Sanyou Medical to Fully Acquire Shuimu Tianpeng in RMB 416 Million Deal Amid Strategy Shift Post-Volume-Based Procurement Impact

On December 23, Sanyou Medical released the Draft Report on Issuing Shares and Paying Cash to Purchase Assets and Raise Matching Funds Involving Related-Party Transactions (Meeting Review Version). According to the announcement, Sanyou Medical plans to acquire a total of 37.1077% equity interest in SMTP Technology Co., Ltd. held by Cao Qun and Xu Nong, as well as a total of 98.9986% of the limited partner interests in Shanghai Huanzhan Enterprise Management Partnership (Limited Partnership) (hereinafter referred to as “Shanghai Huanzhan”) held by Zhan Songtao and others. Meanwhile, Tuoteng Suzhou, a wholly-owned subsidiary of Sanyou Medical, will acquire the remaining 1.0014% general partner interests in Shanghai Huanzhan in cash.

Prior to this transaction, Sanyou Medical already held a 51.82% equity stake in SMTP Technology Co., Ltd. Through this acquisition, Sanyou Medical will directly and indirectly hold 100% of the equity in SMTP Technology, achieving full ownership and control. It is reported that the total consideration for this transaction amounts to approximately RMB 416 million. To facilitate the successful completion of the transaction, Sanyou Medical will also raise approximately RMB 214 million through a private placement.

Sanyou Medical’s primary business involves the research and development, production, and sales of medical devices, including spinal implants, ultrasonic bone scalpels, ultrasonic hemostatic scalpels, and trauma implants. Among these, spinal implants constitute the core revenue source for Sanyou Medical. According to Sanyou Medical’s 2022 annual report, spinal implants accounted for 82.81% of its revenue, while active equipment and consumables (primarily including ultrasonic bone scalpels and ultrasonic hemostatic scalpels) contributed only 11.37% to its revenue.

In 2023, the national centralized volume-based procurement of orthopedic spinal consumables achieved an average price reduction of 84%. All 11 products from Sanyou Medical were successfully bid into Group A in this spinal volume-based procurement, including the posterior cervical laminoplasty plate and screw fixation system, posterior cervical pedicle screw-rod fixation system, and anterior thoracolumbar plate and screw fixation fusion system, with price reductions all exceeding 60%.

Implementation of Centralized Procurement Deals a Heavy Blow to Sanyou Medical’s Performance. Data from the 2024 third-quarter report shows that Sanyou Medical’s total operating revenue for January–September 2024 amounted to RMB 333 million, a year-on-year decline of 7.30%, while its net profit stood at RMB 8.5706 million, representing a year-on-year drop of 87.07%.

Against this backdrop, Sanyou Medical has accelerated its expansion into new business lines, with ultrasonic bone scalpels and ultrasonic hemostatic scalpels emerging as its key strategic focuses. According to data released by Frost & Sullivan, the global market for ultrasonic scalpels continues to grow steadily and is projected to reach USD 4.63 billion by 2025. However, the domestic ultrasonic scalpel market in China remains dominated by foreign companies, with multinational corporations such as Johnson & Johnson, Medtronic, and Olympus holding the majority of market share.

To break this impasse, Sanyou Medical invested in and acquired a stake in SMTP Technology as early as 2015, thereby increasing its commitment to the ultrasonic scalpel industry. SMTP Technology specializes in the research and development, production, and sales of ultrasonic surgical devices and consumables. Its core product, the ultrasonic bone power system, is widely used in various surgical procedures. By employing diverse tips that generate micron-level longitudinal vibrations, the device enables precise cutting, grinding, and drilling of bone tissue while avoiding damage to soft tissues such as nerves, blood vessels, and the dura mater, thus ensuring surgical safety. The company’s existing products are primarily applied in clinical departments including orthopedics, neurosurgery, and hepatobiliary surgery.

Main Products of SMTP Technology

In terms of performance, SMTP Technology Co., Ltd. achieved operating revenues of RMB 73.8387 million and RMB 92.6877 million in 2022 and 2023, respectively, with net profits of RMB 27.8546 million and RMB 41.6136 million, respectively. Both the revenue scale and profitability of SMTP Technology have continued to grow.

Sanyou Medical stated that this transaction constitutes the acquisition of high-quality assets. Through this transaction, Sanyou Medical will further enhance its control over core business segments, strengthen strategic synergy between its team and SMTP Technology, facilitate overall strategic planning and implementation, and improve overall profitability.

As of April 30, 2024, the book value of Shuimu Tianpeng’s equity attributable to shareholders of the parent company was RMB 170 million. The valuation assessed using the income approach amounted to RMB 863 million, representing an appreciation of RMB 693 million and a premium rate of 406.21%. During the same period, the assessed value of Shanghai Hanzhan was RMB 95.5807 million, with no appreciation.

This high valuation has drawn market attention.

On November 11, Sanyou Medical received an inquiry letter from the Shanghai Stock Exchange (SSE), requiring the Company to explain the purpose and necessity of acquiring the remaining equity interests in SMTP Technology Co., Ltd., as well as how the transaction would enhance the listed company’s asset quality, improve its financial position, and strengthen its sustainable operating capabilities.

As early as 2021, Sanyou Medical acquired a 49.88% equity stake in SMTP Technology for RMB 343 million in cash. At that time, SMTP Technology’s net assets on the books amounted to RMB 80.7561 million, while its post-valuation worth was RMB 687 million, representing a premium rate of as high as 750.71%.

Now, Sanyou Medical has once again acquired the remaining equity of SMTP Technology at a high price, intensifying market concerns.

In response, Sanyou Medical explained that since the previous acquisition, SMTP Technology Co., Ltd. has made significant progress in research and development (R&D) and marketing. On one hand, the company has increased its R&D investment, enhanced product performance, and expanded its range of product specifications and models to meet diverse customer needs and improve market competitiveness. On the other hand, SMTP Technology has refined its sales channels and promotional systems, leveraging Sanyou Medical’s channel resources to broaden sales coverage and substantially increase the number of hospitals adopting its products.

To bolster market confidence, Xu Nong, one of the counterparties to this transaction, has provided a performance commitment: during the performance commitment period (2024–2026), SMTP Technology Co., Ltd.’s annual net profits attributable to shareholders, excluding non-recurring items, shall be RMB 40.1346 million, RMB 47.7337 million, and RMB 55.18 million, respectively. Should the closing of the transaction be deferred until 2025, the performance commitment period will be adjusted to 2025–2027, with the committed net profits for each fiscal year being RMB 47.7337 million, RMB 55.18 million, and RMB 65.363 million, respectively.

Nevertheless, the market remains skeptical about the “reasonableness of the performance commitment arrangements.” The Shanghai Stock Exchange has requested Sanyou Medical to explain why the projected revenue growth rate for SMTP Technology exceeds the industry average, and to demonstrate the prudence and achievability of such forecasts.

Sanyou Medical stated that from January to November 2024, SMTP Technology Co., Ltd. achieved sales revenue of RMB 90.5366 million, with a completion rate of 74.78%. Based on data from the past five years (2019–2023), the fourth quarter has historically been the peak sales season, with December accounting for 30%–45% of annual sales. Therefore, under a conservative estimate, SMTP Technology’s full-year sales revenue for 2024 is projected at RMB 113 million, with a completion rate of 93.63%; under an optimistic scenario, full-year sales could reach RMB 127 million, with a completion rate of 105.09%.

In addition, Sanyou Medical revealed that the current overall penetration rate and growth rate of the ultrasonic bone scalpel market are relatively low. However, with the deepening of academic education and clinical promotion, ultrasonic bone scalpels are expected to gradually replace traditional osteotomy tools, indicating substantial future market potential.

Although Sanyou Medical is confident in the future of SMTP Technology, market concerns regarding its high-priced acquisition of the remaining equity still require further observation and verification. How Sanyou Medical will integrate SMTP Technology’s resources to achieve sustained performance growth will also be a key focus for the market.