Medical sector alive, well and ready to list to fund its future

Companies take a closer look at Chinese healthcare market and find plenty of opportunities

Chinese healthcare players' passion for IPOs remains high despite some companies' privatization plans.

In April, Chinese health checkup service provider iKang Healthcare Group Inc was listed on the Nasdaq board in the United States, and Ciming Health Checkup Management Group Co Ltd plans an initial public offering on the A-share market.

This was after New York-listed drugmaker Simcere Pharmaceutical Group and Nasdaq-listed clinic operator Chindex International Inc decided to privatize. Both companies said they will focus on the Chinese market.

But for iKang Chairman Zhang Ligang, getting listed on the Nasdaq means the company will get technology and innovation.

With capital raised from the market, iKang hopes to use new technologies to help people better manage their health.

IKang went public with an IPO price of $14 per American Depository Share and closed at $17.45 after trading on June 24. "Our stocks are attractive to global investors," Zhang said.

One reason may be because iKang is in the fast-growing private preventive healthcare sector, he said.

The company's revenue grew from less than 1 million yuan ($160,600) in 2004 to $202.3 million in the fiscal year that ended March 31 this year, according to its financial report released on June 9.

Zhang regards Nasdaq as his home turf because a company he founded earlier, online travel agency eLong Inc, was also listed there.

But for Chindex CEO Roberta Lipson, the domestic market seems more attractive.

"What motivated us to privatize is that we have very big expansion plans in China," she said.

It usually takes a company two to three years before making profits on a new front.

Chindex wants to open many hospitals at the same time, but that could drag down its business performance in the short term. "It is very hard for public investors to be patient enough and fully appreciate the potential of China's healthcare market," Lipson said.

Compared with Chinese Internet companies that are rushing to the US market for listings, Chinese healthcare companies are not that high-profile despite their huge growth potential.

Bruce Liu, an expert in China's healthcare and pharmaceutical industries, said: "While it would be over-generalizing to say that Chinese healthcare companies fared less well than Internet companies listed in the US, Wall Street does seem to factor in more risk adjustment toward the former."

Liu said some reasons are that China's healthcare sector is less comparable to that of the US, as well as more multifaceted and susceptible to regulatory changes.

After the Chinese government promised in March to let the market play a bigger role in the reform of the healthcare sector, the industry has experienced rapid changes.

Liu said listed Chinese medical companies will have opportunities to lead the trend of changes.

"They will uphold higher standards in local markets, access global capital as well as expertise to capture opportunities in China's healthcare space, and meet the market's needs while maximizing shareholder value," Liu said.

For Chinese companies listed overseas, they will need to handle two markets simultaneously: the one in China and the capital market on Wall Street.

Liu said that as different as these markets are, integrity and transparency will hold the key to long-term success.

China's capital market, he noted, is quite different from other bourses.

Some companies find it more attractive to list in China given higher valuations and fewer disclosure requirements. But others prefer overseas bourses for their certainty, discipline and global visibility, Liu said.

Still, Zhang from iKang said he is confident in riding the growth of China's private preventive healthcare services sector.

The company accounted for about 12.3 percent of China's health checkup market in terms of revenue in 2013, according to research company Frost & Sullivan.

After its IPO on the Nasdaq, Zhang said he did not have imminent plans to expand overseas and that his business will focus on China in the short term.

As the government encourages preventive healthcare services, the health examination market has huge potential due to demand from increasingly health-aware residents.

China's medical examination market saw its revenues grow from 18 billion yuan in 2008 to 46.4 billion yuan in 2012, with the figure expected to reach 164.7 billion yuan in 2017.

The market also is expected to record a compound average growth rate of 28.8 percent from 2012 to 2017, according to Frost & Sullivan.

Though preventive healthcare services are now primarily provided by public hospitals, private firms are playing an increasingly active role. Recent trends indicate that private service providers' revenue will outpace that of public hospitals in the near future, according to industry insiders.