Yuyue Medical Acquires Zhongyou High-Tech for RMB 860 Million to Enhance Synergy Across Healthcare Product Lines

Recently, Jiangsu Yuwell Medical Equipment & Supply Co., Ltd. announced that it will acquire a 61.62% stake in Shanghai Zhongyou Pharmaceutical through an all-cash transaction, with a consideration of RMB 862 million.

During the recent Double 11 shopping festival, Yuwell ranked first in medical product sales across multiple e-commerce platforms. As a leading medical device manufacturer with a diverse portfolio spanning chronic disease management, home care, and hospital equipment, Yuwell’s acquisition of Zhongyou Gaoke—a company specializing in medical disinfection equipment—aims to broaden its product lineup, enhance synergies, and drive performance growth.

Data shows that Yuwell has a total share capital of 668 million shares, with 494 million shares in circulation, and a current market capitalization of RMB 23.211 billion. Over the past decade, its annual performance growth has averaged more than 20%, demonstrating remarkable growth speed.

Taking 2015 as an example, the annual report showed that its current revenue reached 2.103 billion, a 25.09% increase from 2014, and the net profit attributable to shareholders of the listed company was 364 million, a 22.67% increase from the same period in 2014.

According to a research report by Cinda Securities, it is the only national professional brand focused on specialized products for the elderly. China’s elderly population stood at 213 million in 2014, and we project that the number of people aged 60 and above will reach 260 million nationwide by 2024. Demand for elderly care and medical products is entering a growth phase, ushering in a critical stage of development for companies in this sector. The increase in both the income and size of the elderly population will turn the use of age-appropriate devices, medical equipment, and supplies—aimed at improving quality of life and independent living capabilities—into rigid demand. Products from related industries will be well-received, and companies with strong brand power will gain a first-mover advantage in this field.

Building a Professional Medical Device Brand for Chronic Disease Health Management. Yuwell provides professional medical devices for chronic disease management, with diabetes management services as the entry point, continuously extending its product chain. Chronic diseases have become the leading threat to global public health. With cardiovascular diseases and diabetes accounting for significant healthcare expenditures, home-based medical devices related to chronic disease management play a crucial role in patients' health management, making chronic disease monitoring medical devices a rigid demand.

Rich Product Portfolio and Leading Technological Advantages. As a leading enterprise in China's medical device industry, yuwell boasts a rich product structure with comprehensive categories, high levels of diversification and personalization, and competitive advantages in niche segments. Currently, China's medical device sector is experiencing rapid growth driven by strong domestic demand. Committed to the life and health cause, yuwell is building a comprehensive health ecosystem encompassing home healthcare, clinical healthcare, and internet-based healthcare, having evolved into a specialized service platform with full coverage of medical devices.

China’s medical device industry is entering a phase of rapid development. As an emerging market undergoing swift expansion, the sector is poised for sustained, high-speed growth, driven by population aging, significantly heightened health awareness, and the gradual release of market demand. Yuwell is a leading brand deeply entrenched in two key areas: basic home medical devices and age-friendly products. Given the substantial overlap in their target demographics, these two segments will serve as the company’s primary external growth engines in the future.

Regarding earnings forecasts and investment ratings, Cinda Securities projects that the company’s net profit attributable to shareholders of the parent company for 2016–2018 will be RMB 546 million, RMB 644 million, and RMB 766 million, respectively. Based on the latest share capital, the corresponding earnings per share (EPS) are estimated at RMB 0.82, RMB 0.96, and RMB 1.15, respectively. Yuwell’s positioning in the mid-to-high-end medical device segment aligns with the trend of consumption upgrading, and the company demonstrates sustained and stable profit growth capabilities. We remain optimistic about the company’s ability to achieve continued earnings growth through expanding hospital channels, developing new product categories via R&D, accelerating its mobile health layout, and deepening offline channel development. Market share is expected to rise further, warranting a “Buy” rating.

Meanwhile, Cinda Securities also issued a risk warning for Yuwell: inorganic expansion falling short of expectations; competition arising from the evolving landscape of China's medical device market; and pressure on rapid growth due to slowing growth of traditional products.

Regarding this merger and acquisition, VCBeat (WeChat ID: vcbeat) believes that the target company, Zhongyou Pharmaceutical, demonstrates promising overall profitability and growth potential, with a relatively reasonable valuation. Synergies between the two parties are expected to become evident in the near future.

Zhongyou Pharmaceutical is primarily engaged in the research, development, production, and sales of medical and industrial cleaning and disinfection products, as well as personal care items. Founded in 1988 by the Second Military Medical University, it was later restructured into a private enterprise. In 2014 and 2015, Zhongyou Pharmaceutical reported operating revenues of RMB 251 million and RMB 283 million, respectively, with net profits of RMB 26.0666 million and RMB 50.9823 million, respectively, demonstrating sound operational performance and strong profitability.

Research by Minsheng Securities also indicates that Zhongyou Pharmaceutical’s disinfection product business has established a strong brand presence in clinical hospitals. It is the leading enterprise in the niche segment of intra-hospital infectious disease prevention and infection control in China, and serves as an industry benchmark in the field of hand and skin disinfection. A successful acquisition would help the company diversify its portfolio of clinical hospital products, strengthen its academic foundation and brand recognition within clinical settings, and drive rapid expansion in the clinical consumables sector. Furthermore, by effectively integrating Zhongyou Pharmaceutical’s disinfection business with Shangxie Group’s surgical instrument division, the company can leverage surgical instruments and disinfection services as entry points to expand hospital supply outsourcing services, thereby enhancing its competitiveness in the intra-hospital market.

Zhongyou Medical’s disinfection business holds significant potential in areas such as food cleaning and disinfection, as well as home care disinfection. Its brands, including “Jiefurou” and “An’erdian,” enjoy high recognition in hospitals. In the future, these strengths can be leveraged alongside yuwell’s robust OTC market advantages to unlock new market opportunities. Furthermore, disinfection products align well with the company’s “Better Life” segment, substantially enriching its offerings, accelerating the segment’s rapid development, and ensuring the long-term, sustained, and stable growth of the company’s overall performance.

Zhongyou Pharma expects its net profit to grow continuously in 2017, 2018, and 2019, reaching RMB 92 million, RMB 112 million, and RMB 142 million, respectively; this cumulative amount may account for approximately half of the total acquisition price.

Previously, a reporter communicated with an operations staff member of a pharmaceutical e-commerce platform. Yuwell holds a very high market share in the industry and boasts a rich product portfolio spanning respiratory care, cardiovascular disease management, hospital equipment, and home care. With the addition of medical disinfection products through this acquisition and expansion, Yuwell has integrated the entire medical industry chain, covering medical devices and chronic disease management, thereby establishing absolute control over the market.