Recently, the A-share market has rapidly surged, with investors' sentiments high and risk preferences greatly increased. Varieties with high elasticity are highly favored in the market, leading to the circulation of a hierarchy of disdain: new shares > recent IPOs > STAR and GEM > main board.

Due to the absence of price limits, newly listed stocks are speculated upon immediately with LongiTech Smart Energy (301618.SZ) increasing 17 times on its first day of listing on September 30th. Two recent IPOs, Unisplendour Technology (301551.SZ) and Hehe Information (688615.SH), listed on September 26th, have risen by over 23 times and 5 times respectively from their listing dates until the close on October 8th.

Amid the current frenzy in the market, many new stocks are eagerly waiting to catch up with this wave of feast.

According to Dengi.com, on September 29th, Shantou Ultrasonic Instrument Research Institute Co., Ltd. (referred to as 'Shantou Ultrasonic') submitted an application for listing on the ChiNext board, sponsored by China Galaxy Securities Co., Ltd.

Established in 1982, Shantou Ultrasonic is a company specializing in the research, production, and sales of medical imaging equipment and industrial non-destructive testing equipment.

In this round of market trends, the medical equipment sector has performed remarkably well, with Shantou Ultrasonic's peers, Shenzhen Mindray Bio-Medical Electronics and Sonoscape Medical Corp., rising by 45.95% and 57.27% respectively from September 24th to the close on October 8th.

As of the date of the prospectus signing, Shantou Ultrasonic's controlling shareholder is Ultrasonic Asset Management, with Li Delai as the actual controller holding 60.38% of the company's equity indirectly through Ultrasonic Asset Management. In addition, Shantou Municipal State-owned Assets Supervision and Administration Commission holds 36.63% of the shares, making it the company's second largest shareholder.

Li Delai was born in December 1962, holds a master's degree, is a professor-level senior engineer, and enjoys special allowances from the State Council. He joined the company in 1983 and worked his way up from a technician and chief assistant to the director and general manager. Currently, he serves as Chairman and General Manager of Shantou Ultrasound.

Company's equity structure, source prospectus

After the funds are raised this time, the company will invest in the research and industrialization of medical imaging products, the research project on industrial non-destructive testing systems, the research and industrialization of portable DR systems, industrialization and market development projects, and innovation base construction projects according to the priority of the projects.

Use of funds raised, source: prospectus

01

Independently developed the first generation of domestically mass-produced 'Chinese B-ultrasound.'

The predecessor of Shantou Ultrasonic was the Shantou Ultrasonic Research Institute, originally the research institute of the Shantou Ultrasonic Electronics Instrument Factory, which was later converted to an independent unit.

The predecessor of Shantou Ultrasonic Electronics Instrument Factory was the local state-owned enterprise Shantou Wireless Radio Factory founded in 1957. In 1965, it was approved by the Shantou Municipal People's Committee to be renamed Shantou Ultrasonic Electronics Instrument Factory.

On October 25, 1978, the Shantou Municipal Planning Commission and the Shantou Municipal Economic Commission jointly decided to change the original research institute of Shantou Ultrasonic Electronics Instrument Factory to an independent unit, under the jurisdiction of the Guangdong First Machinery Industry Bureau and the National First Machinery Industry Ministry. It undertook tasks assigned by the Guangdong First Machinery Industry Bureau and the National First Machinery Industry Ministry, with the Ultrasonic Research Institute under the leadership of Shantou Ultrasonic Equipment Industrial Company.

On November 15, 1982, the Shantou Industrial and Commercial Bureau issued a 'Business License' to the Ultrasonic Research Institute, approving its registration for opening. The enterprise name at the establishment of the Ultrasonic Research Institute was 'Shantou Ultrasonic Instrument Research Institute'.

Since then, Shantou Ultrasonic was officially established.

In 1983, Shantou Ultrasonic independently developed the first domestically produced 'Zhonghua B-ultrasound', marking the beginning of China's localization of ultrasound diagnostic equipment.

Currently, the company's business operations cover the field of medical imaging and industrial non-destructive testing. The company's products mainly consist of sales of medical ultrasound, industrial ultrasonic equipment and probes, as well as X-ray medical imaging equipment, accounting for 95.40%, 95.33%, 94.23%, and 92.03% of the main business revenue during the reporting period.

Income and distribution by product category, sourced from the prospectus.

The prospectus states that the company's main revenue and profit currently come from ultrasound products, posing a risk of a single product structure. Adverse changes in the demand and supply of ultrasound medical imaging equipment and industrial non-destructive testing equipment markets could lead to future performance fluctuations for the company.

In terms of industry, as the aging population issue becomes increasingly severe leading to a rise in the incidence of chronic diseases, the investment in medical health is increasing. Against this backdrop, the global medical devices market is rapidly expanding. According to a report released by Mordor Intelligence, the global medical devices market is expected to reach $637 billion in 2024 and is projected to reach $893 billion in 2029, with a compound annual growth rate of 6.99% from 2024 to 2029.

Ultrasound medical imaging equipment, as one of the subdivided fields in the medical instruments industry, is also showing an upward trend in market size. According to statistics from SignifyResearch, the global market size of ultrasound medical imaging equipment is projected to have a compound annual growth rate of 9.13% from 2019 to 2024; the market size of ultrasound medical imaging equipment in China is expected to achieve a compound annual growth rate of 11.30%.

At the same time, due to the low domestic production rates of medical imaging equipment including ultrasound equipment in the high-end and mid-end markets, in recent years, policies have explicitly required substantial localization rates, and the trend of domestic substitution is expected to accelerate, with ample room for import substitution.

Global ultrasound equipment market size from 2019 to 2024, source: prospectus

02

Affected by the rectification and upgrading of the medical industry, the performance fluctuates.

However, due to domestic policy influences, Shantou Goworld's performance during the reporting period showed some fluctuations.

In terms of financial data, in 2021, 2022, 2023, and January-June 2024 (referred to as the reporting period), the company achieved revenues of 284 million yuan, 336 million yuan, 327 million yuan, and 160 million yuan respectively; achieving net profits of 75.92 million yuan, 127 million yuan, 115 million yuan, and 57.76 million yuan respectively.

In 2022, the company's revenue increased by 18.34% compared to the previous year, and the non-recurring net profit attributable to the parent company increased by 71.80% compared to the previous year, achieving a significant year-on-year growth.

However, in 2023, affected by the rectification and upgrading of the medical industry, the company's revenue scale in the second half of the year decreased year-on-year; coupled with the impact of exchange gains and losses, the company's non-recurring net profit attributable to the parent company in 2023 decreased by 15.92% compared to the previous year.

The negative impact of the rectification and upgrading of the medical industry continued until the first half of 2024; from January to June 2024, the company's revenue and net profit both declined year-on-year.

However, as the special industry rectification campaign gradually comes to an end, the subsequent phase will enter a normalized stage. Meanwhile, in the second half of 2024, bidding activities of public hospitals and the pace of new product promotion will gradually resume. Additionally, with the launch of second-generation products, the company expects to achieve revenues of 374 million yuan in 2024, a year-on-year increase of 14.54%, and a net profit of 127 million yuan, a year-on-year increase of 9.74%.

It is worth noting that the company distributed dividends of 143 million yuan, 106 million yuan, 59.23 million yuan, and 36.41 million yuan in 2019, 2020, 2021, and 2022 respectively, totaling 345 million yuan over the four years.

Key financial indicators, sourced from the prospectus.

In addition to the factor of the rectification of the medical industry, there are also many cost control policies in the medical industry, such as the implementation of a "two-invoice system" and "centralized procurement" for low-value consumables, high-value consumables, and in-vitro diagnostics. The relevant policies have not been widely implemented in the medical instruments category, but if they are fully implemented in the medical instruments field in the future, it may have an impact on the company's sales model, selling expenses, and gross margin. If the company fails to timely develop effective response measures, its operations may be adversely affected.

During the reporting period, the company's comprehensive gross margin rates were 66.71%, 67.71%, 69.32%, and 69.15% respectively. The gross margin of the core business, medical ultrasound imaging equipment, is around 62%, slightly higher than other listed companies in the same industry.

Comparison of gross margins of medical ultrasound imaging equipment business with other companies in the same industry, source: prospectus

The company's medical ultrasound imaging equipment covers over 0.015 million hospitals nationwide, including renowned hospitals like Peking University First Hospital, People's Liberation Army General Hospital, Chinese Academy of Medical Sciences Cancer Hospital, etc.

Among domestic manufacturers, the company ranked among the top three in domestic market sales of ultrasound imaging equipment in 2021. In addition, the company's products are also sold to more than 100 countries and regions including Europe, America, Japan, South Korea, Russia, Brazil, Mexico, Turkey, India, and others.

In 2016, the company's industrial ultrasonic non-destructive testing products were rated as famous products in Guangdong province. Users include the National Railways Administration, the Acoustic Institute of the Chinese Academy of Sciences, and the Third Engineering Bureau of China Water Resources and Hydropower.

During the reporting period, domestic and overseas sales revenues accounted for 39.10%, 51.20%, 57.75%, and 57.19% of the current main business income, respectively. If the company fails to continuously meet the industry regulatory requirements of China and export countries in the future, product registration certification and market access may be suspended or canceled, thereby adversely affecting the company's production operations and financial condition.

At present, the ongoing Russia-Ukraine conflict may lead to changes in international policies or regulatory situations in the future, which may have a certain adverse impact on the company's overseas sales. If international trade frictions lead to restrictive policies or further tariff increases on products in the company's industry by relevant countries, it will have a certain adverse impact on the company's business development.

03

Epilogue

Shantou Ultrasound independently developed the first domestically produced "Zhonghua B-ultrasound", which is the pioneer of domestic ultrasound. The market size of the medical imaging equipment sector where the company is located is large, with broad domestic substitution space. However, affected by the rectification policies of the domestic medical industry during the reporting period, the company's performance fluctuated. Nevertheless, as the rectification comes to an end, the company expects its revenue to resume growth in 2024.

Currently, the technological upgrades in the medical imaging and industrial non-destructive testing industries are accelerating. If the company fails to continuously increase its R&D efforts, and expand its reserve of ongoing projects, it may face risks of falling behind in core technology, lagging behind in product upgrades, and insufficient market competitiveness.

The current A-share market determines that there is great anticipation for new stocks. Although it is said that in rough seas the fish become more expensive, it is also important to constantly pay attention to the risks and assess one's own risk tolerance rationally.