China Kanghui Holdings (KH), a China-based developer, manufacturer and marketer of orthopedic implants, priced its IPO on 10th August at $10.25 per ADS.
Business Overview (from prospectus)
We are a leading domestic developer, manufacturer and marketer of orthopedic implants in China measured by 2009 sales, according to a report by Frost & Sullivan commissioned by us. We believe our “Kanghui” and “Libeier” brands are two of the most recognized orthopedic implant brands among hospitals and surgeons in China. As a leading domestic player in China, we believe we are well positioned to capitalize on the trend toward increasing usage of domestically produced implants in the Chinese orthopedic market. We are also one of the first Chinese companies to enter the global orthopedic implant market, and our business is diversified geographically with international sales across Asia, Europe, South America and Africa. We are strategically targeting densely populated, fast-growing emerging markets for sales of our proprietary products, such as Brazil, India, Colombia and Russia, although we do not expect to derive material net revenue from these countries in the foreseeable future. We believe our success in the Chinese and international markets is primarily due to our broad product portfolio, brand name, high quality and reliability, and competitive pricing.
We primarily sell two lines of proprietary orthopedic implant products, trauma and spine, with more than 30 product series covering a wide array of orthopedic implants and associated instruments. Our major trauma products, used in the surgical treatment of bone fractures, include a wide range of nails, plates and screws. Our major spine products, used in the surgical treatment of spine disorders, include screws, meshes, interbody cages and fixation systems.
Offering: 6.7 million (1.33 million ADS by selling stockholders) ADS at $10.25 per ADS. Net proceeds of approximately US$5-10 million for the development of product pipeline, approximately US$15-20 million for the expansion of manufacturing capacities, and approximately US$5-10 million for the enhancement of sales and marketing capabilities.
Net revenue increased by 29.4% to RMB48.8 million (US$7.2 million) in the first quarter of 2010 from RMB37.7 million in the first quarter of 2009...Total cost of revenue increased by 20.3% to RMB14.2 million (US$2.1 million) in the first quarter of 2010 from RMB11.8 million in the first quarter of 2009...Gross margin decreased slightly to 29.1% in the first quarter of 2010 from 31.5% in the first quarter of 2009...Total operating expenses increased by 30.2% to RMB13.8 million (US$2.0) million in the first quarter of 2010 from RMB10.6 million in the first quarter of 2009...Selling expenses increased by 34.9%, approximately in line with our increase in net revenue, to RMB5.8 million (US$0.8 million) in the first quarter of 2010 from RMB4.3 million in the first quarter of 2009...Research and development costs increased to RMB0.9 million (US$0.1 million) in the first quarter of 2010 from RMB0.2 million in the first quarter of 2009...Net income was RMB17.8 million (US$2.6 million) in the first quarter of 2010, 36.4% of net revenue, compared to RMB12.8 million in the first quarter of 2009, 34.0% of net revenue...
The medical device industry is characterized by rapid product development, technological advances, intense competition and a strong emphasis on proprietary products. Across all of our products, we face direct competition both domestically and internationally. We compete primarily based on quality, reliability, brand recognition, reputation, product functionality and design, price, value and customer support.
In the China market, our competitors include domestic companies, particularly Weigao and Trauson. In addition, more leading international orthopedic implants manufacturers, such as Johnson & Johnson (JNJ), have established production facilities in China, while other manufacturers, such as Medtronic (MDT), have entered into cooperative business arrangements with Chinese manufacturers such as Medtronic’s relationship with Weigao. As a result, we may not be able to maintain our manufacturing cost and pricing advantage. We expect to increasingly face direct competition from these large multinational manufacturers in all segments of the domestic market, especially as we implement our strategy to increase sales to Top Tier hospitals in China, since these players currently have a significant market share of orthopedic implant sales to Top Tier hospitals. In addition, our products are generally covered under China’s medical insurance programs whereby patients may be able to claim reimbursement, at a percentage depending on the type of surgery and device and policies of each localities, for the costs of our products. In general, reimbursement percentages tend to be higher for domestically manufactured products (such as ours) than for products manufactured by multinational companies and imported to China. Any abolishment by Chinese government of the medical insurance reimbursement policy favorable to domestic manufacturers would materially and adversely affect our competition with multinational companies in China.