Hong Kong: Healthcare names soar on debut

Appetite for healthcare names in the equity markets remains undimmed. Two healthcare initial public offerings soared today on their debuts in Hong Kong.

Kangji Medical, which was already up 88% at lunchtime, closed the day 99% higher, while Hygeia Healthcare, which had gained almost 40% at lunchtime, was up 40.5% at the close.

Last week Kangji Medical, the largest domestic minimally invasive surgical instruments and accessories platform in China, priced its HK$3.1bn (US$403m) initial public offering on the Hong Kong Stock Exchange at the top of the range.

It sold 225 million shares, or 18% of its enlarged share capital, at HK$13.88 per share.

Seven cornerstone investors came in for 41% of the book. These are FMR, BlackRock, Lake Bleu, Hillhouse, Cormorant, Orbimed and Oaktree.

Its product portfolio is focused on OBGYN, general surgery, urology and thoracic surgery with manufacturing out of facilities in Tonglu, Zhejiang Province.

Profits last year hit Rmb326.7m (US$46.1m) on revenues of Rmb503.5m.

Funds raised will be used primarily to expand manufacturing and for R&D.

“Overall, we think that a reasonable valuation and strong cornerstone support makes Kangji tempting at the proposed pricing range,” noted Global Equity Research analyst Arun George who publishes on Smartkarma last week.

Banks on the deal are Bank of America, CLSA and Goldman Sachs.

Warburg Pincus-backed Hygeia Healthcare, the largest oncology healthcare group in China, also priced at the top of the HK$17 to $18.50 per share range after closing books early for its own HK$2.2bn IPO.

It sold 120 million shares or 20% of its enlarged share capital.

Nine cornerstone investors, led by Hillhouse Capital, came in for half of the book.

The group operates or manages a network of 10 oncology-focused hospitals across seven cities in six provinces in China. It also provides services to 14 hospital partners in connection with their radiotherapy centres.

For the first ten months of last year, it had 790,683 patient visits with an 82% jump in adjusted net profits of Rmb136m on revenues of Rmb889.7m.

Proceeds from the IPO will be used primarily to upgrade three of its hospitals – Shanxian Hygeia Hospital, Chongqing Hygeia Hospital and Chengwu Hygeia Hospital – and to establish new hospitals in Liaocheng, Dezhou, Suzhou and Longyan.

“Hygeia is a play on China’s oncology healthcare service market which is influenced by structural trends such as increasing market share of radiotherapy, the rise of private hospitals and the growing popularity of multi-discipline treatments. Overall, Hygeia has strong fundamentals and is a good IPO candidate, in our view,” said Global Equity Research’s George.

Joint sponsors of the deal are Haitong International and Morgan Stanley.

Kangji Medical was up 99% at HK$27.60 and Hygeia Healthcare rose 40.5% to HK$26.00.