Source of this article: Times Business School Author: Chen Xinxin
Source | Times Business School
Author | Chen Xinxin
Editor | Huang Youqian
This is the third time that Jiangsu Weikang Jiejing Medical Equipment Co., Ltd. (hereinafter referred to as "Weikang Medical") has hit the listing.
In 2017, Weikang Medical submitted a listing application to the Shanghai Stock Exchange Main Board and submitted a listing application to the GEM again in 2019. However, the first two IPO attempts ended with withdrawing the application report. After three years, Weikang Medical has once again launched an impact on the GEM. Can it get what it wants this time?
According to the announcement of the GEM Listing Committee, Jiangsu Weikang Jiejing Medical Equipment Co., Ltd. (hereinafter referred to as "Weikang Medical") will attend the meeting on August 26 and intends to enter the GEM. The sponsor is Dongwu Securities. The prospectus shows that the company's main product is disposable medical consumables.
[Summary]
The Shenzhen Stock Exchange has questioned whether Weikang Medical meets the positioning of the GEM, which shows the outstandingness of this problem. The GEM is positioned as a main service for growth-oriented innovative and entrepreneurial enterprises. In terms of growth, Weikang Medical has regressed for two consecutive years, and the industry's entry threshold is low and competition is fierce, so its growth is not guaranteed; in terms of innovation, Weikang Medical's R&D investment and R&D personnel are far inferior to comparable companies in its peers. Many core technologies have no patent output, and the value is questionable, and its innovation does not seem to be outstanding. Weikang Medical's growth and innovation seem to not meet the positioning of the GEM.
Medical supplies have high quality requirements for their special nature. Since 2014, Weikang Medical has been subject to administrative penalties for product quality many times, and has been repeatedly punished. The latest penalties occurred in October 2021. Weikang Medical seems to be difficult to solve the product quality problem. Weikang Medical also has the risk of being punished and recovered due to social security and housing provident fund. At the end of 2021, nearly 40% of the company's employees still did not pay social security, and nearly 70% of the employees did not pay provident fund.
performance has been regressing continuously, and the positioning of the GEM has been subjected to three rounds of inquiries in a row
Weikang Medical has currently experienced three rounds of inquiries (including one round of reply to the implementation letter of the center’s opinion). In the three rounds of inquiries, the Shenzhen Stock Exchange has raised questions about whether Weikang Medical meets the positioning of the GEM.
So what exactly is the positioning of the GEM? Why is the Shenzhen Stock Exchange so concerned about Weikang Medical’s GEM positioning?
According to Article 2 of the "Interim Provisions on Issuance and Listing of GEM Enterprises on the Shenzhen Stock Exchange", the GEM is positioned to thoroughly implement the innovation-driven development strategy, adapt to the general trend of development relying more on innovation, creation and creativity, and mainly serves growth-oriented innovative and entrepreneurial enterprises.
: "growth" and "innovation and entrepreneurship" are two keywords, and the data shows that Weikang Medical may not meet these two requirements.
First of all, from the perspective of growth, from 2019 to 2021, Weikang Medical's operating income was RMB 262 million, RMB 254 million and RMB 244 million, respectively, and its net profit was RMB 69.0439 million, RMB 54.705 million and RMB 54.626 million, respectively. Among them, operating income and net profit both declined for two consecutive years, which is hard to say that it has growth potential.
my country's low-value medical consumables industry has low threshold, fierce competition, and a wide range of categories. The industry's competitive landscape is relatively scattered, with more than 90% of them small and micro enterprises.
According to statistics from the "China Medical Device Industry Development Report (2021)" of the China Drug Administration Research Association, as of March 31, 2021, there were 9,884 medical device companies in my country with quality management system certification certificates, and 628 medical device companies with enterprise scale of more than 300 people, accounting for only 6.35%; according to iResearch Consulting statistics, 90% of medical device production enterprises in my country have incomes of less than 20 million yuan; among the companies whose main business includes low-value medical consumables, only a few companies such as Viagra and Condelay account for more than 1%.
The fierce competition may be one of the important reasons for the performance of Weikang Medical in recent years. In the fierce competition environment, Weikang Medical's growth is actually not guaranteed.
From the perspective of innovation, Weikang Medical's R&D expense ratio (R&D expenses/operating income) in 2021 is 3.12%, slightly lower than 4.5% of the average of comparable companies listed in its prospectus.As can be seen from Figure 1, although the R&D expense rate of Weikang Medical was at the lowest level compared with its peer companies in that year, it still did not widen the obvious gap.
However, from the absolute value, Weikang Medical has a huge gap with its peers. In 2021, Weikang Medical's R&D expenses were 7.6052 million yuan, while the average value of comparable companies was 163 million yuan. Among them, Sanxin Medical (300453.SZ), which had the lowest R&D expenses, also had a R&D expenses of 42.1538 million yuan, which is about 5.5 times that of Weikang Medical, and Weikang Co., Ltd. (01066.HK), which had the highest R&D expenses, is about 65 times that of Weikang Medical.
Under the huge gap in R&D investment, Weikang Medical’s so-called innovation is actually not guaranteed. This can also be seen from the number of R&D personnel. As of the end of 2021, Weikang Medical had 20 R&D personnel, accounting for only 3% of the total number of employees, which was only higher than that of financial personnel. As for whether the R&D team of 20 people can support the R&D system of a so-called innovative enterprise, it remains to be discussed. As for comparable companies, as of the end of 2021, Condella (603987.SH), Gongdong Medical (605369.SH), Sanxin Medical and Weili Medical (603987.SH) had 630, 158, 247 and 366 R&D personnel, respectively, which were far beyond Weikang Medical.
In addition, the technical content of Weikang Medical's core technology is questionable, which also seems to indicate that it is not innovative enough. According to the prospectus, Weikang Medical has 6 core technologies, namely PVC pellet formulation technology, catheter extrusion molding technology, balloon molding and bonding technology, drainage bag welding technology, catheter tip molding technology and fully automatic accessories assembly technology.
However, among the above 6 core technologies, only fully automatic accessories assembly technology has obtained invention patents and utility model patents, drainage bag welding technology has obtained utility model patents, and the patent acquisition status of the other four core technologies is "non-patent technology".
Generally speaking, enterprises will actively apply for invention patents for self-developed technologies for their own technologies for their motivation to protect their own technologies, especially as my country pays more and more attention to the protection of intellectual property rights. Weikang Medical applied for invention patents and utility model patents for its two core technologies, which also shows that Weikang Medical has the awareness of this technological protection. So, what are the reasons why four other core technologies have not been patented?
Times Business School believes that these four core technologies of Weikang Medical may have a low technical content and do not meet the patent application requirements.
In short, in terms of innovation, whether in terms of R&D investment or the number of R&D personnel, Weikang Medical has a big gap with comparable companies in its peers, and the technical content of its core technology is also questionable. Its innovation may not meet the requirements of the GEM. Based on the continued regression in performance in recent years, we may understand why the Shenzhen Stock Exchange continued to question its positioning on the GEM in its final review and implementation letter.
product quality problems occur frequently, and nearly 40% of employees have not paid social security
Medical supplies have high quality requirements due to their special nature. Once there are product hygiene problems or defects, there is a risk of infection or even life-threatening.
However, data shows that Weikang Medical and its subsidiaries were frequently punished for product quality during the period 2014-2021.
According to the prospectus disclosed by Weikang Medical in October 2017, its wholly-owned subsidiary Suzhou Weikang was subject to administrative penalties for product quality four times during the period from 2014 to the first half of 2017, as shown in Figure 2.
Among them, the administrative penalty on May 26, 2016 showed that Suzhou Weikang was warned that 200 packs of disposable bone penetration bags were confiscated, 7,000 packs of disposable nose lenses were confiscated, 1,000 packs of disposable dressing bags were confiscated, and a fine of 148,000 yuan was confiscated.
From the information of this administrative penalty, we can see that Weikang Medical's quality management system may have obvious problems, and its product quality is difficult to guarantee.
Weikang Medical continued to produce product quality problems during the last IPO impact. I thought that after the last rectification, this IPO application should improve, but in fact it was not the case.
On September 20, 2018, the State Food and Drug Administration issued the "Notice on the Results of National Medical Device Supervision and Sampling Inspection (No. 7) (No. 90 of 2018)" showing that a batch of vacuum control devices produced by Weikang Medical that used sputum suction tubes do not comply with the standards. Weikang Medical was fined RMB 20,000 and required rectification measures to modify the mold and carry out verification.
On February 25, 2021, the Jiangsu Provincial Drug Administration issued an "Administrative Penalty Decision" to Weikang Medical (Su Drug Administration Suji Punishment [2020] No. 9). The company was fined 35,000 yuan for producing disposable dressing packages that did not meet the registered product standards (the unqualified item is the residual amount of ethylene oxide).
On October 12, 2021, the Jiangsu Provincial Drug Administration issued an "Administrative Penalty Decision" to Weikang Medical (Su Drug Administration Suji Punishment No. 7). Because the ultraviolet absorbance of the 300 disposable nasogastric tubes produced by the company on March 5, 2021 did not meet the registered product standards requirements (the value of the goods is 7,425 yuan), the issuer was fined RMB 45,000 yuan.
can be seen that after 2017, Weikang Medical has continued to be punished for product quality many times, and has not changed it repeatedly. Its product quality problems seem to be difficult to solve, and it is likely that it will continue to be punished for this in the future.
From the raw materials selection of major customers, it seems that Weikang Medical's product quality problems can also be seen from the side.
Prospectus shows that Cardinal is Weikang Medical's largest customer from 2019 to 2021, and its main purpose is to attract the company. The main raw material of the attraction pipe is PVC pellets, but Weikang Medical has two sets of standards for purchasing PVC pellets. Among them, the PVC pellets of the raw material of the suction pipe directly exported to Cardinal and other overseas companies are mainly purchased from Changzhou Hengfangda Polymer Materials Technology Co., Ltd., while the PVC pellets of the raw material of the domestic distribution of the suction pipe are mainly produced by the company itself.
Times Business School believes that the reason why Weikang Medical adopts two sets of procurement standards may be generally related to the quality of its own raw materials. Generally speaking, exported products have high quality requirements, and the raw materials independently produced by Weikang Medical may not meet the requirements of major customers Cardinal and other overseas companies. Therefore, the company can only purchase third-party raw materials to produce them.
In addition to being punished for product quality, Weikang Medical also has the risk of being punished with a low social security payment ratio.
prospectus shows that from 2019 to 2021, the social security payment ratio of Weikang Medical's employees was 46%, 64.17%, and 60.81%, respectively, and the payment ratio was not high. In 2021, nearly 40% of employees did not pay social security; the proportion of employees' provident fund payment was even lower, at 27.57%, 30.42%, and 33.93%, respectively.
Weikang Medical explained that as of December 31, 2021, there were 261 employees who had not paid employee social insurance, including 41 re-employed people after retirement, 1 Taiwanese employee in China, and 15 new employees in the month; there were 204 other employees who had not paid social insurance, mainly because these employees were rural household registration and focused on current income, the company has obtained the statement that the employees voluntarily gave up their social insurance payment, and has taken measures to pay the New Rural Cooperative Medical Scheme, New Rural Insurance or provide corresponding subsidies on their behalf.
Times Business School believes that it is doubtful whether Weikang Medical’s operation to use the payment of New Rural Cooperative Medical Scheme and New Rural Insurance to replace social insurance payment is legal and compliant, and it is also doubtful whether its employees give up on social insurance payments voluntarily.
Weikang Medical also stated in its prospectus that there is a risk of social security and housing provident fund being recovered. In this regard, its controlling shareholder and actual controller have made a commitment to bear the relevant supplementary payment or penalty fees.
(full text 3605 words)
[Reference materials]
"Weikang Medical Prospectus". Shenzhen Stock Exchange
"Weikang Medical and Sponsor Organization's Reply to the Implementation Letter of Opinions of the Review Center". Shenzhen Stock Exchange
"Weikang Medical on the First and Second Rounds of Review Inquiry Letters". Shenzhen Stock Exchange
"Weikang Medical 5 broke into IPO, "sweatshop" hidden tricks, and was punished for multiple violations". Caima
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