Summary of the report

Company overview

The company's business model: to provide health insight solutions to medical product manufacturers' customers to meet their sales and marketing needs based on health data such as retail data. The cooperative drugstore is an important business partner of the company, and the retail data provided by it is a key part of the company's database. Solutions are delivered through offline channels such as reports, releases, events, and events.

The company's business dates back to December 2007. Mr. Wu, the founder of the Southern Institute of Pharmaceutical Economics of the State Drug Administration, discovered potential business opportunities to provide comprehensive health insight solutions and set up Zhongkang Information, a major operating subsidiary of the Group. Zhongkang Holdings focuses on data collection, data standardization, data analysis application and resource integration in the health industry. Currently operates three business divisions, including (I) data insight solutions, (ii) data-driven publishing and activities, and (iii) SaaS.

From 2019 to 2021, Zhongkang Holdings realized revenue of 178 million yuan, 202 million yuan and 324 million yuan respectively; gross profit in the same period, corresponding to gross profit margin of 60%, 64% and 59%; net profit of 56 million yuan, 68 million yuan and 79 million yuan; profits of 54.4 million yuan, 65.3 million yuan and 72.0 million yuan respectively in the same period, and corresponding net interest rates of about 31%, 32% and 22% respectively.

The 21-year data insight solution achieved revenue of RMB 161 million, accounting for 50% of CAGR32%; data-driven publishing and activities in 19-21, accounting for RMB 135 million, accounting for 42% of CAGR 19-21, accounting for 29% of CAGR business revenue of RMB 28 million, accounting for 9% of CAGR152% 19-22.

Industry status and prospects

The digital penetration rate of China's health industry is low and is expected to increase to 21.1% by 2030. Digital penetration is the proportion of the scale of digital health or health market with digital components to China's overall health expenditure, which is expected to increase with the progress of technology, the standardization of data, explosive growth and its accumulation, as well as the support of macro policies and market demand. According to iResearch, China's digital health market will reach 3.055 trillion yuan in 2030, and digital penetration is expected to increase from 4.6 per cent today to 11.8 per cent in 2025 and 21.1 per cent in 2030.

China's health insight and solutions market is relatively scattered, and it is expected that the concentration will increase in the future, and the market will grow rapidly and steadily. The market participants design different sources of data, which may include clinical data, data from medical channels, non-medical channels or health management platforms, etc. the solutions provided can be broadly divided into market reports, consulting services, sales and marketing strategies, scientific research plans and other deliverables. Driven by advanced technologies such as artificial intelligence and cloud computing, China's health insight solution market is growing rapidly and steadily, with more than 2500 participants on December 31, 2021 and a market size of 24.9 billion yuan in 2021. According to the data of iResearch Consulting, the market size of health insight solutions will reach 130.3 billion yuan in 2026.

Advantages and opportunities

Zhongkang Holdings is competitive in the distribution of medical and health products and channels. According to the iResearch Consulting report, Zhonghang Holdings ranked first in terms of (I) revenue in 2021; and (ii) the number of top medical product manufacturers served in 2020 (based on the 2020 top medical product manufacturers list compiled by Torreya and Pharmaceutical Intelligence Network) and the number of enterprise customers.

Technology Intermediate Sinohealth Engine has been established based on cloud native technology to provide internal support for all business divisions. Sinohealth Engine can quickly invoke a variety of technologies for solutions and products, and simplify the development process by eliminating duplication of common technologies. The included micro-services (such as programs, processes and models) customize data insight solutions and data-driven release and activity products in a fast and cost-effective manner; for SaaS products, target micro-services can be deployed directly and tailored to the needs of new products.

Owns first-hand, real and the latest retail big data. Through cooperation with retail drugstores operating physical stores and online stores at the same time to establish a national network for data collection, and gradually expand the scale and expand the cooperative drugstore network. As of the last practical date, cooperative drugstore stores cover 299 cities in 29 provinces, of which 10.8% are expected to be major chain drugstores with an annual income of more than 200 million yuan.

Weakness and risk

Most of the business comes from customers of medical product manufacturers, whose demand for health insight solutions has increased or declined significantly, which could have a significant negative impact on the company's performance.

The risk of failing to continue to expand the network of partner pharmacies.

The risk of failure to accurately record, classify or synchronize the original data; the risk of potential design or performance defects of big data and his technical infrastructure and solutions and products; the risk of interference and damage to the integrity and reliability of the technology and information infrastructure; the risk of defects or failures in data processing programs.

If you fail to adapt to the risk of big data or the rapid development of technology in the field of artificial intelligence.

The risk of failure to comply with or adapt to changes in data protection, privacy and similar laws or the introduction of data taxes in China; the risk of security intrusion and attacks on systems and networks.

The purpose of the proceeds from the issue

The company plans to sell 7500 million shares worldwide, including 7.5 million shares in Hong Kong (10 per cent) and 37.5 million shares in international offering, with an over-allotment option of 15 per cent. The issue price per share can be reduced to HK $4.83 per share (the lower limit can be lowered to HK $4.83 depending on subscription). It is expected to be listed on July 12, 2022.

The net revenue from the offering is expected to be about HK $395.4 million. The company intends to use the net proceeds from the share offering for the following purposes:

(1) about 50.8% of them will be used to upgrade and upgrade the company's SaaS products (focusing on smart decision cloud, smart retail cloud and smart medical cloud) as well as its marketing and promotion (2) about 49.2% will be mainly used for further research and development of the company's technology and data warehouse, especially related to the following projects: the company's artificial intelligence technology, including big data and the artificial intelligence laboratory, the company's Zhuomu bird cognitive medicine platform aPaaS and life science solution aPaaS, and the middle platform of Sinohealth Engine.

Cornerstone investor

The company introduced four cornerstone investors, including Baiyang Health Industry International Trade, Guangdong Kangshi No.1 Private Equity Partnership, Lun's Family Holdlings Limited and Zheng Jingjie, to subscribe for a total of about 130 million yuan of shares, accounting for about 28.2% of the offering size, with a six-month lock-up period.

Investment suggestion

The company is on an excellent track. In recent years, the demand of the digital medical market has increased, and the demand of users has increased. with the increase of penetration and the refinement of the division of labor, the company mainly provides health insight solutions to solve the sales and marketing needs of customers of medical product manufacturers. According to iResearch Consulting report, based on 21 years of revenue and the 20-year list of top medical product manufacturers based on Torreya and Pharmaceutical Intelligence Network, the company ranks first in terms of China Health Insight Solutions Medical products and Channel Division in terms of the number of top medical product manufacturers and enterprise customers served in the past 20 years.

The company's business is greatly affected by external influence, and there is a certain degree of uncertainty. The core business data that underpins the company's health insight and solution comes from pharmacies, and the long-term data sources and data quality cannot be guaranteed; the main customers are medical product manufacturers, whose demand for health insight solution is uncertain; big data and AI's transformation and upgrading have not yet been implemented; industry regulatory policy is still unclear, and the possibility of greater impact on the company's business cannot be ruled out.

Starting from the second half of 2021, the valuation of the Internet medical and health sector showed a large correction, and the investment gradually returned to rationality.

According to the IPO price, the estimated market capitalization of the company after listing is 24.12-3.132 billion yuan, corresponding to the 21-year PE of about 32.7 times, corresponding to the 21-year PS of about 7.3 times (based on the median valuation of 2.653 billion HKD, 1HKD=0.85CNY), which is not absolutely attractive compared with comparable companies. Taking the above considerations into consideration, we give IPO a dedicated rating of "4.6".