Ping An Good Doctor's Hong Kong IPO: A Catalyst for Its Ecosystem and a Boost for China's Digital Health Sector

Rumors about the listing of internet healthcare companies are intensifying, with Ping An Good Doctor and WeDoctor among those involved. Their strategies both involve spin-offs followed by initial public offerings (IPOs) in Hong Kong.

On the evening of January 29, Ping An Insurance announced that the Group had submitted an application for the independent listing of Ping An Health Medical Technology Co., Ltd. (Ping An Good Doctor) on the Main Board of the Hong Kong Stock Exchange. The Stock Exchange of Hong Kong Limited has confirmed that the Company may proceed with the spin-off and listing.

Following its listing, Ping An Insurance will remain the controlling shareholder of Ping An Healthcare and Technology. This will mark another listed company under the Ping An Group umbrella and the first internet healthcare company in China. In addition, the group includes Lufax, OneConnect Financial Technology, and Ping An Healthcare Management. Currently, the combined valuation of these four subsidiaries reaches RMB 634.1 billion.

Ping An Good Doctor took just over three years from its inception to its listing in Hong Kong, with all key metrics far outpacing industry peers. As of the end of 2017, Ping An Good Doctor had amassed 193 million registered users, an average of 33 million monthly active users, and approximately 370,000 daily online medical consultations on average.

How did Ping An Good Doctor stand out as a pioneer within this trillion-dollar conglomerate? Why did it choose to list in Hong Kong? Which businesses of its parent company will be driven by its IPO? What value and significance does this hold for the entire internet healthcare industry? VCBeat (WeChat ID: vcbeat) has compiled an analysis on these questions.

For the parent company, Ping An Good Doctor’s listing in Hong Kong is a positive development. Over its more than 30-year history since its founding, Ping An Group has grown from a 400-square-meter office in Shekou, China, into an enterprise renowned for its full range of financial licenses and rooted in financial services. Its workforce has expanded from 18 employees to 1.8 million, serving over 200 million customers, with annual revenue approaching RMB 900 billion.

We cannot help but ask: Why has this trillion-yuan company been able to incubate a publicly listed entity? And how did Ping An Good Doctor manage to stand out in the internet healthcare industry and become the first to list on the Hong Kong Stock Exchange?

The reasons can be examined from two perspectives:

First, external factors: healthcare reform policies are constantly evolving, and the medical sector’s outlook remains strong. According to a Frost & Sullivan report, China’s general health industry had a market size of RMB 8.6 trillion in 2016 and is expected to grow to RMB 26.8 trillion by 2026, representing a compound annual growth rate (CAGR) of 12%.

Second, internal factors: leveraging external trends, Ping An Group identified healthcare as a future growth engine and consequently mobilized the entire corporation to develop Ping An Good Doctor.

As an internet healthcare company, to survive, it must have sufficient funds, excellent talent, and a massive user base (traffic). Even leading companies in the internet healthcare sector, such as Chunyu Doctor, WeDoctor, Haodf Online, and DXY, have experienced anxiety over these challenges.

By comparison, Ping An Good Doctor was born with a silver spoon in its mouth as a second-generation enterprise. It not only has the backing of Ping An Group but also enjoys immense strategic priority from its parent company. Many large corporations attempt to incubate projects internally, yet few achieve genuine success. The critical factor is that during the promotion and development of such initiatives, they are often hindered by various obstacles, ultimately leading to their premature termination.

In January 2017, Ma Mingzhe, Chairman and CEO of Ping An Group, stated, “By managing users’ finances in one hand and their health in the other, we ensure that users become indispensable to Ping An.” This underscores that health management has been elevated to an unprecedented strategic priority within Ping An Group.

On this basis, Ping An Good Doctor’s fundraising pace has been equally astonishing. Founded in August 2014, it officially launched its product on April 21, 2015. In May 2016, the company secured $500 million in Series A financing, setting a new record for fundraising in the internet healthcare sector at that time, with a valuation of $3 billion.

One month before its Hong Kong listing (December 2017), SoftBank invested another $400 million in Ping An Healthcare and Technology (Ping An Good Doctor), valuing the company at $5 billion pre-money. According to insiders, Masayoshi Son made the decision to invest $400 million in just 10 minutes.

In terms of revenue, Ping An Good Doctor generated over RMB 1 billion in the first nine months of last year. Its largest revenue stream came from consumer healthcare, followed by the health mall. Revenues for 2015, 2016, and the nine months ended September 30, 2017, were RMB 278.7 million, RMB 601.5 million, and RMB 1.0163 billion, respectively. This represented a year-on-year increase of 115.8% in 2016 compared to 2015, and a year-on-year growth of 240.4% in the first nine months of 2017 compared to the same period in 2016.

Despite a rapid growth trend in revenue, Ping An Good Doctor has not yet achieved profitability as of now. The net losses from 2015 to 2017 were RMB 323.7 million, RMB 758.2 million, and RMB 497.4 million, respectively (excluding the impact of share-based payments and net foreign exchange gains/losses, the adjusted net losses were RMB 322.9 million, RMB 981.9 million, RMB 710 million, and RMB 330.7 million).

In terms of user data, the customer base is also primarily sourced from the Ping An Group. According to the prospectus, as of December 31, 2015, 2016, and 2017, Ping An Good Doctor had 30.3 million, 131.5 million, and 192.8 million registered users, respectively, with corresponding average monthly active users (MAUs) of 5.6 million, 21.8 million, and 32.9 million.

Although 2016 was a year with notable growth in user numbers, the prospectus reveals that Ping An Good Doctor’s customer base primarily stemmed from other business segments of the Ping An Group. Specifically, in 2015, 2016, and 2017 (as of September 30), Ping An Good Doctor’s top five customers were Ping An Life Insurance, Ping An Property & Casualty Insurance, Ping An Bank, Ping An Health Insurance, and Ping An Puhui Investment Consulting Co., Ltd. (all of which are subsidiaries or close associates of the Ping An Group).

Among them, the largest customer was Ping An Life Insurance, accounting for 49%, 27.9%, and 17% of total revenue, respectively. During the same period, the top five customers accounted for 75.6%, 40%, and 31.4% of total revenue, respectively.

In terms of talent recruitment, Ma Mingzhe personally selected candidates for Ping An Good Doctor. In 2013, he successfully recruited Wang Tao, then Senior Vice President of Alibaba and President of Alibaba Software, to serve as Chairman and CEO of Ping An Good Doctor.

Wang Tao’s arrival marked the first step in reviving Ma Mingzhe’s “Three Networks Integration” strategy and repositioning Ping An Health Insurance. Specifically, the company would no longer merely sell traditional health insurance products; instead, it would create a new internet-based integrated health management platform, reshaping the entire healthcare market through an internet-driven model.

The first move in the reform targeted the company’s institutional framework. In August 2014, Wang Tao spun off Ping An Health Insurance’s new internet-based business operations to establish Ping An Health Internet Co., Ltd. as a separate entity. While clarifying division of responsibilities, he openly acknowledged that this step was also intended to lay the groundwork for a future independent initial public offering (IPO).

A month later, a healthcare app named “Ping An Health Manager” entered public beta testing, offering services such as online medical consultations and appointment scheduling with renowned physicians. While the market was still speculating about Wang Tao’s next move, the app was abruptly renamed “Ping An Good Doctor,” joining Ping An Good House, Ping An Good Car, and Ping An Good Show as key components of Ping An’s “Good” series of internet-based businesses.

What appears to be merely an online consultation product is, in reality, underpinned by Ping An Group’s comprehensive integration of policies, hospitals, physicians, pharmacies, the medical community, and insurance—reflecting its ambitious vision for the entire healthcare industry chain.

Ping An Good Doctor’s application for an IPO in Hong Kong is a positive development for both the Ping An Group and the entire internet healthcare industry.Ping An Good Doctor is the healthcare service portal tailor-made for its “Big Health” strategy.Compared with internet healthcare companies that innovate in various niche segments of medical services, Ping An Good Doctor is clearly not a company focused on appointment registration, consultations, triage, physician tools, hospital services, or medical artificial intelligence.Its positioning is as an entry point and platform, aiming to connect as many participants across the healthcare service chain as possible.The figures disclosed by Ping An Good Doctor, such as the size of its covered user base and the number of healthcare institutions, also serve to corroborate this assessment from a complementary perspective.

To date, the healthcare industry remains in a stage characterized by restricted circulation of core resources, blurred boundaries between public welfare and commercial operations, and sluggish innovation in policies and regulations. For Ping An Good Doctor to establish itself as an online medical service platform connecting all stakeholders, it must not only leverage the vast insurance and financial ecosystem of its parent company, Ping An Group, but also commit substantial financial and material resources to building and securing a gateway for medical services. This can only be achieved through extensive collaborations with numerous offline pan-healthcare service providers. From this perspective, going public is an inevitable path for Ping An Good Doctor to become the service gateway and platform for various value-added services under Ping An Group’s “Big Health” strategy.

Post-listing, it will also provide reciprocal benefits to Ping An Insurance’s various business chains. This stems from the business structure of Ping An Good Doctor, which primarily comprises four core business lines: family doctor services, consumer healthcare, the health e-commerce platform, and health management coupled with health engagement initiatives.

Shortly after joining Ping An Group in 2015, Wang Tao explained that Ping An Good Doctor positioned itself by using “light consultation” mobile healthcare as an entry point. It then built a medical service network to integrate domestic medical information, thereby generating new customer resources for health insurance. Subsequently, it could further provide various health services to customers, thus forming a complete O2O (Online-to-Offline) closed loop.

Underpinning this O2O closed-loop health management model is Ping An’s ultimate “ambition” in the broader healthcare industry: to ultimately realize the new health industry chain envisioned by Ma Mingzheng, integrating the “Medical Network,” “Pharmaceutical Network,” and “Information Network” into a unified tri-network ecosystem. Wang Tao further revealed that “the Group is prepared to invest tens of billions of yuan over the next five to ten years to achieve this goal.”

In 2016, Ma Mingzhe proposed a new strategy for the "Ping An 3.0 Era," shifting focus from internal financial services to cultivating an open platform for the entire industry. Emphasizing Ping An Group’s goal of becoming an "internationally leading provider of personal financial and lifestyle services," the strategy centers on two major sectors: "large financial assets" and "comprehensive healthcare." These will serve as the two pillars of Ping An’s future development.

“We aim to be a comprehensive platform that connects users, insurance companies, medical insurance providers, hospitals, clinics, testing and inspection institutions, emerging smart devices, and various health service providers,” said Ma Mingzhe.

Clearly, not every company can become a platform. It requires a sufficiently large user base, an absolute leadership position in its business sector, and unquestionable control and influence over the relevant industrial chain.

Xie Zhenzhong, Chief Medical Advisor at Ping An Technology, once commented on Ping An Health’s “grand platform” concept, stating that a platform, as envisioned by Ping An, should not attempt to do everything itself but rather embrace specialized division of labor. For instance, vendors specializing in electronic medical record (EMR) products should focus exclusively on refining their EMR solutions; if they do so well, all insurance companies will seek their services. However, if they encroach upon the core business of insurers, they will inevitably be displaced by those very insurers.

Ping An has the capability to build a collaborative platform and become a nationwide healthcare service provider. This is because Ping An can provide the most critical component of a healthcare platform—a robust payer. By aligning with a payer, Ping An Good Doctor’s valuation would be fundamentally different. Integrating Ping An’s 100 million users can naturally create a value-driven platform.

So, how does Ping An structure its comprehensive health platform? It primarily consists of four business modules, implemented in three phases. Overall, Ping An’s grand health strategy encompasses four major business segments: healthcare services, basic medical insurance, commercial insurance, and Health Cloud.

In the realm of health and medical services, the corresponding products are Ping An Good Doctor and Wanjia Clinics. By integrating high-quality medical resources—including hospitals, physical examination centers, health monitoring institutions, clinics, physicians from Grade 3A hospitals, and self-built family doctor teams—through both online and offline channels, they have established a one-stop, end-to-end O2O health management and medical service platform.

By leveraging both public health insurance and commercial insurance, the payment channel has become a key link in closing the loop of the entire healthcare service ecosystem. Ping An Health Cloud collaborates with hundreds of medical institutions in pilot cities through its cloud platform to establish electronic health records for patients, thereby collecting patient data and case studies.

Currently, Ping An Good Doctor’s core positioning is “connectivity,” linking multiple stakeholders—including hospitals, users, insurance payers, and service providers—to create an open internet-based healthcare services ecosystem. A key objective of this “connectivity” is to address another bottleneck in the current development of the mobile health industry: determining who pays for mobile health services. This involves progressively exploring the integration of insurance claims into online medical payment systems, thereby fundamentally resolving the question of payment responsibility.

From this perspective, Ping An Group has invested heavily in building these medical resources to establish its own core healthcare capabilities, seeking to integrate healthcare with insurance. Its ideal model is the HMO (Health Maintenance Organization) framework.

Under the HMO model, insured individuals are assigned specific healthcare providers, guiding them to choose primary care physicians for initial consultations and promoting health management, with the aim of controlling claims costs by reducing disease incidence. Insurance institutions and healthcare providers share risks through agreements to prevent over-treatment.

Under this model, physicians’ overall income is fixed due to capitated payment structures. Consequently, their earnings increase only when employees experience fewer illnesses, receive early treatment, and healthcare expenditures are minimized. This incentivizes physicians to place greater emphasis on occupational safety and routine health maintenance for employees, ultimately reducing overall medical costs. Such an arrangement proves highly beneficial to physicians, employees, and employers alike.

This model, which emphasizes prevention and maintenance as well as early detection and treatment, is now known as managed care. Its characteristics include: insurance companies + hospitals + clinics + pharmacies + physicians + information.

Currently, given that the data accumulation by insurance companies and mobile healthcare institutions in this area remains inadequate, the implementation of the HMO model in China is unlikely to proceed smoothly.

Although Ping An Group’s HMO model has faced short-term challenges in its domestic rollout, the listing of Ping An Good Doctor still exerts an impact on the industry.

The main impacts are as follows:

First, it will significantly boost investor confidence in the internet healthcare sector, potentially triggering a wave of internet healthcare companies to list on the Hong Kong Stock Exchange;

It is worth noting that, in addition to Ping An Good Doctor’s IPO application, other players in the internet healthcare sector are also showing momentum toward initial public offerings.

In June 2016, Chunyu Yisheng publicly confirmed the completion of a RMB 1.2 billion Pre-IPO financing round. Had Zhang Rui still been alive, Chunyu Yisheng might have soon listed on either the A-share market or the New Third Board.

On December 14, 2017, Jeff Chen, Chief Strategy Officer (CSO) of WeDoctor, stated in an exclusive media interview that WeDoctor was raising $500 million in a Pre-IPO financing round and was currently undergoing internal IPO restructuring. The restructuring was expected to be completed in the first quarter of 2018, although the specific timeline for submitting listing documents to the Hong Kong Stock Exchange had not yet been determined.

Furthermore, Haodf Online and DXY, both invested by Tencent’s industrial fund, have raised financing up to Series D and Series C, respectively.

At the end of December 2017, the Hong Kong Stock Exchange announced the addition of two new chapters to its Main Board Listing Rules: accepting listings of companies with weighted voting rights structures, and allowing pre-revenue or unprofitable biotechnology companies to list in Hong Kong. This is undoubtedly a favorable development for internet healthcare companies that have long been constrained by profitability requirements.

Second, it may also spur some insurance industry giants to seriously consider how to implement their strategies for integrating medical care and insurance in the internet era;

Third, every link in the internet-based healthcare service chain will become more valuable in the foreseeable future;

Fourth, the battle for entry points in internet healthcare may gradually evolve into a competition among platforms. How to build an online medical service platform that involves multiple parties, integrates online and offline services, and is user-centric will become the core of the competition.

According to the prospectus, the use of proceeds from the initial public offering is primarily divided into four categories, as preliminarily proposed:

Approximately 40% of the net proceeds, or approximately [●] million Hong Kong dollars, are expected to be used for business expansion, including expanding our e-commerce business by increasing product variety, network coverage, and service capabilities through internal development and external collaborations; continuously attracting and retaining talent such as sales and medical personnel; acquiring new users and enhancing user engagement by, among other methods, increasing the variety of reward programs offered to users; and funding marketing and promotional activities.

Approximately 30% of the net proceeds, or approximately [redacted] million Hong Kong dollars, are expected to be used to fund our potential investments, acquisitions of domestic companies and strategic alliances with domestic companies, as well as our overseas expansion plans;

Approximately 20% of the net proceeds, or approximately [●] million Hong Kong dollars, are expected to be used for research and development, including the development of information infrastructure as well as artificial intelligence and other technologies; approximately 10% of the net proceeds, or approximately [●] million Hong Kong dollars, are expected to be used for working capital and general corporate purposes.

Regarding future development, Ping An Good Doctor stated that it will leverage organic traffic, external marketing, and promotional campaigns to convert customers from the Ping An Group, thereby sustaining its user base and enhancing stickiness. The company aims to significantly upgrade its existing online consultation capabilities by continuously improving the functionalities of its AI assistant. Meanwhile, capitalizing on its advantages in distribution channels and big data, it is committed to providing users with one-stop, reliable healthcare solutions. Furthermore, through collaborations with overseas partners, Ping An Good Doctor seeks to further expand its medical tourism and overseas second-opinion services.

Meanwhile, Ping An Good Doctor also highlighted its strategy to unlock the platform’s monetization potential by leveraging its big data capabilities and deepening relationships with individual customers, insurance companies, other commercial organizations, and government entities. This includes delivering precise and targeted advertising, providing intelligent product recommendations, and referring patients to offline medical institutions, thereby creating additional revenue opportunities.

Amid the current wave of companies listing in Hong Kong, Ping An Good Doctor has taken the lead as a pioneer, getting an early start. It is expected that more players will follow suit, fostering healthy competition in terms of capital, resource aggregation, and licensing qualifications. This will ultimately drive the expansion of the medical services industry toward both upstream and downstream segments.