Source: IPO Daily

　　From “racing horse rodeo” to exploring effective profit models, after more than 20 years of development, Internet healthcare has begun to enter the second half.

　　Recently, Beijing Yuanxin Technology Co., Ltd. (hereinafter referred to as “Yuanxin Technology”) went to Hong Kong for IPOs four times after the prospectus submitted three times expired one after another. Goldman Sachs and CITIC Securities are co-sponsors of this IPO.

　　In October 2021, April 2022, and October 2022, Yuanxin Technology submitted prospectus to the Hong Kong Stock Exchange three times, all of which expired after more than half a year. Although Internet healthcare is on the rise, the IPO path has not been as smooth as imagined. For example, Neusoft Xikang, which flaunts the largest cloud hospital network in China, failed to submit a statement to the Hong Kong Stock Exchange three times.

　　Currently, companies that are listed on the Hong Kong Stock Exchange and have a business model close to Yuanxin Technology include Ping An Good Doctor, Ali Health, and Jingdong Health, respectively. Competition in the Internet medical industry is fierce. The IPO Daily found that at a time when competition on the Internet medical circuit is heating up, Yuanxin Technology relies more than 90% of its revenue from selling drugs and switching to insurance business with higher gross margins, and it is still doubtful whether it can turn a loss into a win.

　　Star Capital takes the lead

　　Founded in 2015, Yuanxin Technology is a healthcare company. Its founder, He Tao, is not a medical student, but graduated from the Central University of Finance and Economics majoring in management and worked as CEO of Jianyi Network. According to reports, Jianyi Network is the pharmaceutical e-commerce platform of the central enterprise China Resources Group. He Tao led Huayuan Pharmacy, which has more than a dozen stores, to transform e-commerce.

　　Selling drugs online is still the main feature of Yuanxin Technology. Yuanxin Technology's three major businesses are Yuanxin Pharmacy, Yuanxin Medical, and Yuanxin Huibao. It is compatible with drug sales, online consultations, and insurance services, respectively.

　　In its prospectus, Yuanxin Technology quoted Frost & Sullivan's report as saying that in terms of revenue, it is China's largest comprehensive medicine and medical delivery platform focusing on prescription drugs.

　　Yuanxin Technology is indeed “selling drugs for a living”

　　From 2020 to 2022 (hereinafter referred to as the “reporting period”), Yuanxin Pharmacy's revenue was 3,537 billion yuan, 5.615 billion yuan, and 7.283 billion yuan respectively. They accounted for 97.5%, 94.6%, and 93.7% of operating income, respectively. Drug sales support 90% of revenue and account for the absolute main revenue. Therefore, judging from the revenue share, technology companies seem to be under-represented.

　　Among them, online and offline sales of prescription drugs and medical products are its main business. According to the prospectus, by the end of 2022, Yuanxin Technology owned and operated 320 pharmacies.

　　It is worth mentioning that Yuanxin Technology's pharmacy is arranged around hospitals. According to the prospectus, in 2022, out of 320 pharmacies, 261 were within a 1 kilometer radius of the hospital, and 85 were designated as dual-channel pharmacies for medical insurance for major illnesses.

　　Standing on the cusp of “Internet healthcare”, Yuanxin Technology completed 11 rounds of financing within 8 years of establishment, with a cumulative financing scale of over 5 billion yuan. There is no shortage of star investment institutions on the shareholder list, such as Tencent, Sequoia Capital, Qiming Venture Capital, and Yi Fangda.

　　Prior to the IPO, founder He Tao and executive director and senior vice president He Weizhuang held a total of 37.01% of the shares. Tencent holds 19.55% of its shares and is the second largest shareholder other than the actual controller. Sequoia Capital holds 15.75% of the shares and Qiming Ventures holds 6.90% of the shares.

　　Increase revenue without increasing profit

　　However, Yuanxin Technology, which is being sought after by many celebrity capital, did not perform as well as expected under profitable conditions. According to the prospectus, during the reporting period, Yuanxin Technology's revenue was 3.629 billion yuan, 5.938 billion yuan and 7.775 billion yuan, and the cumulative revenue for three years was 17.342 billion yuan.

　　Although the scale of its revenue has increased year by year, the amount of losses has continued to expand, and there is a “increase in revenue without profit increase” situation.

　　From 2020 to 2022, net losses were 363 million yuan, 757 million yuan and 805 million yuan respectively, with a cumulative loss of nearly 2 billion yuan. Cash flow was also negative during the reporting period, with net operating cash outflows of $204 million, $814 million, and $640 million respectively.

　　Regarding losses, Yuanxin Technology explained in its prospectus that it is mainly expenses such as sales and marketing and administrative expenses, in order to promote the development process of offline pharmacies, as well as the insurance business and online consultation business.

　　During the reporting period, Yuanxin Technology's sales expenses were 500 million yuan, 820 million yuan and 1.03 billion yuan respectively, with sales rates of 13.7%, 13.8% and 13.2%;

　　It is worth mentioning that Yuanxin Technology pointed out that supply-side empowerment and medical industry-side empowerment are in the early stages of their respective development. In other words, Yuanxin Technology is trying to break through the “selling drugs for a living” path. This is probably related to its desire to impact higher gross margins.

　　Decline in gross margin

　　Compared to some companies in the Internet medical industry, Yuanxin Technology's gross margin is not high. In 2022, Dr. Ping An Hao's gross margin was 27.3%, JD Health's gross margin was 21.2%, and Jingdong Health's gross margin was 33.5%. In the same year, Yuanxin Technology's gross margin was less than 10%, or 9.3%.

　　In 2019-2022, Yuanxin Technology's gross margins were 10.6%, 9.2%, 9.0%, and 9.3%, respectively. Among them, its gross margin continued to decline in 2019-2021. As mentioned above, most of Yuanxin Technology's revenue comes from online and offline drug sales. On the one hand, as mentioned in the prospectus, sales of prescription drugs will be strictly checked, and there are certain risks. On the other hand, as shown in the table below, the gross margin of drug sales is not high. During the reporting period, they were 7.6%, 6.9%, and 6.9% respectively, which dragged down the overall gross profit margin.

　　Also, since drug sales depend on offline physical pharmacies, the business is relatively concentrated in South China. During the reporting period, South China accounted for 40.36%, 34.01%, and 39.38% of revenue, all exceeding 30%.

　　Let's also look at competitors. Weimedicine, Ping An Good Doctor, and Good Doctor Online have entered medical services such as online consultations and pharmaceutical e-commerce. Ali Health and Jingdong Health, on the other hand, used their channel advantages to enter from pharmaceutical e-commerce.

　　Yuanxin Technology, on the other hand, is interested in insurance companies' technology empowering the market. Due to favorable policies, increased disposable income, and demand for supplementary medical insurance, the technology enabling market for insurance companies has grown rapidly, and the scale of the insurance market has been further expanded. The relevant policy targets the market size to exceed RMB 2 trillion by 2025.

　　In 2019, the subsidiary Beijing Yuanxin Huibao Technology Co., Ltd. was established, and Yuanxin Technology held 51.03% of the shares. During the reporting period, the company's revenue from insurance services increased to 25 million yuan, 131 million yuan, and 242 million yuan respectively.

　　According to the IPO Daily, in 2023, it launched the “Shenzhen Huimin Insurance” insurance product to supplement medical insurance.