Microwave ablation is a minimally invasive tumor treatment method developed rapidly at home and abroad in recent years. It has the advantages of less trauma, high efficiency, complete local inactivation of tumor, less complications and so on.

Baide Medical Investment Holdings Limited (hereinafter referred to as "Baide Medical") is a developer and provider of microwave ablation medical devices for minimally invasive treatment of tumors. the company's proprietary microwave ablation medical devices for the treatment of benign and malignant tumors, including thyroid nodules, liver cancer, lung cancer and breast masses, submitted an application for listing on the main board of the Hong Kong Stock Exchange on September 28, ready to be listed in Hong Kong.

Pak Tak Medical was founded in 2012 by Ms. Wu Meimei and two other independent third parties. After three rounds of financing, Ms Wu's British Virgin Islands entity will have a direct stake of 59.95 per cent, while Bank of China Ltd. will own 8.32 per cent through BOCI Investment.

Over 70% of the company's revenue comes from microwave ablation needles.

Microwave ablation is a minimally invasive treatment technique, which uses the extremely high heat produced by microwave energy to change the properties of tumor cell proteins and make them coagulate. Microwave ablation therapy can prevent the progression of cancer by inhibiting the development of benign tumors into malignant tumors. therefore, early detection and treatment of benign tumors plays an important role in cancer prevention.

According to Frost Sullivan data, the microwave ablation medical device market in China is underserved but growing rapidly and has great potential for growth. With the continuous increase in the number of new cases of cancer patients in China, ablation therapy has been accepted by more and more people. The market size has increased from 1.63 billion yuan in 2015 to 3.28 billion yuan, with a compound annual growth rate of 15 percent, and is expected to reach 13.06 billion yuan by 2025. According to the prospectus, Baide Medical is the third largest supplier of microwave ablation medical devices in China by sales revenue in 2020, with a market share of 13.9%. In the field of treating thyroid nodules and breast masses, the company ranks first, with a market share of 28.1%.

Since its establishment, the scale of Pak's medical income has been growing, and its performance has been turned from deficit to profit in 2020. From 2018 to 2020, the company's income was 52.321 million yuan, 85.029 million yuan and 118 million yuan respectively, and the profits in the same period were-60.013 million yuan,-49.661 million yuan and 46.69 million yuan respectively. In the first half of 2021, the company realized a 57% year-on-year increase in revenue to 74.671 million yuan and a 305% year-on-year increase in profit to 27.006 million yuan.

However, most of Pak Tak Medical's income comes from microwave ablation needles, of which in 2020, the income from microwave ablation needles reached 88.04 million yuan, accounting for 74.4% of revenue, and the income from microwave ablation therapeutic instruments was 10.86 million yuan, accounting for 9.2%.

Ultra-high gross profit margin but low R & D cost

Parker Healthcare has ultra-high gross margins, which were 87.4%, 91.9%, 92.8% and 92.8% respectively from 2018 to the first half of 2021. The gross profit margin of microwave ablation needles sold by Patek Healthcare increased from 88.2% in 2018 to 93.1% in 2019, mainly due to a sharp increase in the proportion of sales to hospitals from 8.5% to 51.4%.

Although Pak Tak Healthcare has a gross profit margin of more than 90%, it still lost money in 2018 and 2019.

However, from the income statement data, the loss is mainly related to the change of the fair value of convertible bonds and has nothing to do with the actual operation of the company. After 2020, the value of convertible bonds changed little, and the company finally made a profit.

Sales and administrative expenses account for a large proportion of the expenses, while R & D costs have fallen by nearly 50% since 2019.

Among the sales expenses of Pak Tak Medical, staff costs and conference expenses account for a relatively high proportion, accounting for nearly 70% of the total sales cost. Among them, the conference expenses are mainly the expenses incurred by participating in different levels of study abroad conferences to promote brands and products, which decreased to 343000 yuan in the first half of 2020 due to the epidemic.

However, its R & D expenditure has been greatly reduced from 8.048 million yuan to 4.899 million yuan since 2019. From the structure of Patek medical products, it can be seen that its products are relatively single, mainly with microwave ablation needles, and are easily affected by policy, technology iteration, collection and other factors.