The educational platform operator slipped into the red in the first five months of this year as it faces growing competition

Key Takeaways:

  • Hong Kong IPO candidate Huayiwang Technology recorded a loss in the first five months of the year, reversing steady profit growth over the previous three years
  • The company’s paid subscriber growth has slowed and average spending per paid subscriber began to decline this year, raising concerns about its future

By Molly Wen

Doctors practice continuous learning in an effort to stay up with the latest treatment norms and medical research advances. While they once relied mostly on traditional journals and magazines for their updates, their increasing use of online materials has fueled a boom for the niche sector offering medical education materials online.  A prime example in China is Huayiwang Technology Inc., which hopes to bring its style of online medical education to investors with plans for a Hong Kong IPO.

Founded in 2008, Huayiwang earns money by charging fees for its courses to a range of medical personnel, including special training for different positions, specialties and regions, with both online and offline instruction. According to an industry report cited in its preliminary prospectus filed in late July, Huayiwang had 10.3 million registered medical professional users at the end of May, including 3.4 million practicing physicians. That made it the largest online education platform for medical and health professionals in China.

In addition to providing services to medical professionals as its main business, the company also offers digital marketing services to pharmaceutical and medical device companies, and provides online education services for patients, especially those looking for courses in chronic disease management and occupational health.

Huayiwang’s operating revenue grew from 276 million yuan ($40.7 million) to 487 million yuan between 2019 and 2021, with digital medical education services for medical professionals accounting for more than 75% of the total during that period, according to its prospectus.

That said, it’s noteworthy that revenue for the first five months of this year actually fell 10.2% to 76 million yuan from the year-ago period. Of that total, its main digital medical education services business accounted for 53.17 million yuan, slipping to 69.9% of the total, reflecting the risk of revenue volatility.

Since most of Huayiwang’s services are offered online, its gross margin has grown with the expansion of its business and increasing economies of scale. The company’s gross margin rose from 44.9% to 48.9% over the past three years, and its net profit for the period increased from 22.85 million yuan to 63.18 million yuan.

But it slipped into the red in the first five months of 2022, posting a loss of 29.76 million yuan. Huayiwang blamed the loss on the revenue decline and increasing R&D expenses, as well as expenses related to the IPO.

Crowded field

In terms of outlook, Huaiyiwang’s three main businesses are all in high-growth areas, with prospects particularly promising for its main business selling digital medical education services. According to a research report cited in the prospectus, China’s medical education services market is currently undergoing a rapid digital transformation, with digital medical education services outside of universities and colleges expected to grow to 49.2% of the total market by 2026, worth 15.9 billion yuan annually by then, from 22.9% of the market in 2021.

But the company also admits it is under pressure from competition on several fronts. Huayiwang ranks first among online medical education platforms by both registered medical and health professionals and licensed physicians on its platforms. But those users may also be registered on other platforms as well.

As of May 2022, a total of 12 entities in China were approved by the National Committee for Continuing Medical Education for licenses to conduct distance learning for continuing medical education programs. But the system is open to additional applicants, meaning more rivals could be approved in the future.

Existing rivals include Medlive Technology (2192.HK), which was listed in Hong Kong last year, and, which is backed by Tencent (0700.HK) and Hillhouse Capital. There are also specialist educators like Haoyishu and AllinMD Orthopedics for orthopedic surgeons, and iBaby for obstetricians, which can all be seen as potential Huayiwang competitors.

The prospectus also mentions the potential for future competition from established tech companies with deep pockets, sophisticated technologies and broad distribution. Such competitors could include internet healthcare companies like Alibaba Health (0241.HK), JD Health (6618.HK) and Ping An Healthcare (1833.HK), which have been making a push into the digital marketing services sector.

Paid user growth slowdown

Some 70% of China’s healthcare personnel are registered Huayiwang users, which reflects the company’s market-leading status but also means it has limited room for further development in its niche market. Its prospectus shows the company’s paid user base grew sharply from 1.5 million in 2019 to 2.2 million in 2020. But growth slowed sharply after that to reach just 2.4 million in 2021. What’s more, average spending per paid user grew from 115 yuan in 2019 to 125 yuan in 2021, only to drop back to 111 yuan in the first five months of 2022.

One thing Huayiwang won’t need to worry about too much is cash, with the company reporting 211 million yuan in its coffers at the end of May. It said proceeds from the IPO will be used mainly for business expansion and upgrades, consolidating its digital platforms and upgrading AI applications, as well as exploring strategic partnerships, investments and acquisitions.

As an early entrant in its area, Huayiwang has received funding from well-known investors including Sequoia China and Zhonghai Venture Capital. Before the IPO, Sequoia held 19.3% of the company’s shares, making it the largest external shareholder.

To estimate its valuation ahead of the IPO, we can compare Huayiwang with Medlive Technology, which trades at a price-to-earnings (P/E) ratio of 72 times. Using that as a yardstick, Huayiwang could end up with a market cap of 4.5 billion yuan based on its profit level last year. But with growth slowing and the dip into the loss column this year, the company may need to tone down its expectations to attract investors to its listing.

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