Recently, Chongqing Shanwaishan Blood Purification Technology Co., Ltd. (hereinafter referred to as Shanwaishan), a provider of blood purification equipment and consumables, launched a sprint to the science and innovation board and plans to raise 1.247 billion yuan through IPO. At present, the company has replied to the first round of inquiries of the Shanghai Stock Exchange.
From 2018 to 2020 and the first half of 2021 (hereinafter referred to as the reporting period), the operating revenue of Shanwaishan was 114 million yuan, 142 million yuan, 254 million yuan and 132 million yuan respectively, but the net profit performance was poor, which were – 275406 million yuan, – 349333 million yuan, 183341 million yuan and 3.4056 million yuan respectively. With the control of covid-19 epidemic and the promotion of volume procurement policy, Shanwaishan is facing the adverse impact of the decline in the sales volume of some blood purification equipment and the decline in the sales price of consumables.
In addition to equipment and consumables, Shanwaishan has started to layout downstream dialysis medical services since 2014. As of the signing date of the prospectus (application draft), the company has established 19 wholly-owned subsidiaries and branches in Chongqing, Sichuan and other places to prepare for and operate chain hemodialysis centers. However, there are only 10 dialysis centers in operation, and most of them have sustained losses. The reporter of the daily economic news noted that the number of dialysis centers that have been operated outside the mountain has also decreased. As of the date of the first round of inquiry reply, the number has changed to 9.
main product price has a downward trend
The main revenue sources of Shanwaishan are blood purification equipment, blood purification consumables and medical services. Among them, blood purification equipment is the largest main product. The revenue during the reporting period was 48.038 million yuan, 561699 million yuan, 132 million yuan and 791440 million yuan respectively, accounting for 42.17%, 39.48%, 52% and 60.01% of the main business revenue respectively.
Blood purification equipment mainly includes hemodialysis machines, continuous blood purification equipment (CRRT) and other products. In 2020, the proportion of equipment revenue in Shanwaishan increased significantly, mainly due to the large increase of CRRT with small income, which increased from 2020400 yuan in 2019 to 487273 million yuan. This is because the product can be used for blood purification treatment of covid-19 critically ill patients, which quickly opened the market outside China.
However, the performance growth driven by the epidemic is sporadic. In the first round of audit inquiry letter, Shanwaishan added risk tips that with the gradual and effective control of the epidemic in China, the company’s CRRT sales for covid-19 critical illness treatment may be adversely affected.
From January to November 2021, the sales volume of CRRT was 210 units, while the annual sales volume in 2020 was 243 units. The sales of hemodialysis machines are rising steadily. Yamawaishan said that the hemodialysis machine was less affected by the covid-19 epidemic. From January to November 2021, the company’s sales of blood purification equipment exceeded that of 2020.
It is worth noting that the statistical data of eggshell Research Institute quoted in the prospectus (application draft) shows that the five major foreign-funded manufacturers occupy 80% ~ 90% of the market share of China’s hemodialysis market, while the market share of domestic brand hemodialysis machines is only 10% ~ 20%, and the market share is mainly occupied by imported manufacturers.
Shanwaishan believes that with the strong support of policies and the improvement of the technical level of Chinese manufacturers, the localization rate of relevant products will continue to improve.
However, in response to the inquiry letter, Shanwaishan also added risk tips: if the import substitution process of the company’s blood purification equipment slows down, and the launch and marketing of self-produced blood purification consumables do not meet expectations, there may be unsustainable risks in the growth of the company’s sales performance.
Blood purification consumables are the second largest main business in Shanwaishan, with revenue of 406269 million yuan, 47.099 million yuan, 640717 million yuan and 276227 million yuan respectively during the reporting period. However, the consumables in Shanwaishan are mainly distributed to other brands. During the reporting period, the revenue of consumables purchased inside and outside accounted for 100%, 100%, 99.71% and 96.51% of the sales of consumables respectively. Although self-produced consumables have been put into production, the sales amount is small.
With the promotion of the volume purchase policy, the sales price of related products distributed by Shanwaishan has decreased, which has had an adverse impact on its consumables distribution business.
The reporter noted that in 2020, the average price of blood purification consumables in the mountains outside the mountain decreased by about 4% ~ 24% in the volume procurement of some medical consumables by the seven cities Procurement Alliance of Shandong; In the second batch of joint limited price procurement of low-value medical consumables in Xiangxi Prefecture, Hunan Province, from the comparison between the sales price before volume procurement and the bid winning price, the price of consumables involved in mountains outside the mountain decreased by 59.26%.
In addition, in the face of price reduction pressure, volume procurement will encourage upstream enterprises to establish direct sales channels with terminal hospitals and reduce intermediate sales links, which may lead to the loss of some distribution channels.
Is there a decrease in the number of bid winning products distributed by the company compared with that before the purchase with volume? Has there been a loss of distribution channels? On March 16, 2022, Shanwaishan didn’t respond directly in an interview with the reporter of the daily economic news, but said that the product price of blood purification equipment and consumables has a downward trend in the long run, so the gross profit margin of some products of the company is at risk of decline in the future. However, considering that centralized procurement and other policies will also reduce the company’s sales expenses, the impact on the company’s profits is limited.
multiple dialysis centers continue to lose money
In addition to blood purification equipment and consumables, Shanwaishan is also extending to the downstream hemodialysis service industry, independently building and operating chain hemodialysis centers to provide dialysis medical services for patients, which is the third largest business of the company. Shanwaishan believes that in the future, enterprises that take the lead in completing the layout of the whole industrial chain in the blood purification industry will be able to continue to make profits.
According to the prospectus (application draft) disclosed in November 2021, Shanwaishan has set up 17 wholly-owned subsidiaries and 2 branches as subordinate chain hemodialysis centers, mainly distributed in Chongqing and Sichuan Province. However, of the 19 dialysis centers, only 10 have been completed and operated, the other 8 dialysis centers are not open, and one medical institution Tzu Chi Hospital of traditional Chinese medicine has been closed.
Shanwaishan said that due to the continuous loss of Tzu Chi Traditional Chinese medicine hospital and some hemodialysis centers already in operation, in order to prevent the further expansion of the loss and orderly control the investment rhythm of the hemodialysis center, the company applied for the closure of Tzu Chi Traditional Chinese medicine hospital. After the scale effect of the operated hemodialysis center is formed, it will consider restarting the preparation and operation of the dialysis center according to the actual situation. Nanan dialysis center and Banan dialysis center failed to be successfully constructed due to “avoiding the dilemma of neighbors” in the preparation process, and there is a possibility of relocation in the future.
The reporter of the daily economic news noted that during the IPO review process, the number of dialysis centers that have been operated is also decreasing. In the first round of inquiry responses disclosed in February 2022, the number of dialysis centers that have been operated in Shanwaishan has become 9. In November 2021, Shanwaishan transferred all the equity of Fuling dialysis center, so the number of dialysis centers in operation decreased by 1.
During the reporting period, a number of dialysis centers in Shanwaishan suffered continuous losses. Is it possible that the remaining 9 dialysis centers that have been operated will also be transferred or closed down? In this regard, Shanwaishan replied to the reporter that with the gradual growth of the operating income of the chain hemodialysis center, the depreciation and amortization of the costs of fixed assets and house decoration are completed, the economies of scale are gradually released and shown, and the performance is expected to improve.
Up to now, the nine dialysis centers that the company is operating have no plans to stop business.
In fact, the full bed rate of these operated dialysis centers is not high, which was 25.54%, 43.88%, 51.76% and 44.63% respectively during the reporting period.
Shanwaishan believes that the chain hemodialysis center subordinate to the company is still in the market cultivation period, and the initial investment scale of the chain hemodialysis center is large. Before a certain scale of operating income can not be realized, the chain hemodialysis center is in a state of loss.
When checking the information of qixinbao, the reporter found that the dialysis centers in Longquanyi, wusheng, Pengzhou, Yilong and other places outside the mountain were simply cancelled. Does this mean that the dialysis centers in these areas will no longer operate? Shanwaishan replied to the reporter that at this stage, the company focuses on the development of blood purification equipment and consumables business. After the equipment and consumables market is stable, it will restart the expansion operation, so as to develop and expand the industrial chain.
bad debt provision is fully withdrawn
With the growth of operating income, the scale of accounts receivable in Shanwaishan is also growing. At the end of each reporting period, the balance of accounts receivable of the company was 485398 million yuan, 559854 million yuan, 888575 million yuan and 122 million yuan respectively, accounting for 42.64%, 39.34%, 34.93% and 92.43% of the current operating revenue respectively.
Shanwaishan said that the company’s accounts receivable were mainly from public medical institutions and medical insurance institutions. Due to the long payment approval process and settlement cycle of public medical institutions and the existence of accounting period of medical insurance receipts, the balance of accounts receivable increased.
At the end of each reporting period, the amount of bad debt provision for accounts receivable in Shanwaishan was 1728400 yuan, 1934900 yuan, 2711500 yuan and 3658100 yuan respectively.
The reporter of the daily economic news noted that the bad debt provision proportion of accounts receivable in Shanwaishan is lower than that of comparable companies in the same industry. Shanwaishan selected three listed companies including Jafron Biomedical Co.Ltd(300529) and two IPO reporting companies including Guangdong Baihe Medical Technology Co., Ltd. (hereinafter referred to as Baihe medical) as comparable companies in the same industry.
Taking accounts receivable within one year as an example, the provision proportion of bad debt reserves in Shanwaishan is 2%. Except that the provision proportion of Baihe medical is 1%, the provision proportion of the other four companies is 5%.
Looking at the accounts receivable from 1 to 2 years, the withdrawing proportion of Shanwaishan is 8%, that of 4 comparable companies is 10%, and that of Jafron Biomedical Co.Ltd(300529) is 20%; With an account age of 2-3 years, the accrual proportion of Shanwaishan is 15%, that of 4 comparable companies is 30%, and that of Jafron Biomedical Co.Ltd(300529) is 50%. For accounts receivable of 3 ~ 4 years and 4 ~ 5 years, the accrual proportion of Shanwaishan is lower than that of comparable companies in the same industry. Only accounts receivable of more than 5 years have the same accrual proportion as that of comparable companies, reaching 100%.
In this regard, Shanwaishan replied to the reporter of the daily economic news that the main reason is that the distribution proportion of the company is far lower than that of comparable companies in the same industry. The main customers of the company are various hospital customers and individual large medical group enterprises such as Sinopharm group. The proportion of public hospitals is relatively high and the risk of bad debts is small. The comparable companies in the same industry mainly focus on distribution. According to the industry practice, the credit period for dealers is short and the credit amount is low. Therefore, the bad debt provision proportion of accounts receivable of the comparable company for more than 2 years is high. The company’s bad debt reserves are fully accrued, and there is no case of thickening profits through loose credit policies.
