seek US$500m

Chinese medical imaging solutions provider Neusoft Medical Systems Company has filed a second application to list in Hong Kong, following the expiry of its first one in November.

The Shenyang-based company has not disclosed the size of fundraising, but Bloomberg reported last May, before it sought the bourse's approval for the first time, that the share sale could raise from US$400 million to US$500 million (HK$3.12 billion to HK$3.9 billion).

This is the firm's third attempt to go public in two years: it withdrew its listing application to Shanghai's Star market in 2020, before filing the lapsed application in Hong Kong in June last year.

Neusoft has to go public by September this year, or it will have to buy back a large number of shares at a premium from the current shareholders, mainland media reported.

Founded in 1998, Neusoft mainly focuses on developing, manufacturing and selling digital medical devices including CT scanners, as well as providing after-sales service and training for the equipment.

The two segments combined contributed over 90 percent of its revenue over the past few years, with CT scanners generating around half of the total income.

CT scanners, which combine X-ray imaging with tomography technology to create cross-sectional images of the body, are widely used for diagnosis and treatment for oncology diseases.

Neusoft was the fourth largest CT manufacturer in China by installed capacity in 2020 and the fifth by revenue, it stated in the prospectus, citing data from industry consultant Frost & Sullivan.

The revenue of the Chinese CT scanners market reached 14.9 billion yuan (HK$18.22 billion) in 2020 and is expected to grow at a compound annual growth rate of 9.3 percent to 23.2 billion yuan in 2025, according to the prospectus.

Neusoft's gross profit margin continued to drop from 39.9 percent in 2018 to 36.7 percent in 2020, partly due to the average selling price of its CT scanners falling 8.2 percent from 1.84 million yuan to 1.69 million yuan, despite revenue rising from 1.91 billion yuan to 2.46 billion yuan thanks to increasing sales.

The company's trade and bills receivables accounted for around 60 percent of its sales in recent years and it warned a failure of collection may materially affect its cash flows and operations adversely.

A total of 128.6 million yuan of impairment, or nearly 10 percent of the receivables and revenue, was recorded in the six months ended June last year, the prospectus showed.

Neusoft also relies heavily on government grants to support its operations and research and development and alerts that the discontinuation of such would significantly reduce its profitability.

Its net profit increased 16.1 percent to 101.78 million yuan in 2020 from 2019, but the government subsidies in the year more than doubled to 98.1 million yuan or 96.4 percent of the profit for the year.

Neusoft plans to use the funds raised to enhance the R&D of its high-end digital medical imaging devices, expand its medical-devices-and-data-as-a-service (MDaaS) business as well as brand building, the filing said.

The company's R&D expenditures, including capitalized R&D costs, took 15 percent to 20 percent of its revenue in the past three years. MDaaS sales contributed less than 5 percent of the total but it expects the business expansion to diversify revenue sources, improve overall profit margins, reduce customer acquisition and retention costs and enhance its brands.