On September 24th, Science and Technology Innovation Board Daily News (Reporter Zheng Bingxun) recently, the Internet medical enterprise Health Road Limited Company (referred to as 'Health Road') once again submitted an IPO application to the Hong Kong Stock Exchange, with Jianyin International as the exclusive sponsor. According to the plan, Health Road is preparing to use the funds raised for business development, acquisitions, research and development, as well as operating capital.

The history of Health Road can be traced back to as early as 2001, starting with providing health medical services for Chinese individual users on digital platforms. After years of development, in 2015, Health Road extended its business to providing enterprise services and digital marketing services for enterprises and institutions.

According to Frost & Sullivan data, based on the number of registered individual users on the Health Road platform as of the end of 2023, Health Road operates one of China's largest digital health medical service platforms. According to the IPO document, as of the end of June 2024, the number of registered individual users on the Health Road platform was 195 million people.

Although Health Road's business scale is expanding, China's digital medical health service market is relatively new, and with more players joining, Health Road is facing an increasingly competitive market environment.

Currently, Health Road is in a 'whirlpool' of consecutive years of losses and increasing losses year by year, and its profitability needs further verification.

Increase in income without profit growth: net losses exceed 0.7 billion in 3 years.

Health Road is involved in multiple areas in its business. According to different user groups, Health Road's business mainly includes providing health medical services to individual users, as well as providing enterprise services and digital marketing services to enterprise and institutional users.

Specifically for individual users, Health Road offers services including appointment arrangements, medical agency, accompaniment, physical examinations, medical consultations, and surgical appointment arrangements. Users can also seek advice from doctors on the platform regarding diseases and health issues.

In December 2022, Health Road completed the acquisition of six special drugstores from the chain drugstore Jianming Tang, so its business also includes specific pharmaceutical sales. In 2023, Health Road generated revenue of 44.6 million yuan from the six special drugstores. In November 2023, Health Road began to engage in pharmaceutical wholesale business, and in the same year, generated revenue of 48.8 million yuan by selling drugs to third-party drugstores and pharmaceutical trading companies.

As of September 6, 2024, Health Road has a total of three types of pharmaceutical sales agent authorizations, including one for treating influenza A and B and two for treating cardiovascular and cerebrovascular diseases. In addition, Health Road also offers health products including nutritional supplements and skin patches.

From 2021 to the first half of 2024 (referred to as the 'reporting period'), the health and medical services provided by individual users brought revenues of 12.8 billion yuan, 18.3 billion yuan, 29.7 billion yuan, and 12.3 billion yuan to Health Road, with corresponding percentages of total revenue being 29.7%, 32.2%, 23.9%, and 20.1%.

Currently, the majority of Health Road's revenue comes from providing enterprise services and digital marketing services to corporate and institutional users. During the reporting period, Health Road's enterprise services and digital marketing services achieved revenues of 30.1 billion yuan, 38.5 billion yuan, 94.6 billion yuan, and 48.9 billion yuan, accounting for 69.8%, 67.6%, 76.0%, and 79.9% of the total revenue.

Health Road's business for corporate and institutional users includes collaborating with external doctors to provide educational content services to baidu in the form of texts, as well as assisting pharmaceutical companies in creating medical content related to their drugs and medical products, while also providing technical solutions to pharmaceutical companies and medical institutions.

By the end of July 2024, the number of registered individual users on Health Road platform has increased to 196 million, the number of registered doctors has increased to 879.3 thousand, and the number of connected hospitals on the platform has also increased to 11.7 thousand.

Benefiting from business expansion, Health Road's total revenue grew rapidly during the reporting period, increasing by 31.9% from 0.431 billion yuan in 2021 to 0.569 billion yuan in 2022, further increasing by 118.7% to 1.244 billion yuan in 2023, and reaching 0.611 billion yuan in the first half of 2024, a year-on-year increase of 14.5%.

However, the high sales expenses and R&D costs of the enterprise dragged down the gross margin, leading the health journey into a 'whirlpool' of increasing revenue without increasing profitability.

During the reporting period, the sales expenses of the health journey were 12.6 million yuan, 14.7 million yuan, 21.2 million yuan, and 98.576 million yuan respectively, and the R&D costs were 14.142 million yuan, 54.41 million yuan, 10.3 million yuan, and 53.968 million yuan respectively. Correspondingly, the gross profits were 17.4 million yuan, 24.6 million yuan, 39.8 million yuan, and 18.4 million yuan respectively, with gross margins of 40.2%, 43.2%, 32.0%, and 30.0%.

Correspondingly, during the reporting period, the health journey incurred net losses of 15.5 million yuan, 25.6 million yuan, 31.4 million yuan, and 57.275 million yuan, totaling net losses of 72.5 million yuan for the first three full years and a total net loss of 78.2 million yuan for the reporting period.

Due to this impact, the net liabilities of the health journey increased by 20.1% from 1.199 billion yuan in 2021 to 1.441 billion yuan in 2022, further increasing by 14.7% to 1.652 billion yuan in 2023. In the first half of 2024, the net liabilities of the health journey further increased to 1.709 billion yuan.

▌ The main business involves multiple related transactions.

According to its historical evolution, the health journey was formerly known as 'Fuzhou Renren Health' established in 2001, mainly providing online appointment services for medical services. In November 2014, the health journey was registered and established in the Cayman Islands. Subsequently, the health journey received multiple rounds of financing.

Firstly, in 2014, the health journey signed a stock purchase agreement with Baidu (Hong Kong), issuing and distributing Series A preferred shares to them at a price of $60 million. In May of the following year, Baidu (Hong Kong) obtained 21.249 million shares of Series A preferred shares.

Next, in 2016, the health journey obtained rounds B-1 and B-2 financing from Shanghai Jiejia and Shangrao State-owned assets respectively. Among them, Shanghai Jiejia acquired 1.69 million shares of Fengji's shares at a total price of 33.75 million yuan, and Shangrao State-owned assets subscribed to 1.0% of the registered capital for 30 million yuan in cash and 20 million yuan in intangible assets. In December 2017, Shangrao State-owned assets further subscribed to 1.69% of the registered capital for 50 million yuan in cash and 33.3 million yuan in intangible assets.

Later in July 2023, Strait No. 1 acquired 1.1093 million shares for 20 million yuan, while Kequan acquired 4.1596 million shares for 0.1 billion yuan.

Before the IPO, the largest shareholder of Health Journey was Fengji, holding a total of 0.296 billion shares, accounting for 34.70% of the total share capital. Fengji is fully owned by Health Journey's founder Zhang Wanneng. The second largest shareholder of Health Journey is Baidu (Hong Kong), holding 0.106 billion shares, accounting for 12.46%, indirectly owned by Baidu (9888.HK).

It is worth mentioning that due to the various business dealings between Health Journey and Baidu, including Baidu Wenzhen and Baidu Times, a large proportion of the revenue generated from related transactions once accounted for a significant part of Health Journey's total revenue.

Specifically, Health Journey started cooperating with Baidu on popular science content services in 2018. Currently effective popular science content cooperation agreements include in 2023, Health Journey's consolidated affiliated entity Fujian Health Journey and Baidu Wenzhen entered into a cooperation agreement, and Health Journey's subsidiary Fuzhou Kangzhi and Baidu Times entered into a cooperation agreement, both lasting until the full year of 2024. It is revealed that the partners are expected to renew the agreement after its expiration.

During the reporting period, the amounts generated from the aforementioned popular science content agreements were 47.66 million yuan, 18.38 million yuan, 12.83 million yuan, and 6.09 million yuan, accounting for approximately 11.14%, 3.16%, 1.05% of Health Journey's total revenue. Health Journey stated that for the year 2024, the maximum transaction amount for the popular science content cooperation agreement is set to be 20 million yuan.

In addition, Health Journey also purchased cloud services from Baidu Wenzhen. During the reporting period, Health Journey paid amounts for Baidu Cloud services of 2.5 million yuan, 1.2 million yuan, 1.2 million yuan, and 0.08 million yuan.

Since 2021, Health Journey has been cooperating with Baidu Wenzhen on online appointment services for physical examinations, with the latter agreeing to access Health Journey's services through the Baidu online search platform, showcasing and promoting its online appointment services for physical examinations. As a result, Health Journey pays Baidu Wenzhen 10% or 3% of the actual order transaction amount generated through Baidu's online platform as a commission.