Leju Finance Deng Rufei Shulan Medical Management Co., Ltd. (hereinafter referred to as “Shulan Healthcare”) submitted a listing to the Hong Kong Stock Exchange in August. The co-sponsors are CICC and CITIC Securities.

Currently, Shulan Medical's business integrates three segments: health care services, hospital management services, and platform services.

Under the multi-point operating model, from 2020 to 2022 and the end of March 2023, Shulan Medical achieved total revenue of 1,618 billion yuan, 1,548 billion yuan, 1,778 billion yuan and 486 million yuan respectively. Among them, health care services contributed most of the total revenue, and each period accounted for more than 70% of the revenue.

Despite an overall upward trend in total revenue, the company's profit changed from profit to loss, and the amount of loss continued to increase. From 2020 to the end of March 2023, Shulan Medical's annual profit was 64.112 million yuan, -82.289 million yuan, -111 million yuan, and -31.545 million yuan respectively, with a cumulative loss of 225 million yuan in two and a half years.

As for the reason for the large losses, Shulan Medical admits that it was mainly due to the expansion of the hospital network to build and establish Shulan (Anji) Hospital and Shulan (Quzhou) Hospital. Both are in a climbing period, with huge upfront costs but limited benefits.

According to non-international financial reporting standards, the adjusted net profit of Shulan Medical during the reporting period was $122 million, $21.77 million, $6.304 million and $4.8 million, respectively.

It should be pointed out that due to its asset-heavy nature, the hospital industry requires a large amount of initial investment, and newly established hospitals need time to attract patients and generate sufficient revenue to offset the costs and expenses of the initial investment. Therefore, while expanding the medical network, Shulan Medical's gross profit level has also been affected by the two newly opened hospitals, and there are certain fluctuations.

During the reporting period, Shulan Medical's gross profit was 333 million yuan, 255 million yuan, 268 million yuan, and 77.556 million yuan, respectively. The corresponding gross margins were 20.6%, 16.5%, 15.1%, and 16.0%, respectively. From 2021 to the end of March 2023, the year-on-year changes were -4.1 percentage points, -1.4 percentage points, and 0.9 percentage points, respectively.

Specifically, Shulan (Hangzhou) Hospital supported most of the gross profit, with gross profit amounts of 190 million yuan, 123 million yuan, 127 million yuan, and 386.94 million yuan respectively; while Shulan (Anji) Hospital has not yet achieved profit. From 2021 to the end of March 2023, gross profit losses were 18.836 million yuan, 11.56 million yuan, and 2.198,000 yuan respectively; from 2022 to the end of March 2023, Shulan (Quzhou) Hospital's gross profit was -11,518 million yuan and 2.699 million yuan respectively.

In addition to this, Shulan Medical's rising costs during the period are also eroding the company's profits. The total sales and marketing expenses, general and administrative expenses, and R&D expenses of the company for each period of the reporting period were RMB 157 million, RMB 202 million, RMB 223 million and RMB 662.16 million.

Among them, general and administrative expenses accounted for the highest proportion, accounting for 6.7%, 10.1%, and 11.1% of operating income, respectively, at $108 million, $156 million, $180 million and $53.965 million for each period. Among them, it mainly includes employee welfare expenses, office and travel expenses, depreciation and amortization, labor expenses, etc. In 2022, employee welfare expenses reached 105 million yuan.

What is in stark contrast to general and administrative expenses is R&D expenses. From 2020 to 2022, Shulan Medical's R&D expenses were 24.564 million yuan, 19.262 million yuan, and 16.151 thousand yuan respectively, showing a trend of decreasing year by year, and the company's R&D investment is getting lower and lower.

As of the end of March 2023, Shulan Medical's total assets were $3,698 billion and total liabilities were $3,829 billion. It was insolvent, and its net debt was $131 million.