IPO Observations: Expanding Amidst Heavy Assets, Tree Group Medical Stays Firm in Its Growth Pace
Recently, Tree Group Medical Management Co., Ltd. (hereinafter referred to as "Tree Group Medical") submitted an IPO application to the Hong Kong Stock Exchange and plans to list on the exchange with China Renaissance Securities (600030) as its joint sponsor.
The prospectus shows that this round of fundraising will mainly be used for three parts: first, building and establishing the Liangzhu hospital zone. The Liangzhu hospital zone is planned to have 2,000 beds, covering an area of 115,000 square meters, and will serve as the headquarters for future medical businesses; second, purchasing medical equipment and upgrading infrastructure for existing hospitals to improve research and development capabilities and digitalize operations; third, as operational funds and general corporate purposes.
Furthermore, Tree Group Medical has been deeply involved in difficult-to-diagnose and severe diseases for many years and is currently the only social-run hospital in China that can simultaneously perform liver, kidney, heart, and lung transplants.
Social Hospitalization
The prospectus shows that Tree Group Medical is a leading technology-based social-run hospital group that integrates health care services, medical research, and medical education as one entity.
In November 2013, Professor Li Lanjuan and Dr. Zheng Shusheng, both members of the Chinese Academy of Engineering, founded Tree Group Medical. Li Lanjuan is a leading expert in infectious diseases and a member of the Chinese Academy of Engineering, while Zheng Shusheng is an expert in liver surgery and transplantation and also a member of the French National Academy of Medicine.
Initially, Tree Group Medical's business model focused on hospital operation management. It wasn't until 2015 that the company's first hospital, Tree Group Hospital (Hangzhou), began operating, marking a shift towards health care services. Over the next five years, the hospital developed into a level-3A hospital and obtained JCI certification in 2017.
In 2020-2022, the income from "hospital management" was RMB 1.14 billion, 1.12 billion, and 1.17 billion, respectively, accounting for 7.1%, 7.2%, and 6.6% of total revenue, with a slow growth rate.
It is worth noting that in December 2020, Tree Group Medical completed a share reform, during which Li Lanjuan resigned as chairperson and exited the board. Since then, Zheng Shusheng has taken over as chairperson.
The company's main business includes self-operated hospitals, hospital management, and platform services. It also provides various platform services, including digital medical platforms, medical testing services, clinical trial services, and supply chain services.
Data shows that from 2020 to 2023, Tree Group Medical's revenue was RMB 16.18 billion, 15.48 billion, 17.78 billion, and 4.86 billion, respectively. The income from health care services was RMB 12.18 billion, 11.11 billion, 12.96 billion, and 3.76 billion, respectively, accounting for 75.27%, 71.77%, 72.89%, and 77.36% of total revenue.
Although the company's revenue has approached RMB 18 billion, Tree Group Medical is still in a state of losses, with losses of RMB 1.11 billion and 0.32 billion in 2022 and the first half of 2023, respectively.
This is mainly due to its rapidly expanding hospital network, as shown in the prospectus. As of March 31, 2023, Tree Group Medical's non-current assets included property, plant, and equipment worth RMB 18.69 billion. The company stated that it had incurred losses during the periods from 2021 to 2022 and up to March 31, 2023, mainly due to the expansion of its hospital network.
The company is currently planning to establish a hospital with over 2,000 beds at its Liangzhu international medical center, as well as Tree Group Hospital (Boao) and Tree Group Hospital (Jinan). According to official reports, Tree Group Hospital (Jinan) will begin operating in September this year, with a designed capacity of 2,000 beds and an investment of RMB 35 billion.
However, the prospectus does not include this hospital in its reporting. The accounting report mentions that on July 23, 2023, Tree Group Medical entered into a capital increase agreement with Hangzhou Lingquan Equity Investment Fund Partnership (Limited Partnership), which will purchase a 90% stake in Tree Group's wholly-owned subsidiary, Hangzhou Tree Group Technology Holding Co., Ltd. (Tree Group Technology), which will operate Tree Group Hospital (Jinan). After the transaction is completed, Tree Group Technology will no longer be a subsidiary of Tree Group Medical.
The shareholders of Hangzhou Lingquan include Hangzhou Lakefront Mountain Capital Management Co., Ltd., whose major shareholder and legal representative is Ali Baba Group co-founder and investment manager, Xi Shenghuan.