Shanghai Cellular Therapy Group Files for Hong Kong IPO Again: Narrowing Cumulative Losses Deemed Cosmetic, Facing 'IPO or Bankruptcy' Crossroads with Overvalued Metrics

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Recently, Shanghai Cell Therapy Group Co., Ltd. (hereinafter referred to as "Shanghai Cell Therapy") submitted an application for listing to the Hong Kong Stock Exchange, planning to be listed on the Main Board of Hong Kong.CICC, CCB International as its joint sponsor. This is another application following the expiration of its submission on April 30, 2024.

The prospectus shows that Shanghai Cell Therapy Group was established in 2013. The company has always focused on and invested in cell drug research and development, with businesses covering cell storage, cancer treatment, cell drugs, and cell recharging. According to CIC Consulting, the company is the first and only one in China to cover the entire value chain of cell healthcare. Among its operations, the immune cell storage business ranks first in China’s immune cell storage market, and if successfully listed, it may become the first stock in the immune cell storage sector.

　Continuous Losses with Negative Operating Cash Flow for Years, Significant Narrowing of Accumulated Losses Turns Out to Be "Window Dressing"

However, in terms of operating performance, Shanghai Cell Therapy has not achieved profitability more than 10 years after its establishment. In 2021-2023 and the first half of 2024, the total losses of Shanghai Cell Therapy were 4.66 billion yuan, 5.42 billion yuan, 4.88 billion yuan, and 1.95 billion yuan, respectively. Even after excluding financial costs, losses attributable to associates accounted for using the equity method, etc., and only considering the operating portion, the company remains in a loss state with an increasing trend year by year. During the reporting period, the annual operating losses were 2.6 billion yuan, 2.85 billion yuan, 3.47 billion yuan, and 1.74 billion yuan, respectively.

In terms of cash flow, the net cash flow from operating activities of Shanghai Cell Therapy in 2021-2023 and the first half of 2024 was -122 million yuan, -143 million yuan, -28.224 million yuan, and -43.604 million yuan, respectively, and remained negative in each reporting period.

From 2021 to 2023 and the first half of 2024, the company's accumulated losses were RMB 1.514 billion, RMB 2.052 billion, RMB 584 million, and RMB 775 million, respectively. The significant narrowing of the total accumulated losses in 2023 was due to the derecognition of large-scale redemption liabilities, which were recorded as treasury shares.

In May of the same year, the company's shareholder, Yangtze River Delta (Shanghai) Industrial Innovation Equity Investment Fund Partnership, entered into an agreement with the company to cancel the preferential rights. The redemption liability of approximately 28.15 billion yuan was terminated and recorded as treasury stock of approximately 19.8 billion yuan, with the difference of 8.35 billion yuan credited to the capital reserve.

Shareholders significantly improved the company's loss data by terminating the redemption right. However, it should be noted that the relevant rights will automatically resume if the company's IPO is withdrawn or rejected. This shows that the significant narrowing of accumulated losses might just be a "superficial effort" to seek listing, and there is no actual improvement in the company’s capital structure or operating conditions.

　　Lack of Moat in Main Business: IPO or Bankruptcy, Valuation Already Far Exceeds Market Level

From a business perspective, Shanghai Cell's main operations include cell storage and related services, tumor medical services, cell drug products and services, and cell charging products. Among these, its immune cell storage business ranks first in China's immune cell storage market and is also the primary source of the company’s revenue, generating 396 million yuan, 357 million yuan, and 599 million yuan in 2021, 2022, and 2023 respectively, accounting for 79.5%, 57.7%, and 78.9% of total annual income. The second largest business segment is tumor medical services, which accounts for approximately 20% of total revenue.

In terms of profitability, from 2021 to 2023, the gross profit margin of the company's cell storage and related services were 81.1%, 74.8%, and 79.7%, respectively. Meanwhile, the gross profit margin of the oncology medical business remained negative, with corresponding margins of -42.1%, -51.1%, and -32.7%, significantly lower than those of comparable private oncology hospitals such as Meizhong Jiahui, Baize Medical, and Haijiya Medical.

It should be noted that the gross profit margin of cancer hospitals tends to decrease as the number of newly operated institutions increases, making negative gross margins common in the early stages of operation. According to a Frost & Sullivan report, under normal circumstances, private hospitals in China's cancer medical institution industry take an average of 3-5 years to achieve break-even. However, since Shanghai Cell Therapy began operating its cancer medical business in 2020, the gross profit margin remains significantly low after nearly four years of operation, with profitability still a distant prospect.

In the prospectus, Shanghai Cell Therapy stated that it hopes to build a cell medical health ecosystem with strong synergistic effects. However, according to current data, tumor medical services have not only failed to form a synergistic effect with the company's main business of immune cell storage, but have instead become a major drag on the company's performance.

In terms of immune cell storage business, China's immune cell storage market is the most mature link in the cell therapy industry. The technology itself does not have high market entry barriers, and there are many manufacturers participating in China. In addition to Shanghai Cell, the leading companies also includeZhongyuan Union, Boya Stem Cells, Beike Biotechnology,BGIUnder its umbrella, BGI Cells,Nanhua Bio, Qilu Cells, HAN's United, Shanghai Zhangjiang Biological Bank, etc., along with thousands of small and medium-sized enterprises.

By comparison, the advantage of Shanghai Cell Therapy lies in its channels. According to the prospectus, the company mainly acquires customers through institutional partners (primarily insurance groups) and channel agents. In terms of revenue, only about 3% of the company's cell storage business income comes directly from end customers, with the rest coming from institutional partners and channel agents.

In 2023, the company's market share in cell storage was 40.7%, placing it at the forefront of the industry. However, the sustainability of a business characterized by high gross margins, low barriers to entry, and reliance on third parties for sales is worth noting. In other words, immune cell storage has not yet become mainstream, and the overall market size remains limited. When the market expands to become sufficiently attractive, how will Shanghai Cell Therapy, with its sales constrained by external factors, face the homogenized competition from numerous competitors?

In terms of valuation, from 2014 to 2021, the company completed eight rounds of financing. On December 6, 2021, the company's post-investment valuation reached approximately 7.1 billion yuan. In 2023, the company achieved a revenue of about 760 million yuan. Therefore, the price-to-sales ratio calculated solely based on the post-investment valuation is approximately 9.34 times. According to Wind data, the median price-to-sales ratio of 53 healthcare service companies listed in Hong Kong is 1.04 times, with an average of 2.4 times. The current valuation of Shanghai Cell Therapy has significantly exceeded the overall industry level.

As of the first half of 2024, the company's cash and equivalents amounted to only 266 million yuan, while its current liabilities during the same period reached 966 million yuan—cash is no longer sufficient to cover short-term debt. At the end of the period, the company’s total assets were 1.906 billion yuan. If the company fails to go public, its total assets would still be insufficient to repay the redemption liabilities should the redemption rights be reinstated. The company now faces the embarrassing situation of either going public or facing bankruptcy.

Editorial Responsibility: Company Observation