TCMTech fuses old with the new by mixing AI and Chinese medicine

China’s biggest provider of AI-empowered healthcare services using traditional Chinese medicine has filed for a Hong Kong IPO
Key Takeaways:
- TCMTech has filed to list in Hong Kong, reporting its revenue rose 34% year-on-year to 173 million yuan in the first three quarters of 2024
- The provider of AI-empowered healthcare services for the traditional Chinese medicine industry has introduced two systems to address challenges facing the sector
By Ken Lo
Artificial Intelligence (AI) has broad applications in healthcare, with implications to transform the sector through its use in areas such as drug development, pathology, diagnosis and with AI-enabled doctors. But such cutting-edge tools seem nearly irrelevant when it comes to traditional Chinese medicine (TCM), with its thousands of years of history and an aversion to modern medical methods.
TCMTech Inc. is hoping to break that stereotype, detailing its use of AI tools to promote the industry in its IPO application to the Hong Kong Stock Exchange earlier this month. Haitong International is the listing’s sole sponsor, indicating it’s likely to be rather modest, probably raising less than $50 million. According to third-party research cited in the application, the company was China’s biggest AI-empowered TCM healthcare services provider in 2023, serving an industry confronted by both demand- and supply-side challenges.
Improving business
Despite its relatively small scale, TCMTech’s business has been growing steadily. Its revenue rose from 62.2 million yuan ($8.48 million) in 2022 to 189 million yuan in 2023, and was set to rise again after reaching 173 million yuan in the first nine months of last year. Its losses have been more variable, rising from 154 million yuan in 2022 to 194 million yuan the next year, but on track to fall after totaling 55.72 million yuan in the first nine months of 2024.
The company is actually profitable on an adjusted basis, which typically excludes things like stock-based employee compensation and changes in the value of financial instruments. Its adjusted net profit has been on a steady growth track, rising from 5.15 million yuan in 2022 to 49.51 million yuan in the first three quarters of last year.
It’s also quite healthy from a cash perspective, with 96.87 million yuan in its coffers at the end of last September, up from 14.29 million yuan at the end of 2023. Much of that new cash has come with the inflow of funds generated by its operating activities.
China’s TCM healthcare services market is highly fragmented in terms of suppliers. According to market data in TCMTech’s listing document, over 12,600 AI-empowered TCM healthcare service providers were operating in China by the end of 2023, with the top five accounting for just 5.4% of the market combined. TCMTech was among that group, but its share stood at just 1.5%.
The TCM business is highly reliant on specialized practitioners, who are relatively lacking as more medically minded people flock to Western medicine. There were only around 700,000 certified TCM practitioners in China in 2023, less than 5% of them certified as class-A, insufficient to meet market demand. Compensation for TCM practitioners also accounts for a big portion of the total operating costs of medical institutions providing TCM services.
Demand for TCM products and services is also quite fragmented. Patients are scattered around the country and come with high acquisition costs for TCM healthcare service providers due to their limited knowledge of the benefits of such medicine. Those factors, coupled with patients’ tendency to not comply with treatment protocols, has necessitated the establishment of TCM medical platforms to help customers better understand and trust TCM.
Two AI “trump cards”
To address the challenges on both the supply and demand sides, TCMTech has introduced two products, TCM Brain and its Jingyi Academy.
TCM Brain is the company’s self-developed AI-assisted TCM clinical decision support system. It’s equipped with the world’s largest clinical knowledge graph in the TCM healthcare services industry and can be applied across a broad range of TCM medical services. “This AI-empowered approach enables our physicians to perform an in-depth and all-rounded consultation while minimizing reliance on their personal knowledge and experience, a novel way to increase the supply of high-quality professionals,” according to the prospectus.
Jingyi Academy was founded in May 2021 and had over 220,000 registered members by last September, including TCM enthusiasts and qualified practitioners. It not only promotes TCM culture and enables potential customers to understand TCM-related benefits but also serves to improve the company’s brand recognition and market position.
Strong market potential
The AI-empowered TCM healthcare services industry is currently in an early stage of development but could have huge potential. The market was valued at around 10.9 billion yuan in 2023 and is expected to reach 86.9 billion yuan in 2028, growing at a rapid annual clip of 51.4%, according to market data in the listing document. The penetration rate for AI-empowered TCM healthcare services in the overall TCM healthcare services market has been growing steadily, rising from less than 0.1% in 2019 to 1.1% in 2023. It is expected to keep growing to reach 5.1% by 2028.
As things now stand, factors like an aging population, improving health consciousness and stronger saving and spending capacity among the elderly should lay the foundations for strong growth potential in China’s healthcare services market. Despite its declining popularity, especially among the younger generation, TCM may be able to stage a comeback in such an environment as a result of favorable government policies towards TCM and tools like those from TCMTech.
To subscribe to Bamboo Works weekly free newsletter, click here