Xiangyu Medical: A Leading Rehabilitation Medical Equipment Company Poised for Growth in a Booming Market

Original Title:Xiangyu Medical: Leading Rehabilitation Medical Device Companies Enjoy Broad Prospects in the Vast Rehabilitation Sector

In the medical field, rehabilitation medicine, together with preventive medicine, healthcare medicine, and clinical medicine, is collectively referred to as the “Four Major Medical Disciplines.” As a crucial adjunct in modern medicine, rehabilitation medical devices play a vital role in human health and post-recovery quality of life. With the changing age structure of China’s population, the market prospects for rehabilitation medical devices are becoming increasingly promising.

Recently, the China Securities Regulatory Commission (CSRC) approved the registration of Xiangyu Medical’s initial public offering (IPO) on the STAR Market. Founded in 2002, the company has evolved from its origins with a single multifunctional traction bed into a leading R&D enterprise in China’s rehabilitation medical device industry.

Excellent Profitability with Year-on-Year Growth in Gross Margin

According to the prospectus, the company provides a series of rehabilitation products and comprehensive solutions to medical institutions at all levels across China, elderly care facilities, disability rehabilitation centers, welfare homes, educational systems, and households.

The Company’s primary customers are medical device companies and major hospitals across various regions. For many years, the sales revenue from the top five customers and their respective proportions of the Company’s current operating income have remained at low levels, indicating that the Company does not rely on any single major customer. This contributes to maintaining long-term stability in its performance.

The prospectus shows that from 2017 to December 31, 2020, the company achieved operating revenues of RMB 289 million, RMB 359 million, RMB 427 million, and RMB 496 million respectively. The net profits attributable to shareholders of the parent company were RMB 64.47 million, RMB 80.33 million, RMB 128.98 million, and RMB 195.89 million respectively.

Both revenue scale and net profit maintained steady growth. Meanwhile, during the reporting period, the gross profit margins of the company’s core business were 59.47%, 63.40%, 66.37%, and 67.17%, respectively, also showing a year-on-year increase.

Wide Moat, Continuous Increase in R&D Investment

Currently, there are numerous enterprises in China's rehabilitation medical device industry. However, given the wide variety of rehabilitation equipment categories, market share among these companies remains relatively fragmented, and firms with comprehensive product portfolios and service capabilities are still relatively scarce.

Sunnyou is dedicated to the independent research and development, manufacturing, sales, and service of intelligent rehabilitation equipment in fields such as pain rehabilitation, neurological rehabilitation, orthopedic rehabilitation, postpartum rehabilitation, and integrated medical and elderly care. It is one of the few comprehensive enterprises in the industry capable of providing a full range of rehabilitation medical device products, integrated rehabilitation solutions, and professional technical support services.

As of the date of signing the prospectus, Xiangyu Medical has obtained registration and filing for 139 medical device products. It has formed a rich product structure with 20 major series and more than 400 proprietary products.

Furthermore, 38 of the Company’s products were included in the Recommended Catalogue for Evaluation and Selection of TCM Diagnostic and Treatment Equipment by the National Administration of Traditional Chinese Medicine; eight products were selected for the Catalogue of Excellent Domestically Produced Medical Equipment, curated by the Chinese Association of Medical Equipment under the commission of the National Health Commission. The Company was also listed in the Procurement Catalogue of the Logistics Support Department of the Central Military Commission and was rated as a Tier-1 manufacturing supplier.

The company has currently been granted 17 invention patents, over 410 utility model patents, and more than 60 software copyrights.

Such numerous innovative achievements are inseparable from the company’s gradually increasing R&D investment. The prospectus mentions that from 2017 to 2019 and the first half of 2020, Sunnyou Medical’s R&D expenses were RMB 17.42 million, RMB 28.8167 million, RMB 41.4931 million, and RMB 19.7025 million, respectively, accounting for 6.02%, 8.03%, 9.71%, and 10.60% of its revenue.

The proportion of R&D expenses has increased year by year. In addition to the R&D headquarters at the company’s domicile, R&D centers have been established in several major cities, including Zhengzhou, Tianjin, and Nanjing.

As of June 30, 2020, the Company had 276 R&D personnel and 7 core technical staff. The R&D team’s professional backgrounds span multiple disciplines, including electronic technology, computer technology, signal processing technology, precision mechanics, and clinical medicine. This diverse and multidisciplinary workforce meets the Company’s R&D needs for core technologies across various sub-segments of rehabilitation medical devices.

The Big Health Sector: Clear Trajectory and Broad Prospects

In recent years, favorable factors such as national economic growth, supportive policy environments, heightened health awareness, and the advancement of healthcare reforms have broadened the prospects for the rehabilitation medical industry.

In 2015, policies highlighted “integration of medical and elderly care” as a key focus; in 2016, the “Healthy China 2030” plan was released, and the National Health and Wellness Conference elevated “Healthy China” to a national strategy; in 2017, the “Made in China 2025” initiative was implemented to accelerate the transition from a large manufacturing country to a strong manufacturing power; in 2018, comprehensive capabilities across all departments of primary-level hospitals were comprehensively enhanced; in 2019, technological innovation in traditional Chinese medicine (TCM) medical devices was strengthened, especiallyInnovative Medical Carethe establishment of the medical device review and approval system, the implementation of the medical device registrant system, etc.; in 2020, the National Health Commission and other departments issued the "Implementation Plan for the Enhancement of Traditional Chinese Medicine Rehabilitation Service Capabilities (2021-2025)," aiming to establish a number of TCM rehabilitation centers by leveraging existing resources by 2025, with 85% of tertiary TCM hospitals and 70% of secondary TCM hospitals setting up rehabilitation (medicine) departments.

According to the “Report on the Development Prospects and Investment Forecast of China’s Rehabilitation Medical Industry,” the market size of China’s rehabilitation medical industry was RMB 13.4 billion in 2011, and grew to RMB 45 billion by 2018, with a compound annual growth rate (CAGR) of 19%. Based on this projection, the industrial scale of rehabilitation medical devices is expected to exceed RMB 100 billion by 2023.

The prospectus indicates that the company plans to raise RMB 708 million in this offering, with the proceeds allocated to the technical transformation project for the production of intelligent rehabilitation medical equipment, the construction and production project for elderly care and postpartum rehabilitation medical equipment, the construction of a rehabilitation equipment R&D and exhibition center, the establishment of an R&D and sales center for intelligent rehabilitation equipment (Southwest Region), and working capital reserves.

Once these projects are implemented and become fully operational, they will undoubtedly deliver visibly significant improvements to the company’s development by expanding production capacity, accelerating R&D innovation, and further enhancing its market position.

Editor: Shi Yan