Recently, news came from the capital market that China Jiahe Medical Technology Development Group Co., Ltd. (hereinafter referred to as US-China Jiahe), a Chinese private medical institution focusing on oncology medical solutions, officially opened a stock offering on December 29. According to the prospectus data, the prospectus price range for US and China Jiahe is HK$14.10 to HK$16.40 per share, and the first-hand entry fee is HK$3,313.08. CICC and Haitong International are co-sponsors of the company.

As one of the few private medical institutions in China that also has advanced cancer diagnosis and treatment technology research and application capabilities, and has multiple proton therapy cabins, its capital market action attracted widespread attention from the market as soon as it was announced.

So, what do you think of this oncology medical group that features scarce treatments?

Attracting the favor of many parties

Judging from past performance, this year's Hong Kong stock IPO performance is relatively lackluster, and the investment style is more cautious, but there is still no shortage of highlights. Taking investment and financing as an example, the US and China Jiahe are gaining market favor due to their strong competitive advantage.

According to reports, the US and China have rich financing experience. As early as 2018, the company received investment from CICC Capital, introduced CITIC investment in 2020, and obtained strategic investment from CSPC Group in the 2023 D round of financing. So far, in addition to actual controllers, the major shareholders of the US and China Jiahe include brokerage capital, financial capital, industrial capital, and financial investors. Shareholders' resource advantages in their respective fields will also help the comprehensive development of the US and China Jiahe.

Strong synergy and large room for sustainable development

So, what are the qualifications of the US, China, and Jiahe? It can be summarized in two words: high barriers to competition and large room for sustainable development.

The private oncology institution industry market in the US and China is in a highly fragmented state. In such a competitive landscape, factors such as shareholder background and market environment are only external support. The core of the company's survival is still whether the company has a good business model and competitive advantages that are difficult for rivals to replicate.

Looking at the business model, the main business of the US and China Jiahe is divided into hospital business and medical equipment, software and related services. From the beginning, the business layout design planned positive cycle synergy effects of mutual support to support the company's long-term sustainable development.

The hospital business of Jiahe in the US and China mainly relies on six offline and one online medical institution to provide cancer patients with a full range of oncology medical services throughout the treatment process (including screening, diagnosis, treatment, and post-treatment health management).

Compared to conventional oncology institutions, the main advantage of the US, China, and Jiahe is that it has a dedicated team of full-time doctors and nursing staff from various disciplines to meet the needs of patients throughout the multidisciplinary team (MDT) process.

Take breast cancer, which has the highest incidence rate among Chinese women. Through advanced CT angiography and complementary radiotherapy, MDT collaboration can achieve breast preservation surgery, which is far less invasive to patients than traditional surgery to remove the entire breast. However, due to the large number of patients, uneven domestic medical resources, and limited MDT capacity in medical institutions, the proportion of breast cancer surgeries in China using breast preservation surgery is less than 20%, while the adoption rates in the US and Europe during the same period were about 60% and 80%, respectively. If medical institutions have MDT capabilities, it can bring the possibility to provide patients with better treatment results and give patients a better survival experience.

In addition to its own professional medical team, the US and China Jiahe also have long-term strategic partnerships with the world's top medical institutions such as MD Anderson and Mayo Clinic.

MD Anderson is one of the most famous cancer treatment centers in the world and the largest cancer treatment center in the US. Since 2015, the US, China, and Jiahe have signed an exclusive cooperation with their hard power to carry out multi-level cooperation. Currently, the two sides have held annual academic conferences for many years and held more than 20 academic seminars to effectively build a bridge between China and the US in the field of oncology care. According to reports, MD Anderson and the US-China Jiahe Joint Academic Annual Conference brought together leading figures in the field of oncology from China and the US to promote innovative cancer diagnosis and treatment models through interactive discussions and collision of ideas to help overcome cancer and benefit more patients.

Mayo Clinic is the world's largest comprehensive non-profit physician practice organization. It has the largest comprehensive medical system with the most advanced equipment in the US. Currently, Guangzhou hospitals under the US and China Jiahe have formulated a set of service standards equivalent to those of the Mayo Clinic. In September 2021, they completed highly complex DIEP breast reconstruction surgery for a female breast cancer patient who failed a bilateral mastectomy, and there are only a few hospitals in China capable of performing this procedure.

Chart 1: The US, China, and Jiahe strategic partners rank in the top three cancer specialists

Data source: The company's official website, compiled by Gelonghui

In addition, the US, China, and Jiahe supplies corporate customers (mainly including partner hospitals, other medical institutions and medical companies, and distributors) with necessary related medical supplies to establish or upgrade other radiotherapy departments or diagnostic imaging departments. The company also provides management and technical support for equipment operation, clinical practice and quality control plans, hospital professional training, and academic research for oncology medical equipment leased or purchased from the company.

As of June 30, 2023, 47 corporate customers have used US and China Jiahe medical equipment, software and related services. In addition, the US and China Jiahe have integrated offline medical resources into the cloud platform to provide multiple cloud-based services for medical equipment, software and related services. Customers can choose one or a full set of cloud platform services according to actual needs. As of June 30, 2023, the US and China Jiahe are empowering 17 partner hospitals with cloud platform services, management and technical support, and operating leases.

Overall, the businesses of the US, China, and Jiahe have positive circular synergy effects that support each other, promote mutual development, and spiral upward. Supported by synergy effects, the US, China, and Jiahe successfully handled the endogenous relationships between medical technology, management capabilities, external supply chains, and customer sources, creating the possibility of a spiral increase in the size of the company and avoiding the “stuck neck” situation of unbalanced development in individual fields.

“Differentiation+ Specialization”, buildwidemoat

In addition to focusing on the company's business itself, it is also necessary to explore the investment logic behind its competitive landscape.

According to the Frost & Sullivan report, out of all private oncology medical groups in China, in terms of 2022 revenue, the US China Jiahe is one of the largest private oncology service providers in China, accounting for 0.5% of the market share.

It can occupy a leading market position in the industry in intense competition. In addition to having a business model with good synergy effects, the US, China, and Jiahe mainly relies on competitive advantages that are difficult for rivals to replicate.

On the one hand, the US and China Jiahe, as leaders in the oncology medical service industry, actively participated in the national industry standard formulation project, became the main setter of national radiation therapy industry standards, leading the continuous development of the oncology medical industry.

In February 2022 and June 2023, the company was selected by the National Cancer Center as one of the editors to develop the 2021 and 2023 editions of the “National Cancer Quality Control Center Radiation Therapy Quality Control Guidelines”. At present, the company has initiated three national standard-setting projects to formulate the “Radiation Therapy Data Review Quality Assurance Practice Guidelines”, “5G-based Remote Radiotherapy Plan Design, Implementation and Quality Control Platform Construction Guidelines”, and “Full Skin (Electron Beam) Irradiation Technology Practice Guidelines”. In terms of medical technology in precision radiotherapy and pathological and imaging diagnosis, the US and China Jiahe have formed technical barriers against competitors.

On the other hand, the company has a good location layout and unique treatments, and the differentiated design accurately covers potential groups.

In an age where the aging of the population is accelerating, the imbalance in China's medical resources continues to worsen. Public hospitals are overcrowded, and many public international departments and private hospitals handle most of the needs of patients. However, the reality is that not every hospital can meet patients' needs for more accurate and effective radiotherapy.

As can be seen from the US and China Jiahe prospectus, the company's differentiated design perfectly matches current market needs. In cancer treatment, the company has a more accurate layout and proton therapy with fewer side effects. By using proton beams, it releases maximum energy, accurately locates tumor tissue and achieves the best curative effect. For example, the Guangzhou Taihe Cancer Hospital Proton Center set up by the company is expected to start operation in March 2024, and the Shanghai Taihecheng Cancer Hospital under construction is expected to commence operation in January 2026. According to the plan, Shanghai Taihecheng Cancer Hospital will establish a proton center equipped with a set of proton therapy equipment and four treatment cabins. It is expected to start operation in 2027. Take the Shanghai Proton Heavy Ion Center as an example. The average patient fee is about 278,000 yuan. In 2022, the center treated about 1,000 patients. Looking at the horizontal comparison, with the commencement of operation of the Guangzhou Proton Center, there is plenty of room for growth.

In terms of regional distribution, the geographical concentration of offline self-operated medical institutions in the US and China reflects the high population density and advanced level of economic development in the Greater Bay Area, Yangtze River Delta, and North China region, thus maximizing the geographical coverage of the patient population. For example, the company can set up an outpatient department in Shanghai to cover the Pan-Yangtze River Delta region, while the Guangzhou hospital can serve the entire Greater Bay Area, which is beneficial to brand building.

It is worth noting that the company designed differentiated characteristics based on differences in tumor incidence between regions, focusing on breast cancer and nasopharyngeal cancer in Guangzhou, and gastrointestinal cancer in Shanghai. It relies on professional skills and international cooperation to implement MDT methods, which is different from conventional oncology medical institutions.

Figure 2: Geographic layout of self-operated institutions and partner hospitals in the US, China, and Jiahe

Data source: prospectus, compiled by Gelonhui

What do you think of the future?

Landing on the Hong Kong Stock Exchange is just the beginning of a new chapter for the US, China, and Jiahe, and the next highlights don't stop there.

From a macro perspective, in an age where population aging is accelerating, demand for oncology medical services is strong and certain.

According to Frost & Sullivan data, in terms of revenue, the market size of China's oncology services market grew from RMB 265.6 billion in 2016 to RMB 495.1 billion in 2022, with a compound annual growth rate of 10.9%. It is expected to reach RMB 768.7 billion in 2026, and the CAGR is 11.6%, which is a huge market space.

From a microcompetitive perspective, as an important supplementary sector for medical resources, the US, China, and Jiahe, a private oncology medical institution, is at the leading level in the industry, and is expected to continue the competitive pattern of strong players.

Since medical resources are generally concentrated in large cities and large public medical institutions, private medical institutions actually need to learn to complement large public medical institutions. The US and China Jiahe can maintain their leading position in the industry in precise radiotherapy and pathology and imaging diagnosis. With its internationally compatible technology and experience, and with the gradual implementation and operation of proton centers such as Guangzhou and Shanghai, there is a high probability that it will continue to be strong.

In the long run, the US, China, and Jiahe are actively planning to expand the business scenario, which is expected to form multiple business growth curves.

In addition to the two major businesses in the US and China, Jiahe is also expanding into other fields through acquisitions, etc. On the eve of the “AI+ medical treatment” boom, the US and China Jiahe forwardly acquired Beijing and Xinkang to introduce the application of artificial intelligence technology, thereby improving its competitiveness in the oncology medical service market.

Summarize

According to Frost & Sullivan data, the number of new confirmed cases of cancer in China reached 23.8% of the world in 2022. The high incidence of cancer is in stark contrast to current medical resources that are not compatible. As the aging population accelerates, patients' demand for oncology medical treatment services may be even stronger. As an important part of medical resources, public cancer hospitals assume basic responsibility for insurance, while private oncology medical institutions are taking on an increasingly important role. As a leading enterprise in the industry, the US and China have also embarked on a different path with strong industry competitiveness and excellent business collaboration capabilities, and further development is worth looking forward to.