Chinese Medical Niche Leader Zumax Medical Withdraws IPO Application

Source: Medical Investment Tribe

On April 4, 2024, the official website of the Shenzhen Stock Exchange showed that the ChiNext listing application of Zumax Medical Co., Ltd. (shortened as "Zumax") had been terminated.

Zumax is a leading brand in China for surgical microscopes and clinical optical diagnostic instruments, and its dental surgical microscope is the flagship product.Currently, Zumax has become the leading brand in China's oral microscopy market segment, with a current market share of over 60% in China, forming a tripartite competition with Germany’s Zeiss and Leica in China's dental microscope market.

NoNot only that, Zumax Medical launched the first domestically produced dental microscope in China in 2005, which can be regarded as the pioneer of Chinese dental microscopes. This breakthrough ended the monopoly of imported products and filled the gap in China.Fill multiple gaps in the field of dental microscopes.

In terms of performance, Zumax Medical's data is also impressive: the company has chosen the specific listing standard of "positive net profits for the past two years, with cumulative net profits not less than 50 million yuan."

From 2020 to the first half of 2023, Zumax Medical achieved operating revenues of 176 million yuan, 223 million yuan, 274 million yuan, and 154 million yuan respectively, with a compound annual growth rate (CAGR) of 24.78% from 2020 to 2022; Net profits attributable to parent company were 38.1257 million yuan, 43.0487 million yuan, 60.2981 million yuan, and 27.2395 million yuan respectively, with a CAGR of 25.76% from 2020 to 2022.

On March 18, two weeks ago, the SZSE website published Zumax Medical's reply to the second round of inquiry letters.

Zumax Medical's filing materials show that during the reporting period, the company's cumulative cash dividend amounted to 70.4814 million yuan, and the proceeds from this fundraising are intended to supplement 100 million yuan of working capital.

Regarding the "reasonableness of large cash dividends before IPO" and other issues raised in the Shenzhen Stock Exchange's second round of inquiries, Zumax Medical stated that the dividend distribution during the reporting period is conducive to the company's long-term development and safeguards the interests of relevant shareholders, making it necessary. The cash dividends received by shareholders were mainly used for contributing capital to employee shareholding platforms, acquiring part of the company’s equity held by Shanghai Songbai Dental Instruments Co., Ltd., and investing in financial products, among others. There are no circumstances involving off-book fund circulation to generate sales revenue or cover costs and expenses.

Zumax Medical's IPO application materials show that the company's products have reached or surpassed competitors' products in key performance parameters, while the average terminal sales price is much lower than competitors such as Zeiss and Leica.

The Shenzhen Stock Exchange requested the company to explain the technological advancement of its products compared to major competitors, and whether there have been any instances of failing to secure orders due to technical level, product quality, or safety reasons.

Zumax Medical stated that, according to the "In-depth Research and Market Prospects Report on the Dental Surgical Microscope Industry" issued by Forward Industry Research Institute, in the Chinese market, the company's own brand "ZUMAX" competes with and holds an advantageous position against top international brands such as German Zeiss and German Leica. In the international market, the issuer follows closely behind German Zeiss and German Leica, and belongs to the second tier along with companies like CJ-optik, Global Surgical, and LABOMED.

Zumax Medical stated in its reply that the company's products have reached or exceeded standards in optical system parameters and key performance indicators.The disclosure of competitors' products is true, objective, and accurate.

But it is worth noting that Zumax Medical and its sponsor institution did not provide a clear explanation for the company's much lower terminal sales average price compared to competitors like Zeiss and Leica.

However, in terms of R&D investment, Zumax Medical's emphasis on R&D is less than that of comparable companies in the same industry. During the reporting period, Zumax Medical's R&D expense ratios were 6.73%, 6.59%, 6.47%, and 6.76%, significantly lower than the average R&D expense ratios of comparable companies in the industry, which were 11.39%, 10.8%, 11.22%, and 8.95%, respectively.

In terms of the professional structure of employees, as of June 30, 2023, Zumax Medical Co., Ltd. has 59 sales personnel, 82 management staff, and 30 R&D personnel, with R&D personnel accounting for 10.31% of the total workforce, while the percentages for Meiya Photoelectric, Hightech New Light, and Carl Zeiss Meditec are as high as 41.24%, 16.31%, and 21.38%, respectively.

Moreover, in terms of educational background, as of June 30, 2022, Zumax Medical had six R&D personnel with a college degree or below, accounting for 20%. Among them, one is a core technical staff member of the company and holds three invention patents as the first inventor.