Listed machinery companies spin-off business subsidiaries to go to "A" or go to "Hong Kong" for listing?

A few days ago, "Minimally Invasive Medical Robot" Hong Kong Stock Exchange passed the hearing, and its main electrophysiology subsidiary "Minimally Invasive Electrophysiology" also passed a round of inquiries on the Sci-tech Innovation Board, and a second company under the MicroPort Medical Group is planned to be born.

Recently, domestic medical equipment companies that cannot withstand the impact of centralized procurement have chosen to "walk on multiple legs.

01 Relying on acquisitions to expand pipelines and “listing” to incubate leaders

In September 2020, according to relevant media reports, Medtronic split its original business into 20 business units and simplified its operating model

In March of this year, according to external news, Medtronic CEO Geoff Martha said that the company is undergoing a restructuring and is expected to be divided into two tiers to create 20 semi-autonomous operating departments to improve agility

Domestic equipment companies represented by "Minimally Invasive Medical", "Weigao Shares" and "Lepu Medical" have also accelerated their spin-offs

The official website shows that, as one of the earliest listed medical equipment leaders in China, MicroPort Medical started with the coronary intervention business, and successively established a series of subsidiaries such as "MicroPort Orthopedics" and "MicroPort Shentong" to improve the subsidiaries through mergers and acquisitions.

Lepu Medical, which was established one year later than Minimally Invasive, also started with cardiovascular interventional devices, and entered the fields of heart valves, diagnosis and treatment equipment and pharmaceuticals through mergers and acquisitions; mainly involved in cardiovascular, peripheral vascular graft intervention, anesthesia, in vitro diagnostics and other non-cardiovascular diseases.

Weigao shares are deployed in the field of disposable consumables such as low-value consumables (infusion sets, medical needle products, blood bags, etc.

Centralized procurement may be a catalyst for the spin-off of the business subsidiary to go public

Among them, the stent products included in the centralized procurement for the first time fell by 95%.

From the perspective of the field of heart stents where centralized procurement has landed, companies are facing similar dilemmas

According to the 2021 semi-annual report of MicroPort Medical, its revenue in the first half of the year was 2.

However, the loss of more than 700 million in the same period was mainly due to the centralized procurement, and the increase in product sales could not make up for the loss caused by the decline in gross profit and revenue

Lepu Medical further opened up the hospital market with centralized procurement.

Based on the data in the semi-annual report, as the epidemic slows down and the scope of high-value consumables is expanded, companies in the future will face a situation where gross profit margins will decline, profits will be damaged, and demand for innovative products and expanded production lines will be parallel

To meet demand and make up for losses, capital flow is the first consideration

MicroPort Medical, which started its business spin-off at the early stage of its establishment, once stated in related announcements that the spin-off will release the value of the company that is in a stage of rapid growth, and provide opportunities for the company and shareholders to realize its benefits under the independent platform of spin-off business.
investment value and other spin-off group
.

Not only that, the listing of subsidiaries can also relieve the pressure on R&D funds of the parent company
.

At present, Xinmai Medical and Xintong Medical have been listed on the Science and Technology Innovation Board and the Hong Kong Stock Exchange respectively
.
As of yesterday's close, the total market value of the two was 18.
707 billion yuan and 11.
612 billion yuan respectively.
The total market value was about 30.
319 billion yuan, accounting for nearly 50% of the total market value of MicroPort Medical (about 63.
289 billion yuan)
.

If companies such as Minimally Invasive Medical Robots and Minimally Invasive Electrophysiology go public, the combined market value of the aforementioned subsidiaries is expected to create another "Minimally Invasive Medical Care"
.

In addition, some people in the industry believe that business spin-off is also conducive to the focus of various businesses and seek further development of the enterprise with the help of capital power to cope with the fierce competition under the background of normalization of centralized procurement in the future
.

But despite the urgent need for funds, the capital market is not easy to enter
.

02 A shares or Hong Kong shares?

In April this year, Lepu Biotech opened an IPO in Hong Kong; 2 months later (June 25), Xintai Medical once again submitted a form to the Hong Kong Stock Exchange.
On the same day, Lepu Diagnostics announced the termination of its IPO on the Science and Technology Innovation Board
.

On the other hand, the minimally invasive surgical robot submitted to the Hong Kong Stock Exchange on June 10 passed the Hong Kong Stock Exchange's hearing smoothly in September
.

Only Xinmai Medical (April 2019-July of the same year) and Weigao Orthopedics (June 2020-June 2021), which officially landed on the Sci-tech Innovation Board, and Xintong Medical (November 2020-February 2021) ) Is the only subsidiary of a medical device company listed on the Hong Kong Stock Exchange
.

Turning to seek listing on the Hong Kong Stock Exchange is a common signal released by machinery companies
.

However, it is undeniable that since the opening of the market in 2019, the Sci-tech Innovation Board has always been the first choice for domestic medical equipment companies
.

According to statistics, as of June 24 this year, a total of 122 domestic medical device companies have been listed, including 24 on the A-share main board, 37 on the ChiNext and science and technology innovation boards, and 22 on the Hong Kong stock market
.
Among the medical device companies that are going to be listed, 18 have applied for the Science and Technology Innovation Board
.

This is mainly due to the high P/E ratio of the Sci-tech Innovation Board
.
According to the research of Gelonghui, in 2021, the overall P/E ratios of the Sci-tech Innovation Board and ChiNext will lead the world's major markets at 58 and 56.
7 respectively
.

Information source: public information

In addition to the above indicators, as early as December 2019, the Science and Technology Innovation Board officially launched the relevant rules for the spin-off and listing of A shares for the first time-the "Regulations on the Pilot Domestic Listing of the Spin-off of Subsidiaries of Listed Companies".
Independence, related party transactions, horizontal competition, information disclosure, core technology and other important indicators have made regulations
.

In contrast, the Hong Kong Stock Exchange’s regulatory indicators for IPO applications are less than the former, and the time is shorter.
The listing cycle for ratings is 6 to 8 months, making it the preferred overseas listing place for mainland companies
.

And since this year, the China Securities Regulatory Commission has successively issued relevant documents, requiring all shareholders of IPO companies to be penetrated, disclosed, and verified, and focus on improving the quality of listed companies
.
This has led to tightening of the A-share IPO review, and the number of companies that voluntarily withdrew the termination of review has also increased significantly
.

According to data from the Elephant Research Institute, at the end of September, a total of 244 companies on the Science and Technology Innovation Board and the Growth Enterprise Market "suspended the review", including 16 pharmaceutical manufacturing companies
.

In contrast to the Hong Kong stock market, a total of 23 medical companies were listed on the Hong Kong Stock Exchange in the first three quarters of this year, including 12 unprofitable biotech companies
.
Another 6 have passed the Hong Kong Stock Exchange hearing, including 5 unprofitable biotechnology companies
.

However, various sources of information show that at this stage, it is necessary to wait in a long queue to apply for an IPO at the Hong Kong Stock Exchange
.

In an interview with the Economic Observer, Chen Gang, an investment banker from a Chinese-funded securities firm in Hong Kong, said in an interview that if the problem of the applicant company is not too great, the application for listing in Hong Kong can be submitted within two or three months.
There are too many applications on the stock exchange, and even a relatively simple listing application may have to wait at least four months
.
"

In addition, in May this year, the Hong Kong Stock Exchange issued two consultation documents, which to a certain extent also raised the barriers to entry
.

According to the front page of the IPO, one of the changes is to increase the profitability requirements of the Main Board, requiring the total profit of the Main Board listed companies in the three fiscal years to reach 80 million Hong Kong dollars (about 66 million yuan); Appropriate and violations of the "Listing Rules" have the right to be held accountable and to impose appropriate sanctions
.

On the whole, the audit threshold of the Hong Kong stock market is still relatively low, but the policy is gradually tightening, and the supervision of the science and technology board is becoming more and more stringent; while the IPO wave is set off, medical equipment companies are facing the continuous increase in entry barriers.
Capital market
.

There are policies before and capital afterwards.
Both put forward higher requirements for companies.
Medical device companies will also bid farewell to high gross profit margins and move toward meager profits.
At the same time, they need to focus on improving technology and innovative products
.

Under the collective choice of mergers and acquisitions and spin-off and listing, the industry will also accelerate its integration and move from disorderly competition to orderly development
.
In short, domestic substitution has a long way to go.
After the painful period, a number of high-quality machinery companies will inevitably emerge
.

Reference materials:

Zhongcheng Medical Equipment Research Institute, "Industry Research | Domestic equipment companies collapsed IPO, what is the reason? 》

Shanghai Lawyers Association, "Analysis of the Supervision Points of A-Share Spin-off and Sci-tech Innovation Board Listing-From the Perspective of A-Share and Hong Kong Stock Spin-off/Class-Science Innovation Board"

Inquiry materials for minimally invasive electrophysiology and Weigao orthopedics