{"text":[[{"start":8.75,"text":"This article only represents the author's own views."}],[{"start":13.35,"text":"Private healthcare would appear to have big potential in China, as the country’s new middle class shops for options beyond the usual public hospital options. But don’t tell that to private hospital operators BenQ BM Holding Cayman Corp., whose repeated attempts to go public in Hong Kong have failed, as it offers up a listing whose financials that are hardly impressive. There are some reasons for investors to like the company, but also plenty not to."}],[{"start":44.44,"text":"The private-hospital operator made a new filing for a Hong Kong IPO last week, its latest in a two earlier efforts dating back to April last year that failed to reach fruition. Now, the company that’s majority owned by Taiwan-listed Qisda (2352.TW), a global leader in liquid crystal displays (LCDs) and projectors, is hoping the third time will be the charm in its listing journey."}],[{"start":72.08,"text":"On the surface, private-hospital operators appear to be an attractive story for investors. China’s population is aging fast, and that means demand for quality healthcare is growing. Moreover, many from the country’s expanding middle class are increasingly looking for premium services at private hospitals to avoid the cattle-like conditions at larger, public institutions."}],[{"start":99.61,"text":"But the sector also faces a range of challenges. For starters, it’s subject to strict regulations, though for a good reason, given that it deals with public health. And competition with government-backed public hospitals isn’t getting any easier. It’s harder for private hospital operators to hire qualified professionals than their public sector peers. They also need to overcome the widespread public perception that they prioritize profit over health. That, combined with the simple fact that they’re much costlier, works against private hospitals."}],[{"start":137.46,"text":"BenQ’s financial performance illustrates these difficulties. The company’s revenue slipped 1% to 2.7 billion yuan ($380 million) last year from 2023, and it shrank again year-on-year in the first half of this year. Worse yet, its profitability is weakening, with its net profit margin dropping to 4.1% last year from 6.2% in 2023 and to an even weaker 3.7% in the first half of this year from 4.8% a year earlier."}],[{"start":174.34,"text":"Capacity limit"}],[{"start":176.27,"text":"On the revenue side, a key problem with BenQ is that its facilities have a physical capacity limit. The company runs two hospitals, Nanjing BenQ Hospital, a Grade-A Class 3 facility that opened in 2008; and Suzhou BenQ Hospital, a Class 3 general hospital established in 2013. The two facilities had a combined 1,850 beds at the end of June, a figure that hasn’t changed since Nanjing BenQ Hospital added 150 in 2023. At that facility, the bed occupancy rate exceeds 100%, with the use of temporary beds, meaning it’s stretched thin in handling inpatient traffic."}],[{"start":219.95000000000002,"text":"At Suzhou BenQ Hospital too, nearly 90% of available beds are in use, so there isn’t much room for it to boost revenue from inpatient services."}],[{"start":231.05,"text":"And the introduction of a new payment system a few years ago isn’t helping matters for BenQ. Jiangsu province, where both of BenQ’s hospitals are located, officially adopted the so-called diagnosis-related group (DRG) payment system in 2022. Under the new scheme, China’s public medical insurance funds reimburse hospitals based on standardized rates for diagnosis-related inpatient services, rather than actual treatment costs. This means that hospitals should cover any excess expenses."}],[{"start":267.6,"text":"Because of this, average spending per inpatient visit at both Nanjing BenQ Hospital and Suzhou BenQ Hospital has declined substantially. Inpatient services account for a little more than half of BenQ’s revenue."}],[{"start":282.78000000000003,"text":"Average pending per outpatient visit has also fallen even though the number of visitors has increased because of the expansion of a state program for centralized drug procurement to make drugs cheaper for patients, as well as an adjustment to reimbursement rules for some diagnostic procedures by the government, which has resulted in decreases in payments for hospitals."}],[{"start":308.07000000000005,"text":"The centralized drug purchase program has helped BenQ reduce costs for pharmaceuticals but the overall revenue pressure from regulatory changes show how BenQ’s fortunes are at the mercy of government policies in a heavily regulated industry."}],[{"start":323.85,"text":"Stiff competition in a crowded sector also makes life hard for BenQ. The company has a tiny market share of 0.4% among private for-profit hospital operators in China, in terms of total revenue, according to its prospectus. Its Nanjing BenQ Hospital is the largest in Jiangsu but it only controls 2% of that provincial market."}],[{"start":349.89000000000004,"text":"Add public hospitals, then BenQ’s position in the overall industry becomes even tinier. Private hospitals’ aggregate revenue amounted to 944.7 billion yuan, less than a quarter of the total for their government-owned peers."}],[{"start":367.97,"text":"Hiring high-quality doctors is critical for BenQ to stay competitive, but it comes with a cost. The company’s employee expenses have gone up because of increases in new hires, especially senior professionals like chief doctors. These costs weigh on the company’s margins. Its gross profit margin declined dropped to 15.9% in the first half of this year from a year earlier."}],[{"start":397.31,"text":"Ultimately, for BenQ to boost its revenue and improve its profitability, scaling up its operations seems essential. If the company succeeds in going public in Hong Kong this time around, it’s looking to use the proceeds to expand and upgrade its existing hospitals, while seeking acquisitions."}],[{"start":419.54,"text":"Last year, the Hong Kong IPO by cancer treatment private hospital operator Concord Healthcare (2453.HK) last year may have been inspirational for BenQ, but its shares have lost more than 80% of their value since then. Regardless, investor sentiment around Chinese stocks in general is upbeat, and that’s something the company can bank on with its third Hong Kong IPO attempt."}],[{"start":449.53000000000003,"text":"But it’s far from guaranteed that it will cross the finish line this time as its financials may leave investors unimpressed."}],[{"start":466.93,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1763545066_3098.mp3"}