Bayzed joins IPO quest as medical rivalry heats up

The cancer treatment specialist is seeking a Hong Kong listing to fund its campaign in the M&A battle for China’s private healthcare market  

Key Takeaways:

• Over the past three years, Bayzed Health Group’s revenue has grown at acompound annual rate of 52.4%
• The company’s gross profit grew rapidly from around 41 million yuan in 2021 to 178 million yuan in 2023

By Li Shin Ta

A bout of IPO fever has swept through China’s private healthcare sector, as companies gear up to expand their reach or fight off their rivals in an increasingly competitive market.

The latest contender for a trading spot on the Hong Kong Stock Exchange is Bayzed Health Group Inc., a private hospital business that specializes in cancer diagnosis and treatment.

Bayzed Health joins the growing ranks of firms wanting to fill their war chests as they battle for dominance in China’s private medical services market, often by buying up other hospitals. Oncology service provider Concord Healthcare Group (2453.HK) went public in January, while Shulan Health re-submitted a prospectus in March, and Jiangsu Nanjing Mingji Hospital, a subsidiary of Taiwan’s Qisda Corporation(2352.TW), filed for a Hong Kong listing in April.

Bayzed Health’s renewed IPO attempt, sponsored by China Merchants Bank International, follows a series of expansionary moves in a consolidating medical sector. The company acquired Beijing Jingxi Cancer Hospital in 2018 and has bought or entered management deals with several other hospitals. By the end of 2023, Bayzed Health owned six hospitals and administered two other medical facilities in mainland China.

Big jump in gross profit

The company offers a comprehensive set of services from cancer detection to treatment and rehabilitation.

Prospectus data showed that outpatient visits at hospitals owned by Bayzed Health more than tripled from 196,000 in 2021 to around 701,000 in 2023. Meanwhile, inpatient admissions rose from 5,834 to more than 44,000. At the managed hospitals, outpatient visits topped 493,000 last year and inpatient visits reached 29,000.

As for finances, turnover has been climbing but the company remains in the red. Bayzed Health posted revenue of just over 460 million yuan ($63.6 million) in 2021, rising to around 800 million yuan and 1.07 billion yuan in the next two years. Over the same three-year period, the firm posted annual losses of 61.96 million yuan, 75.52 million yuan and 24.41 million yuan.

Notably, revenue leapt nearly 34% in 2023 from a year earlier, outpacing a rise of almost 24% in operating costs. Sales expenses increased by approximately 1.45 million yuan, while revenue jumped by more than 200 million yuan.

Gross profit went from 41.39 million yuan in 2021 to 79.56 million yuan a year later and 178 million yuan in 2023, a compound annual growth rate (CAGR) of 107.5% for the period, the prospectus said. Gross marginjumped from 9% in 2021 to 16.6% in 2023, an increase of 7.6 percentage points.

Goodwill impairment risk

The faster financial pace has been driven by acquisitions. Between 2021 and 2022 Bayzed Health acquired two hospitals, Taiyuan Peace Hospital and Wuzhi Jimin Hospital, and also struck a deal to administer the Heping Community Health Service Center in Wanbailin District, Taiyuan.

In addition, management services for top customer Huangshan Shoukang Hospital brought in 180 million yuan. Bayzed Health also provided the facility with an interest-free loan of 110 million yuan and a financing guarantee of 560 million yuan over the past three years.

The company’s M&A activity delivered a goodwill accounting boost. Bayzed Health booked around 500 million yuan, 640 million yuan and 640 million yuan in goodwill in the years from 2021 to 2023. By the end of last year goodwill accounted for 54.7% of its net assets, raising concerns about the potential risk of goodwill impairment.

Bayzed Health has carried out four rounds of financing since it was set up, raising nearly 740 million yuan frominvestment institutions and medical funds including Shanghai Likun Enterprise Management Consulting, Zhengqi (Beijing) Asset Management and Anhui Beiyi Huijin Equity Investment Partnership. The post-investment valuation reached 2.62 billion yuan after the B round.

Given the cost of setting up and staffing a hospital, private medical institutions often prefer to expand more swiftly through takeovers.

Hospital M&A deals have been booming in recent years, even attracting firms from outside the medical business. For example, two years ago ByteDance bought Meizhong Xuanhe, a hospital that specializes in treating women and children. Meanwhile, Ping An Insurance (2318.HK; 601318.SH) acquired Peking University International Hospital and Taikang Insurance bought Suzhou Stomatological Hospital.

Hygeia Healthcare Holdings Co. Ltd. (6078.HK), which operates and manages 16 medical facilities, has been on a buyout spree that shows no sign of abating. It acquired three hospitals in a row last year, paying 1.66 billion yuan for Chang’an Hospital in May before buying Qufu Chengdong Hospital in November. 

Battle for supremacy

Bayzed Health is having to step up its own expansion plans to keep pace. The company explicitly stated it would use the IPO proceeds for expansion purposes, to acquire new hospitals, equipment and staff or upgrade its IT system.

The company ranks fifth among China’s private providers of oncology services in revenue terms, with around 0.5% of the market, according to a report from Frost & Sullivan. As of the end of 2022, it had the highest number of early-stage cancer screening centers among the private providers and handled the most cases of gastrointestinal endoscopies, while ranking third in the number of self-owned oncology facilities, the report found.

According to data published by China’s National Health Center, the country’s market for oncology medical services is expected to reach 768.7 billion yuan by 2026, growing at a CAGR of 11.6% from 2022 to 2026.

Mindful of the rising demand, investors have been bullish about the private medical sector. Industry leader Hygeia Healthcare now enjoys a price-to-earnings (P/E) ratio of about 27 times, while the share price of newly listed Concord Medical has more than doubled. Bayzed Health benefits from an emphasis on cancer treatment and screening for tumors of the digestive system, but it still has a fight on its hands against fierce competitors.

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