Against this backdrop, Frost & Sullivan (referred to as 'Frost & Sullivan') has released the 'In-Depth Research Report on Chinese Medical Enterprises in 2023'. It will analyze the fundamentals of the markets for blood and body fluid diagnostics, microbiological testing, molecular diagnostics, and clinical mass spectrometry through the main business activities of Chinese medical enterprises. It will also assess the future development trends of the industry and explore the core value and industry competitiveness of enterprises from the dimensions of internal control, business model, channel scale, and marketing network.
The core business has developed steadily, and the establishment of our own brand matrix has opened up room for business growth.
From the perspective of the company's basic financial indicators, the overall business performance is good, and the overall growth capability is robust.With the adjustment of epidemic prevention and control policies, the leading market position of its wholly-owned subsidiary Weida, and the steady development of the 'Huajian Ecosystem', more growth space will be created for the company's future profitability.
From the perspective of company business segments, distribution is the cornerstone of our business, maintaining a relatively stable level:Distribution of IVD products is the cornerstone of the group's business, responsible for selling IVD analyzers, reagents, and other consumables to distributors, hospitals, medical institutions, and logistics providers. From 2019 to 2022, the total revenue from this distribution business accounted for 93.7%, 94.2%, 94.7%, and 93.7% of the group's total revenue during the same period, respectively. As a wholly-owned subsidiary of the group, Weida held a market share of 43.2% in China's primary distribution market for coagulation IVD products in 2021. Strong sales levels have laid a foundation for the company's revenue, and Weida has newly signed a five-year exclusive distribution agreement with Sysmex for coagulation products until Q1 2027, ensuring the stability of the company's future operations and clear growth logic.
The business of branded products has shown growth, and there is significant room for further expansion in the future:The group's own brand products mainly involve its participation in the research, development, production, and sales of IVD analyzers and reagents under its own brand. In recent years, the revenue share of its own brand instruments and reagents has been increasing year by year. According to the group's business layout in the 'Huajian Ecosystem', among which the group holds a controlling stake in Beizhi Medical and Langmai Biology, both have made research breakthroughs in IVD reagents and products. In the future, they will achieve more commercialization of products. The cost-effective own brand is more suitable for the current mid- to low-end market with a lower market share, which is conducive to expanding the product customer base, contributing higher product revenue and profits.
Maintenance after-sales service continues to develop steadily and is linked to the company's product distribution:The main income comes from providing maintenance services to the end customers of the company's XEUSCO clotting analyzers in China, including maintenance and repair services for hospitals and medical institutions, installation services, and end customer training.
Company Strength 1: Two major growth curves, supporting the coordinated development of the entire IVD industry chain
The first growth curve business has contributed stable cash flow to the group's development. The 'Huajian Ecosystem', as a second growth curve business, will complement the entire IVD industry chain, achieving synergy and strong coupling among manufacturers within various segments of the IVD market. In the future, it will create new business growth points.
The company's first growth curve business consists of three segments: distribution, branded products, and maintenance after-sales services.The distribution business is the cornerstone of the group's operations, mainly selling IVD analyzers, reagents, and other consumables. According to the company's 2022 annual report, the revenue from the distribution business accounted for 93.7%, providing a stable cash flow foundation for the company. The company also distributes self-developed branded IVD products, mainly including IVD analyzers and reagents under categories such as POCT (point-of-care testing), mass spectrometry, and microbiology IVD detection.
Business advantages of the second growth curve:The formation of the second growth curve business benefits from the company's cooperation with domestic and foreign IVD manufacturing enterprises that possess independent intellectual property rights, covering and extending its IVD business. Therefore, in December 2019, the group launched the 'Huajian Ecosystem' project. After years of expansion and construction, by the end of 2022, the group's product portfolio covered more than 500 products from 18 local IVD manufacturers with independent intellectual property rights and 6 well-known foreign IVD manufacturers. The second growth curve business created by the 'Huajian Ecosystem' facilitates resource coordination and complementary advantages among manufacturers in various sub-sectors within the ecosystem, forming strong synergy and coupling. It is conducive to promoting products through the company's rich customer resources and nationwide sales network, achieving integrated pre-sales and after-sales services, and providing customers with solutions for the research, development, production, and manufacturing of instruments and reagents.
Company Strength 2: Complementary Value Chains and Extended Industrial Chains, Reaching All Business Scenarios
The company further develops its own branded IVD products with market potential by purchasing equipment, instruments, and hiring experts in related fields. At the same time, it strengthens product quality management, optimizes the performance and applicability of self-developed products, realizes multi-industry integration and extension/complementarity in the value chain through its own brand, reaches all business scenarios and covers more terminal customers including second- and third-tier cities or grassroots medical institutions. The scale advantage formed will enhance the company's core competitiveness in the IVD business field.
From the perspective of business scenarios and value chains:In recent years, the Group has continuously deepened its cooperation with potential companies in niche segments such as microbiology and molecular diagnostics through mergers and acquisitions, strategic partnerships, etc. This is conducive to the research, development, and production of proprietary brand IVD products, forming a more competitive and diversified product portfolio. Moreover, cooperation with industries such as finance will extend the company's value chain, reaching out to all business scenarios to cover more end customers.
From the perspective of the industrial chain:The Group's IVD product distribution is mainly carried out through its wholly-owned subsidiary, Vistara. Vistara mainly distributes Ximen Meikang's coagulation products in China. Since 1997, Vistara has been the exclusive distributor and holds an exclusive distribution right for Ximen Meikang's coagulation products nationwide in China. Therefore, wholly holding Vistara helps to mitigate the impact of the Group's 'two-invoice system' on distributors and ensure the Group's actual operations.
Company Strength 3: The channel advantage built on a vast distribution network enhances the solution service capability.
As a leading distributor of IVD products in China, channel capabilities are the core competitiveness of the company's development. While maintaining its market share with Sysmex, the company aims to generate future incremental market growth through regional business radiation starting from leading hospitals, strategic cooperation with top enterprises in niche areas to expand product portfolios, and enhancing solution capabilities. The group expects to increase its sales force through more personnel dedicated to promoting and marketing solution services, and continue to participate in national and local IVD seminars and academic conferences to improve brand awareness.
From the perspective of cash on hand:
1) Using Hison Medical's coagulation products as a moat for the company's performance:The wholly-owned subsidiary of the Group, Weida, is the exclusive distributor and holds an exclusive distribution right for China's Hison Medical's coagulation products. Moreover, Hison Medical has adopted highly sensitive chemiluminescence technology for its four types of thrombus markers, which helps in the early diagnosis of thrombosis and fibrinolysis. The instrument has a faster detection speed than similar products and is more competitive in the industry.
2) Weishiwa has established a nationwide sales network layout:The group's distribution business is mainly carried out through WeSida, which holds a high market share of 40% in China's primary distribution market for coagulation IVD products in 2021. WeSida has established a nationwide sales network and maintains close business relationships with hospitals and medical institutions.
3) Implementing the 'Internet+' concept:Promote related products and services through irregular academic exchanges and other activities on the company's official account, which helps maintain existing users.
From the perspective of incremental creation:
1) Radiating from leading hospitals through the co-construction of laboratories:Carbon Huadetec, a subsidiary of the group, jointly builds an epigenomic testing laboratory with hospitals. Through its collaboration with medical testing institutes in Shenzhen, it extends its services to regions such as Guangdong, Hong Kong, and Macao. In the future, it plans to expand its business to northern regions such as Beijing and Hebei;
2) Expand product portfolio through strategic cooperation and tap into potential customer markets:The Group established an LCMS/MS team in 2019 and reached a strategic partnership with Shimadzu in 2020, forming a multi-level product layout including high-end imports, high-end domestic products, and mid-range domestic products.
3) Increase R&D investment to enhance solution capabilities:By continuously upgrading R&D facilities and recruiting scientists to enhance the group's internal R&D capabilities, we also participate in the design of laboratory sites, provide centralized procurement services for IVD products, carry out real-time inventory monitoring, and offer other after-sales services to clinical laboratories.
