BenQ BM takes pulse of hot Hong Kong market with new IPO bid

The private hospital operator has filed again for a Hong Kong listing, offering uninspired financials to investors after two unsuccessful attempts since last year

Key Takeaways:

• Private hospital operator BenQ BM has resumed a plan to list in Hong Kong, which it initially launched last year
• Despite big potential in the Chinese market for private healthcare, the company’s revenue and profits are both falling as it faces policy challenges and stiff competition

By Warren Yang

Private healthcare in China would appear to hold big attraction for investors, as the country’s new middle class shops for options beyond the usual public hospitals. But don’t tell that to private hospital operator BenQ BM Holding Cayman Corp., whose repeated attempts to go public in Hong Kong have failed, as it offers up a listing with financials that are hardly impressive. There are some reasons for investors to like the company, but also plenty not to.

BenQ BM made a new filing for a Hong Kong IPO last week, its latest after two earlier efforts dating back to April last year failed to reach fruition. Now, the company that’s majority owned by Taiwan-listed Qisda (2352.TW), a global leader in liquid crystal displays (LCDs) and projectors, is hoping the third time will be the charm in its listing journey.

On the surface, private-hospital operators appear to be full of potential. China’s population is aging fast, and that means demand for quality healthcare is growing. Moreover, many from the country’s expanding middle class are increasingly looking for premium services at private hospitals to avoid the cattle-like conditions at larger, public institutions.

But the sector also faces a range of challenges. Chief among those is its strict regulatory oversight, which isn’t surprising since it deals with public health. Competition with government-backed public hospitals under pressure to operate more profitably is another issue.

Private hospital operators may also face more difficulties hiring qualified professionals over their public sector peers that can offer more benefits and job stability. They also need to overcome public perception that they may prioritize profits over health. And then there’s the simple fact that private hospitals are more expensive to operate since they don’t get many of the cost advantages of their larger, well-connected state-run peers.

BenQ BM’s financials illustrate these difficulties. Its revenue slipped 1% to 2.7 billion yuan ($380 million) last year from 2023, and it shrank by a similar amount year-on-year in the first half of this year. Worse yet, its profitability is weakening, with its net margin dropping steadily from 6.2% in 2023 to 4.1% last year, and falling further still to 3.7% in the first half of this year.

Capacity limit

On the revenue side, a key problem for BenQ BM is the physical capacity limits of its medical facilities. The company runs two hospitals, Nanjing BenQ Hospital, a Grade-A Class 3 facility that opened in 2008; and Suzhou BenQ Hospital, a Class 3 general hospital established in 2013. The two facilities had a combined 1,850 beds at the end of June, a figure that hasn’t changed since Nanjing BenQ Hospital added 150 beds in 2023. The bed occupancy rate exceeds 100% at the Nanjing facility with the use of temporary beds, meaning it’s essentially maxed out in terms of the inpatient traffic it can handle.

Suzhou BenQ Hospital is also operating close to capacity, with nearly 90% of its available beds in use, so there isn’t much room for it to boost revenue from inpatient services.

The introduction of a new payment system three years ago in Jiangsu province, where both hospitals are located, isn’t helping matters. Under the new scheme, called the diagnosis-related group (DRG) payment system, China’s public medical insurance funds reimburse hospitals based on standardized rates for diagnosis-related inpatient services, rather than actual treatment costs. So, if the standardized payments are insufficient to cover treatment costs, the hospitals have to cover the difference themselves.

With the introduction of the new rates, average spending per inpatient visit at both Nanjing BenQ Hospital and Suzhou BenQ Hospital has declined substantially since the new system was implemented. Inpatient services account for a little more than half of BenQ BM’s revenue.

Average spending per outpatient visit has also fallen, even though the number of visitors has increased, due to expansion of a state program for centralized drug procurement to make drugs cheaper for patients. An adjustment to reimbursement rules for some diagnostic procedures by the government is also resulting in lower payments for hospitals as China tries to keep healthcare affordable for both its national health plan and for patients.  

The centralized drug purchasing program has helped BenQ BM reduce costs for pharmaceuticals. But the overall revenue pressure from regulatory changes shows how its fortunes are at the mercy of government policies in a heavily regulated industry.

Stiff competition is also making life hard for BenQ BM. The company has a tiny market share of just 0.4% among private for-profit hospital operators in China, according to its prospectus. Its Nanjing hospital is the largest in Jiangsu but only controls 2% of that provincial market.

Add in competition from public hospitals, and BenQ’s position in the overall industry becomes even tinier. Private hospitals’ aggregate revenue amounted to 944.7 billion yuan last year, less than a quarter of the total for their government-owned peers.

Hiring high-quality doctors is also critical for BenQ BM to stay competitive, but comes with a cost. The company’s employee expenses have gone up because of increases in new hires, especially senior professionals like chief doctors. That’s weighing on its gross margin, which declined to 15.9% in the first half of this year from 19.3% a year earlier.

Ultimately, for BenQ to boost its revenue and improve its profitability, scaling up its operations seems essential. If the company succeeds in going public this time, it plans to use the proceeds to expand and upgrade its existing hospitals, while seeking acquisitions to expand its reach beyond just two facilities.

The Hong Kong IPO by cancer treatment private hospital operator Concord Healthcare (2453.HK) last year could serve as a template for BenQ BM. But Concord’s post-IPO performance has hardly been inspiring, with its shares down more than 80% from their listing price. BenQ BM may be hoping to avoid that fate by banking on recent strong investor sentiment around Chinese stocks in its third IPO attempt.

But it’s far from guaranteed that the company will cross the finish line this time as its financials may leave investors unimpressed.

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