IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Ping An Healthcare and Technology / Equity Capital Markets

Ping An Healthcare and Technology Group (PAHTG) is a leading Chinese internet healthcare company, backed by <a href="https://www.smartkarma.com/entities/12880" target="_blank" data-smartkarma-citation="entities:12880:1">Ping An Insurance (Grp) Co Of China Ltd. (2318 HK)</a> (46.2% shareholder) and <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group Corp (9984 JP)</a> (7.4% shareholder). It operates China’s most popular medical mobile app, Ping An Good Doctor. According to press reports, PAHTG is seeking to raise up to $1 billion through a Hong Kong IPO. IPO proceeds will be used for business expansion, potential acquisitions and development of AI technology.At first glance, PAHTG ticks all the boxes of a rising internet star in terms of a growing addressable market, strong market position and exponential revenue growth. However, a close examination raises significant concerns on revenue recognition, cash flow and related party transactions:<ol><li>Family doctor services’ revenue arising from deferred revenue has substantially increased from 0.4% in 2016 to 31.9% in the first nine months of 2017. To maintain sustainable revenue growth, the deferred revenue should grow faster or in line with revenue growth. However, family doctor services’ days deferred revenue has materially declined from 182 in 2016 to 114 in the first nine months of 2017 and likely indicates slowing underlying revenue growth.</li><li>The percentage of consumer healthcare’s revenue arising from deferred revenue has substantially increased from 30.1% in 2016 to 66.7% in the first nine months of 2017. Worryingly, consumer healthcare’s days deferred revenue has materially declined from 360 in 2016 to 232 in the first nine months of 2017. In addition, consumer healthcare’s revenue from unused-and-expired service packages as a percentage of revenue more than doubled from 15% of revenue in 2016 to 34% of revenue in the first nine months of 2017. On renewal, these consumers may decide that past usage does not justify a repeat purchase.</li><li>PAHTG’s declining operating losses is not accompanied by improving cash flows. The deteriorating cash flows is a result of rising DSOs. Notably, family doctor services’ DSOs has risen from 111 in 2016 to 158 in the first nine months of 2017. The high DSOs are puzzling as the majority of consultations relate to individuals (payment settled soon after consultation) and Ping An Health Insurance (provides an upfront annual payment).</li><li>Remarkably, PAHTG’s valuation has increased by 80% in two months from a share purchase on 26 Oct 2017 and Softbank’s investment on 21 Dec 2017. Also, the purchase of 10.9 million shares by Mr Law (a non-executive director) from Ping An Group on 1 Dec 2017 was an unusual related party transaction. Mr Law purchased shares at a valuation of $3.5 billion just 20 days before Softbank’s investment at a valuation of $5.4 billion. In 20 days, Mr Law made a tidy $40 million profit which is a 45% return on his investment.</li></ol>We will provide a view of valuation once the IPO price range is announced.

Ping An Healthcare and Technology Group (PAHTG) is a leading Chinese internet healthcare company, backed by Ping An Insurance (Grp) Co Of China Ltd. (2318 HK) (46.2% shareholder) and Softbank Group Corp (9984 JP) (7.4% shareholder). It operates China’s most popular medical mobile app, Ping An Good Doctor. According to press reports, PAHTG is seeking to raise up to $1 billion through a Hong Kong IPO. IPO proceeds will be used for business expansion, potential acquisitions and development of AI technology.At first glance, PAHTG ticks all the boxes of a rising internet star in terms of a growing addressable market, strong market position and exponential revenue growth. However, a close examination raises significant concerns on revenue recognition, cash flow and related party transactions:Family doctor services’ revenue arising from deferred revenue has substantially increased from 0.4% in 2016 to 31.9% in the first nine months of 2017. To maintain sustainable revenue growth, the deferred revenue should grow faster or in line with revenue growth. However, family doctor services’ days deferred revenue has materially declined from 182 in 2016 to 114 in the first nine months of 2017 and likely indicates slowing underlying revenue growth.The percentage of consumer healthcare’s revenue arising from deferred revenue has substantially increased from 30.1% in 2016 to 66.7% in the first nine months of 2017. Worryingly, consumer healthcare’s days deferred revenue has materially declined from 360 in 2016 to 232 in the first nine months of 2017. In addition, consumer healthcare’s revenue from unused-and-expired service packages as a percentage of revenue more than doubled from 15% of revenue in 2016 to 34% of revenue in the first nine months of 2017. On renewal, these consumers may decide that past usage does not justify a repeat purchase.PAHTG’s declining operating losses is not accompanied by improving cash flows. The deteriorating cash flows is a result of rising DSOs. Notably, family doctor services’ DSOs has risen from 111 in 2016 to 158 in the first nine months of 2017. The high DSOs are puzzling as the majority of consultations relate to individuals (payment settled soon after consultation) and Ping An Health Insurance (provides an upfront annual payment).Remarkably, PAHTG’s valuation has increased by 80% in two months from a share purchase on 26 Oct 2017 and Softbank’s investment on 21 Dec 2017. Also, the purchase of 10.9 million shares by Mr Law (a non-executive director) from Ping An Group on 1 Dec 2017 was an unusual related party transaction. Mr Law purchased shares at a valuation of $3.5 billion just 20 days before Softbank’s investment at a valuation of $5.4 billion. In 20 days, Mr Law made a tidy $40 million profit which is a 45% return on his investment.We will provide a view of valuation once the IPO price range is announced.

Ping An Good Doctor IPO Preview: Vital Signs Deteriorating

China

Ping An Healthcare and Technology Company Limited provides health care software solutions. The Company offers mobile platform for online consultation, hospital referral and appointment, health management, and wellness interaction services, as well as connects consumers and patients with health care resources. Ping An Healthcare and Technology serves customers in China.

Ping An Healthcare and Technology (1833 HK)

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Ping An Good Doctor IPO Preview: Vital Signs Deteriorating

Ping An Healthcare and Technology Group (PAHTG) is a leading Chinese internet healthcare company, backed by Ping An Insurance (Grp) Co Of China...

Arun George