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Summary

  • KANG, a provider of preventive healthcare solutions in China, plans to raise $141.8 million in its upcoming IPO.
  • KANG will offer 10.9 million shares at an expected price range of $12-$14 per share, aiming for a market value of $880 million.
  • Despite risk inherent in investing in Chinese firms, iKang is a highly profitable industry leader; we recommend investors consider buying into this IPO.

iKang Healthcare Group Inc (NASDAQ:KANG), a provider of preventive healthcare solutions in China, plans to raise $141.8 million in its upcoming IPO.

The Beijing, China-based firm will offer 10.9 million shares at an expected price range of $12-$14 per share. If the IPO can find the midpoint of that range at $13 per share, KANG will command a market value of $880 million.

KANG filed on March 3, 2014.
Lead Underwriters: BofA Merrill Lynch, UBS Investment Bank
Underwriter: Oppenheimer and Co Inc

Overview of KANG
KANG is a provider of preventive healthcare solutions to the Chinese market, including medical examinations services, disease screening, and many others.

The firm's corporate customers, which make up the majority of KANG's business, pay for its services at pre-negotiated prices. KANG also markets its services directly to individuals; all told, the firm delivered services to approximately 1.9 million individuals in fiscal 2012. As of December 31, 2013, KANG's network included 42 self-owned medical centers, supplemented by contracts with some 300 third-party facilities, including hospitals and independent examination centers.

KANG seeks to take advantage of rising incidences of chronic diseases across China, which has led to increased demand for preventive examinations and testing. The firm's large geographic footprint in China allows for corporate customers to have a single point of contact for preventive healthcare needs across the country, reducing and simplifying administration.

Valuation
KANG offers the following figures in its F-1 balance sheet for the nine months ended December 31, 2013:

Revenue: $172,762,000.00
Net Income: $27,892,000.00
Total Assets: $269,829,000.00
Total Liabilities: $123,136,000.00
Stockholders' Equity: ($119,596,000.00)

A Highly Fragmented Market
KANG competes in an extremely fragmented preventive healthcare services market in China. The firm competes both with public hospitals and other private firms offering medical examinations, including national and regional firms and independent examination centers. Major competitors include Ciming Checkup, Rich Health, and Huajian Health Checkup.

Experienced Management
Founder Ligang Zhang has served as KANG's chairman and CEO since 2003. Mr. Zhang previously co-founded and served as the CEO of the China operation for eLong.com (NASDAQ:LONG). He also served as head of product development of Sohu.com. Mr. Zhang holds a bachelor's degree in biology and chemistry from Concordia College and a master's degree in genetics from Harvard University.

Investors Should Strongly Consider KANG IPO
We are positive on this IPO and rate it a buy in the proposed range.

KANG is a frontrunner in China's developing preventive healthcare market, and its nationwide presence should allow it to continue to grow as demand for preventive services expands.

The firm is highly profitable despite its swift expansion, and its experienced leadership team should be more than capable of navigating and capitalizing on its fragmented market. We believe that KANG is worth considering, despite the risks inherent in investing in Chinese firms.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: iKang Could Be King, Come IPO