HealthyWay seeks Hong Kong IPO to staunch flow of red ink

The digital healthcare services platform counts Baidu as a major customer, as well as other firms from the pharmaceutical, information technology and insurance sectors

Key Takeaways:

• Digital healthcare services platform operator HealthyWay has applied to list in Hong Kong, counting online search giant Baidu as its second largest shareholder
• The company lost money in the first half of 2024 and is expected to stay in the red for all of this year

By Bai Xinrui

Hong Kong’s IPO market has been anemic this year, with funds raised through last month down 5% from levels in a similarly moribund period of 2023 amid high global interest rates and worries about China’s economy. But some early signs of new life have emerged this month, led by a mega-listing for Midea Group and another one in the pipeline from leading courier S.F. Holding, both of which are already listed in Shenzhen.  

Adding to that list is a more pint-sized offering from HealthyWay Inc., which filed a preliminary prospectus to list in Hong Kong earlier this month. Unlike its name, the company’s bottom line doesn’t look too healthy, at least not just yet, including a steady stream of red ink over the last three years that’s only getting larger. But it does have at least one important fan in internet search giant Baidu, which is both a major customer and also its second largest shareholder.

Formerly known as Fuzhou Renren Jiankang, HealthyWay came to life more than two decades ago with the launch of its yihu.com website in 2001. The platform, which initially focused on online bookings for medical services, later became part of a public service convenience project of the Fujian provincial government. That platform has evolved over the years and is now one of China’s largest for digital healthcare services.

HealthyWay became acquainted with Baidu when the latter made a $60 million investment during the company’s A-round funding in 2015. Baidu is now the company’s second-largest shareholder with 12.5% of HealthyWay’s stock, behind only founder Zhang Wanneng with 34.7% of its shares.

HealthyWay’s revenue grew 14.5% year-on-year to 611 million yuan ($86.3 million) in the first half of 2024. Content services is its biggest single source, accounting for about half of the total, followed by information technology services at 21.1%, according to its application document.

Content services generates revenue partly from working with external physicians and medical experts to provide wellness content services in text or multimedia formats, primarily to Baidu. The company also provides services to pharmaceutical companies and medical product makers by collecting and analyzing their clinical data.

As one of China’s leading artificial intelligence (AI) companies, Baidu has worked with HealthyWay in various fields such as AI application scenarios. The two parties have exchanged ideas on machine learning, deep learning, data mining, natural language processing and other channels, and will integrate AI-driven applications and solutions into the HealthyWay platform, the listing document says.

HealthyWay’s information technology services refers to the provision of technical solutions to pharmaceutical and healthcare companies, as well as medical institutions, to address their needs for infrastructure or marketing consulting services. HealthyWay had 531 corporate and digital marketing service customers in the first half of 2024, up 11.8% year-on-year.

Fragmented industry

China’s digital health enterprise services market is relatively fragmented, with no clear leader. Of the more than 100 digital health enterprise service providers last year, the market leader held just 2% share. The market was worth an estimated 58.9 billion yuan last year, and is expected to grow to 178.4 billion yuan by 2027, representing an annual growth rate of 31.9%, according to third-party data in the listing document. That signals there may be plenty of room for consolidation.

In addition to expanding its services for medical enterprises, HealthyWay is also working on personal healthcare services. But such services, including personal health management services and telemedicine consultations, are still a relatively small part of its revenue pie, accounting for about one-fifth in the first half of 2024.

HealthyWay also stated that it faces fierce competition, especially in the healthcare services sector, which comes as no surprise due to the high degree of fragmentation. In that area it competes directly with Ping An Healthcare and Technology (1833.HK), JD Health (6618.HK) and WeDoctor, another online medical platform backed by gaming giant Tencent (0700.HK).

The intense state of competition has kept HealthyWay squarely in the red, with its losses only getting worse. Its loss of 157 million yuan in 2021 had swollen to nearly double that amount, or 310 million yuan last year. Despite its positive revenue growth in the first half of 2024, it continued bleeding red ink to the tune of a 55.8 million yuan loss for the period. HealthyWay has signaled it expects to keep losing money for the full year, mainly due to changes in the carrying amount of redemption liabilities.

The company’s top five customers, including pharmaceutical, information technology, insurance companies, insurance brokers and pharmaceutical retailers, account for 36.2% of its total revenue, with the largest accounting for 12.9% in the first half of this year. That shows a certain level of concentration risk, though it’s not overly high compared with other listing candidates.

While HealthyWay is losing money, rivals Ping An Healthcare and JD Health are expected to earn profits this year, giving them forward price-to-earnings (P/E) ratios of 44 times and 19 times, respectively, and price-to-sales (P/S) ratios of 2 times and 1.3 times. Since it has no profit, HealthyWay is more likely to be judged based on its sales, though its multiple should be lower than both Ping An Healthcare and JD Health due to its losses.

In addition to its own performance, weak economic data in China could also come into play for not only HealthyWay’s IPO but the broader market as well. The country’s producer price index (PPI) has fallen for 23 consecutive months, and many investors are taking refuge in the domestic bond market to avoid risks. That’s led to low trading volumes on Hong Kong’s stock market, averaging less than HK$100 billion per day this year.

Such weak sentiment is also dampening demand for IPOs from lesser-known companies like HealthyWay, especially if they haven’t recorded profits yet. Those kinds of factors working against it make HealthyWay’s chances of completing its listing look dicey this year, though it could still make the grade if broader sentiment starts to pick up.

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