PomDoctor completes U.S. listing ahead of looming Nasdaq crackdown

The online medical services provider raised about $20 million after pricing its shares at the bottom of their range – below a Nasdaq-proposed new minimum threshold of $25 million

Key Takeaways:

• PomDoctor priced its IPO shares at the bottom of their range, seeking a high P/S ratio of nearly 10 that values the company at $472 million
• The company was racing to complete its listing before the rollout of new Nasdaq rules that will require all new foreign listings to raise at least $25 million

By Doug Young

Just last month we wrote about a Chinese company that suddenly decided to supersize its Nasdaq IPO in response to a looming new rule designed to weed out small – and often suspicious – new listings by foreign firms. But another company, internet-based healthcare provider PomDoctor Ltd. (POM.US), ignored those pending changes, proceeding with a listing plan that didn’t seem to comply with the new rules.

PomDoctor’s latest IPO filings over the last two weeks didn’t make any reference to the pending Nasdaq rule changes announced last month. Under those changes, any foreign company applying to list on the Nasdaq will need to raise at least $25 million. Furthermore, any company whose public float falls below $5 million in value will be subject to an accelerated process for suspending and delisting its shares.

The Nasdaq said at the time that it was submitting its proposal to the U.S. securities regulator for approval, and that the new rules would take immediate effect after getting such a nod. If such approval comes, which seems almost certain, then companies with IPOs in progress would have a 30-day grace period to complete their listings without being subject to the new rules.

Auto insurance aftermarket services provider QMSK Technology Co. Ltd. appeared to be taking no chances on seeing its IPO plan derailed by the new rules, and last month announced a major upsizing of its listing to raise up to $37 million from a previous $9 million target. In its filing announcing the bigger fundraising target, the company cited the proposed new Nasdaq rule, saying that “failure to meet the revised listing requirements may prevent us from listing or maintaining our listing on the Nasdaq Capital Market.”

Unlike QMSK, however, PomDoctor’s final IPO filing this week not only contained no mention of the looming new requirements, but instead showed the company was moving ahead with its IPO under terms previously disclosed in July. Those terms show the company planned to sell 5 million American depositary shares (ADS), which would equal about 4.2% of its share capital. The main news in the latest document was the pricing of those shares, which was $4 per ADS, representing the lower end of its previously announced range of $4 to $6. That price would value the company at $472 million.

The shares began trading on Wednesday in the U.S., and rose 19% in their first two trading days to close on Thursday at $4.77.

At $4 per ADS, the listing raised about $20 million, which would have violated the new Nasdaq rule requiring the $25 million minimum. And if the shares ultimately fall sharply, which could happen due to a valuation that looks quite aggressive, the company could also be subject to the proposed rule creating an expedited delisting process for any foreign company whose share float falls below $5 million.

Aggressive valuation

PomDoctor provides services to patients with chronic diseases and conditions like diabetes and high blood pressure, which require regular medical consultations. Its network hosted 212,800 doctors and nearly 700,000 patients at the end of last year, ranking it sixth among China’s internet hospitals. What’s more, many of its doctors bring their own patients to the network, meaning many of the doctor-patient relationships on PomDoctor’s platform are quite stable.

We first wrote about this listing when PomDoctor filed an updated prospectus in July, following its first public filing in March this year. In our earlier review, we noted that the company’s business model looks relatively solid due to its focus on chronic diseases that provides a recurring revenue stream.

But we also noted the company appeared to be valuing its shares quite highly, and the pricing of the stock, even at the bottom of its range, seems to validate that assertion. The company reported 2024 revenue of 343 million yuan ($48 million), which was up 12.5% from 305 million in 2023.

While that growth rate is solid, if not spectacular, the latest revenue figure would give the company a price-to-sales (P/S) ratio of about 10. Such a multiple isn’t unheard of for a fast-growing tech company, but looks aggressive for one recording PomDoctor’s growth level. By comparison, listed rivals Ping An Health (1833.HK) and JD Health (6618.HK) trade at much lower P/S multiples of 5.3 and 2.9, respectively.

What’s more, both Ping An Health and JD Health have wealthy parents in Ping An Group and JD.com, giants in the financial services and e-commerce sectors, respectively. And while Ping An Health and JD Health are both profitable, PomDoctor lost 37.4 million yuan last year and 36.9 million yuan in 2023. PomDoctor’s 46.6 million yuan in total assets at the end of last year was also just a fraction of its 546 million yuan in total liabilities.

Its relatively weak financial position has led PomDoctor’s outside auditor to raise “substantial doubt about our ability to continue as a going concern,” the company said as the lead “risk factor” in the standard section of its prospectus discussing such risk factors.

None of that seems to justify the high valuation PomDoctor is seeking. A more realistic multiple of 3 or 4 would value the company at around $150 million, making its public float worth about $6.3 million. That would be just slightly above the proposed new Nasdaq requirement of a $5 million float, though it’s not clear if that requirement would apply to companies that listed before the new rules take effect.

At the end of the day, there are many questions around PomDoctor’s new listing. While the company made its IPO before the new Nasdaq requirements took effect, its listing could face future difficulties from the minimum float requirement. And perhaps more importantly, the company’s business could face challenges due to its ongoing losses and lack of a deep-pocketed backer like JD.com or Ping An.

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