Neusoft Corporation's 2016 Interim Report Highlights Continued Transformation and Strategic Focus on Digital Healthcare

Neusoft Corporation’s latest 2016 semi-annual report shows that its operating revenue reached RMB 3.382 billion, a year-on-year increase of 6.98%; the net profit attributable to shareholders of the listed company was RMB 93.48 million, a year-on-year increase of 3.73%. In addition, revenue from medical systems products decreased by 3.4% year on year, while the overall gross profit margin remained stable at 34.3%.

Neusoft Corporation is a major domestic software enterprise in China, with its business spanning government, healthcare, finance, energy, civil aviation, and telecommunications sectors. Prior to 2006, the company’s primary focus was on software outsourcing; in recent years, it has actively undergone transformation, extending its operations into cutting-edge fields such as automotive electronics, big data, and digital health. The company primarily adopts a business model that targets international markets first, followed by the domestic market.

As one of the earliest software enterprises in China, the company previously adopted software outsourcing as its primary business model. At the peak of its software outsourcing business in 2005, the company proactively pursued a strategic transformation. Over the past decade-plus, its R&D investment has accounted for approximately 10% of its annual core business revenue, laying a solid foundation for future growth.

After nearly a decade of transformation, R&D investment remains at a high level; however, as the company shifts from labor-intensive to technology-intensive operations, the growth in compensation expenses is expected to slow down. Meanwhile, the RMB exchange rate is currently stable with a slight downward trend, and under the influence of depreciation expectations, the company’s profits are poised to grow.

In 2015, the company’s main business revenue reached RMB 7.7 billion, with the majority derived from its traditional software business. Neusoft currently holds a leading position in China in the field of industry-specific solutions. For instance, the information systems for the first and second generations of resident identity cards under the Ministry of Public Security were exclusively developed by Neusoft; the company commands over 50% market share in social security systems, covering more than 400 million people; and in medical insurance systems, out of approximately RMB 10 trillion in total reimbursements last year, RMB 486.9 billion was processed through Neusoft’s systems.

After securing an absolute leading position in the government and healthcare sectors, the company has rapidly expanded into the energy, civil aviation, and transportation informatization fields based on its self-developed core platform. This multi-sector strategy ensures a stable foundation for the company’s future principal business revenue. Furthermore, as the company continues to enter new industries, revenue from industry-specific solutions will sustain steady growth in its principal business income.

The company has consistently maintained the leading market share in China within traditional sectors such as government and healthcare. While providing software solutions to government agencies, healthcare institutions, and other related entities, it has established favorable conditions for the future expansion of its big data business.

In the digital healthcare sector, the company has established digital medical systems such as online diagnosis. These systems currently cover services like online diagnosis and appointment scheduling in the eastern coastal regions. As the company continues to expand its business operations and increase strategic partnerships, digital medical systems in the central and western regions will be progressively improved.

Neusoft Medical and Neusoft Xikang, as the primary subsidiaries of Neusoft Group’s healthcare division, mainly manufacture medical equipment such as MRI systems, X-ray machines, PET-CT scanners, and linear accelerators. In September 2015 and April 2016, these two companies completed two rounds of equity transfers and introduced strategic investors.

Currently, the strategic investors primarily introduced by these two subsidiaries include renowned strategic investment firms such as Goldman Sachs. Following the equity transfers, the group company has relinquished its actual controlling position. After completing the equity transfers and introducing strategic investors, the companies will pursue independent initial public offerings (IPOs). At present, Neusoft Corporation holds a 33.35% stake in Neusoft Medical Systems and an indirect 32.81% stake in Neusoft Xikang. The equity transfer associated with the second round of strategic investor introduction is expected to generate approximately RMB 1.9 billion in investment income for the company.

By Xue Zhiqiang

Edited by Zeng Xiaoshan