In recent years, there have been not a few cases where medical service companies have gone public in Hong Kong. This year alone, the US and China Jiahe and Imai Sunshine have successively listed on the Hong Kong stock market; in addition, Shulan Healthcare, Ludaopei Medical Group, and AVF have already submitted prospectuses.

Another private hospital hit the Hong Kong stock IPO during the National Day.

Gelonghui learned that on October 3, BenQ Hospital Group Co., Ltd. (“BenQ Hospital” for short) submitted a prospectus to the Hong Kong Stock Exchange to be listed on the Hong Kong Stock Exchange. CICC and Citibank are co-sponsors.

BenQ is headquartered in Nanjing City, Jiangsu Province, and mainly operates two private for-profit general hospitals — Nanjing BenQ Hospital and Suzhou BenQ Hospital.

Prior to this offering, Jiashida Technology Co., Ltd. directly and indirectly held 95.02% of BenQ Hospital's shares. Jiashida Technology Co., Ltd. (2352.TW) is a listed company in Taiwan, China. Its business spans the information technology industry, medical services, intelligent solutions, and network communication businesses.

Since this year, domestic policies on foreign investment in private hospitals have been relaxed. On September 9, 2024, the Ministry of Commerce, the National Health Commission, and the State Drug Administration jointly established 9 cities as pilot projects to allow the establishment of wholly foreign-owned hospitals.

However, for many years before that, domestic policies relating to foreign-funded medical treatment had been continuously adjusted. BenQ Hospital specifically mentioned compliance issues related to foreign investment entry in its prospectus.

According to the prospectus, according to relevant policy documents, the company, as a service provider in Taiwan, can establish a wholly Taiwanese hospital in mainland China with the approval of the competent authorities in mainland China. As of the last practical date, BenQ Hospital is not required to meet any continuing conditions to maintain the wholly Taiwanese ownership status of Nanjing BenQ Hospital and Suzhou BenQ Hospital.

01

The company is the largest private for-profit general hospital in East China

In recent years, with economic development, policy encouragement, and people's demand for medical services has increased and diversified, private hospitals in China have grown more rapidly than public hospitals due to their flexibility in management models, service planning, and pricing.

From 2017 to 2022, the compound annual growth rate of China's private hospital market reached 13.7%, while the compound annual growth rate of public hospitals during this period was only 7.8%.

The market size of private hospitals in China is expected to reach RMB 1.1 trillion by 2026, with a compound annual growth rate of 15.9% from 2022 to 2026. During the same period, the market size of China's public hospitals will reach RMB 5.1 trillion, with a compound annual growth rate of 8.3% from 2022 to 2026. Private hospitals complement the capacity of public hospitals by providing professional treatment and relieving pressure on the healthcare system. As people's demand for more personalized and higher quality medical services grows, the number of private hospitals increased dramatically from 20,977 in 2018 to 25,230 in 2022. This can not only improve patient treatment results, but also create opportunities for private hospitals to grow and develop.

The size of the Chinese hospital market, source: prospectus

Against the backdrop of the continued growth in the size of the private hospital market in China, BenQ Hospital's revenue also increased during the reporting period.

In terms of financial data, in 2021, 2022, 2023, and 2024-1-6 (reporting period), the company's revenue was 2.224 billion yuan, 2.336 billion yuan, 2.688 billion yuan, and 1.33 billion yuan, respectively; gross margins were 15.3%, 16.4%, 18.9%, and 19.3%, respectively; net profit was 69.1 million yuan, 89.55 million yuan, 0.167 billion yuan, respectively. 63.4 million yuan.

BenQ Hospitals' profits grew steadily from 2021 to 2023; however, net profit declined year-on-year in the first half of 2024, mainly due to higher employee pay levels and increased expenses.

Main financial data, source: prospectus

According to Frost & Sullivan's data, in terms of revenue generated from medical services in 2023, the company is the largest private commercial general hospital group in East China, with a market share of 1.1% in East China; among private for-profit general hospital groups in the country, the company ranked 7th, with a market share of 0.4% in China.

02

It operates two general hospitals

As of June 30, 2024, BenQ Hospitals' two hospitals had a total construction area of about 0.4 million square meters, a total registered bed count of 1,850, and a team of over 900 doctors, including 35 experts from Taiwan and overseas.

In the first half of 2024, BenQ Hospital had more than 1 million outpatient visits, and the annual number of inpatient surgeries exceeded 0.01 million. The company built two general hospitals, Nanjing BenQ Hospital and Suzhou BenQ Hospital.

Nanjing BenQ Hospital began operation in 2008 and has been rated a Class III hospital since 2022. It is the first private hospital in Nanjing City, Jiangsu Province to receive the top three ratings. According to Frost & Sullivan's data, in terms of revenue generated from medical services in 2023, Nanjing BenQ Hospital ranked third among private for-profit general hospitals in China, with a market share of 0.2% in China; it is also the largest private for-profit general hospital in Jiangsu Province, with a market share of 2% in Jiangsu Province.

Suzhou BenQ Hospital began operation in 2013 and is a tertiary general hospital. According to Frost & Sullivan's data, Suzhou BenQ Hospital passed the Joint Committee for Accreditation of International Healthcare Institutions (JCI) certification in 2020, and is one of only a few general hospitals in Jiangsu Province that have obtained JCI certification as of the last practical date. In addition, Suzhou BenQ Hospital is also a national chest pain center in China, a certified unit for atrial fibrillation center, and a national stroke prevention and treatment center.

Core data for its two hospitals, source: Prospectus Judging from the revenue share of the two hospitals, Nanjing BenQ Hospital's revenue in 2023 reached 1.7 billion yuan, contributing 63.5% of revenue; Suzhou BenQ Hospital contributed 36.5% of revenue.

Composition of revenue by hospital, source: prospectus

In terms of business composition, inpatient medical services and outpatient medical services accounted for 51.6% and 47.2% of revenue in the first half of 2024, respectively.

Revenue composition by business category, source: prospectus

It is worth noting that the medical service industry generally faces a certain risk of medical accidents. During the reporting period, the company had a total of 267 medical disputes, 52 of which have not been resolved, which may cause the company to pay monetary compensation; in terms of patient deaths, 58 of the 267 medical disputes involved the death of patients.

03

Under the DRG mechanism, the average cost of hospitalization of patients has declined

In recent years, changes in domestic health care reform policies have had a great impact on companies in the industry.

Since 2019, the Chinese government has launched the DRG mechanism, which applies only to inpatient services. The company's hospitals began using the DRG payment system in 2022.

The DRG payment system divides patients into different groups related to disease diagnosis, and reimburses medical expenses according to the standards set by each group, rather than according to the actual expenses incurred by patients, thereby encouraging hospitals to treat patients efficiently, thereby reducing unnecessary costs reimbursed by national health insurance plans.

The impact of the DRG policy can be seen in BenQ hospital bed turnover days. During the reporting period, the company's average number of bed turnover days was 9.4 days, 9.2 days, 8.2 days, and 8 days, respectively. The trend is gradually declining, indicating that BenQ Hospital's efficiency in treating patients is indeed improving.

According to the prospectus, after each of the company's two hospitals implemented the DRG payment system, the average expenditure of patients per hospitalization decreased; for example, the average expenditure for hospitalized patients at Nanjing BenQ Hospital dropped from 0.021 million yuan in 2021 to 0.0172 million yuan in January-June 2024.

However, this is not an exception; this is true of the entire industry. According to Frost & Sullivan's data, under the DRG payment system, most hospital profits have been negatively affected to a certain extent due to a reduction in total health insurance payments.

Details of main operating data, source: prospectus

However, BenQ Hospital stated in its prospectus that with a refined management system, the company effectively controlled costs, improved operational efficiency, maximized the hospital's potential to provide services in the most cost-effective manner, and quickly adapted to changes in DRG reforms, and its gross margin increased steadily during the reporting period.

As a result, after implementing the DRG system, the company became one of the few hospitals in Jiangsu Province that could maintain revenue, profit, or even achieve growth.

Furthermore, compared with the average inpatient and outpatient expenses of domestic public hospitals and private hospitals, BenQ Hospital's customer unit price is significantly higher. This is mainly supported by high-quality medical services that are in line with the international community and are of a high standard.

2022 business indicators for public hospitals and private hospitals in China, source: prospectus

04

Epilogue

BenQ currently owns and operates two general hospitals in Jiangsu. It is the largest private for-profit general hospital group in East China. The performance during the reporting period was relatively steady. However, in the context of DRG reforms, the average cost of hospitalization of patients has declined.

The capital raised by BenQ Hospital in this IPO will mainly be used for Nanjing BenQ Hospital Phase II construction and Suzhou BenQ Hospital Phase III and Phase IV construction. Furthermore, the prospectus also revealed that the company plans to expand the market through mergers and acquisitions across the country, Vietnam, Malaysia and other places in the future.