Tianxing Medical Battles Again at the Hong Kong Stock Exchange

After nearly a year of unilateral withdrawal of sponsorship by China International Capital Corporation (CICC), the underwriter, Tianxing Medical has shifted its focus to the Hong Kong Stock Exchange. Recently, Tianxing Medical updated its IPO prospectus in Hong Kong, with financial data showing that from 2022 to 2024, the company’s revenue increased from 147 million yuan to 327 million yuan, and net profit rose from 40.34 million yuan to 95.39 million yuan; in the first three quarters of last year, revenue and net profit grew by 23.87% and 47.62% year-over-year, respectively, continuing the growth trend. However, behind this performance growth, Tianxing Medical faces multiple challenges. On one hand, the domestic sports medicine market is still dominated by international brands like Stryker and Johnson & Johnson, with local companies still in the development stage, while cross-industry entrants like Aibo Medical are also entering the market. On the other hand, the reasons for the previous IPO withdrawal remain unclear. After Tianxing Medical applied for listing on the STAR Market in 2023, CICC unilaterally withdrew its sponsorship in June last year. CICC, through its affiliated funds, also holds indirect shares, making the reason for withdrawal more scrutinized.

Implants Account for 80% of Revenue

According to the latest submitted prospectus, from 2022 to 2024, Tianxing Medical’s revenue was 147 million yuan, 239 million yuan, and 327 million yuan, with a compound annual growth rate of nearly 50%. In the first three quarters of last year, the company’s revenue still maintained double-digit growth, increasing by 23.87% year-over-year to 273 million yuan. During the same period, net profit also saw significant growth, soaring from 40.34 million yuan in 2022 to 95.39 million yuan in 2024, doubling. In the first three quarters of last year, net profit further increased by 47.62% year-over-year to 89.87 million yuan.

Looking at the revenue structure, Tianxing Medical mainly earns from sales of implants, surgical equipment, and related consumables. Implants, as the company’s main performance pillar, account for nearly 80% of revenue. In 2022 and 2023, implant revenue accounted for 79.8% and 78.2%, respectively. By 2024, due to policy influences, the sales price of implants was reduced, with the average selling price dropping from 711.9 yuan per piece in 2023 to 446.3 yuan per piece—a decrease of 37.31%. The gross margin for this segment also declined from 79% in 2023 to 72.4%, and revenue share shrank to 76.4%.

In the first three quarters of last year, although the average selling price of implants remained flat year-over-year, the gross margin increased from 71.8% in 2024 to 76.6%, and the revenue share of implant products also grew to 77.6%. The prospectus explains this as “effective cost control and economies of scale from mass production.”

The prospectus states that product prices may face downward pressure due to government-regulated pricing guidance or volume-based procurement plans. If the company’s sales volume does not increase sufficiently to offset the price reductions, its financial and operational performance could be adversely affected.

Furthermore, a bigger challenge for Tianxing Medical is the competitive landscape, which remains fierce. According to data disclosed in the prospectus, among the top five companies in China’s sports medicine implants and devices market, four are international firms, holding over 60% of the market share.

Meanwhile, domestic companies are accelerating their efforts to catch up. Besides Tianxing Medical and Ruijian Medical, other companies are also entering the field. In late February, Aibo Medical announced its plan to acquire a 68.31% stake in Demei Medical, a leading sports medicine company, for 683 million yuan, marking a cross-industry move into sports medicine.

Fundraising Exceeds Asset Scale

This is not Tianxing Medical’s first attempt to access the capital markets. In September 2023, the company launched a bid for the STAR Market, aiming to raise 1.093 billion yuan for smart factory construction, new product development, and marketing network expansion. The following month, Tianxing Medical received inquiries from the Shanghai Stock Exchange requesting additional disclosures on business operations, financials, and past equity changes. It was only in May 2024 that Tianxing Medical submitted its responses, which have not been made public.

Due to slow progress, Tianxing Medical also revised its fundraising plan to facilitate listing. In subsequent updates to its prospectus, the company lowered its proposed raise to 880 million yuan, reducing the amount by 213 million yuan from the previous plan, including removing the marketing network project and decreasing the working capital component from 300 million to 220 million yuan. However, as of the end of September 2024, Tianxing Medical, with total assets of only 551 million yuan, faced controversy over the relatively high fundraising amount compared to its asset scale.

Amid skepticism, in June last year, Tianxing Medical’s sponsor, CICC, unilaterally applied to the Shanghai Stock Exchange to withdraw its sponsorship, leading to the termination of the STAR Market listing review. Regarding this previous A-share listing setback, Tianxing Medical stated in the current prospectus that, considering market conditions at the time and the lengthy approval process for STAR Market listing, it decided to explore other venues for listing. However, it did not disclose detailed reasons for CICC’s withdrawal.

CICC is not only Tianxing Medical’s sponsor but also a shareholder. According to the STAR Market prospectus, as of September 2024, CICC indirectly controls a 27.09% partnership stake in Yahui Jinlin through CICC Qiyuan and STAR Fund, and Yahui Jinlin owns 4.04% of Tianxing Medical.

After the failed STAR Market attempt, Tianxing Medical turned its attention to the Hong Kong market. In August last year, it submitted an IPO application to the Hong Kong Stock Exchange’s Main Board, with CITIC Securities and CCB International as joint sponsors.

Industry analyst Zhu Mingjun told Beijing Business Today that unilateral withdrawal by sponsors is quite rare in IPO history. The withdrawal by CICC is generally believed to be a risk-avoidance measure when sponsors discover significant issues with the issuer.

Zhu Mingjun further noted that this historical issue could impact Tianxing Medical’s move to Hong Kong. On one hand, review scrutiny will increase, and the HKEX and new sponsors will likely conduct due diligence on the reasons behind the STAR Market withdrawal; on the other hand, market trust may be damaged, leading investors to question whether there are undisclosed risks.

The Beijing Business Today reporter sent an interview request to Tianxing Medical regarding this IPO, but as of press time, no response has been received.

Founders Cash Out 490 Million Yuan

According to the prospectus, Tianxing Medical was founded in 2017 by Dong Wenxing, Nie Hongxin, and Chen Hao. Initially, Dong Wenxing and Chen Hao held 35% and 10%, respectively, while Nie Hongxin held 55% through Nie Wei, making him the actual controller.

Between 2019 and 2021, the company’s equity underwent several changes. Chen Hao transferred his 10% stake to Nie Wei and ceased to be a shareholder. Nie Wei then transferred his holdings, held via nominee, to Anji Lian’en and Anji Jintian Dihao, each holding 25.66%, both controlled by Nie Hongxin. Additionally, Nie Wei transferred 5% of shares to an employee stock ownership platform, Tianjin Yunkang, at no cost. After these transfers, Dong Wenxing held 43.68%, Anji Lian’en 25.66%, Anji Jintian Dihao 25.66%, and Tianjin Yunkang 5%.

In 2021, Nie Hongxin began a series of share reductions. In March, Suzhou Junlian, Xiamen Defu, and Ningbo Qianyi acquired stakes from Anji Lian’en for 30 million, 120 million, and 50 million yuan, respectively. In December, Aobo Asia Phase IV bought part of the shares for 16 million yuan. In January 2022, 3W Fund purchased all remaining shares from Anji Lian’en for 19.18 million yuan, fully exiting the shareholder ranks. Nie Hongxin had thus cashed out over 235 million yuan through these platforms.

In January 2023, Nie Hongxin again sold shares via Anji Jintian Dihao. Thirteen institutions, including Yahui Jinlin, Jianxing Medical, and Galaxy Source, bought stakes for a total of 255 million yuan. As a result, Nie Hongxin’s ownership decreased from 55% at founding to 4.9%, with total cash out exceeding 490 million yuan. Dong Wenxing replaced Nie Hongxin as the new actual controller and major shareholder.

Industry analyst Zhang Congwen commented that significant pre-IPO share reductions or founder exits often signal: 1) a lack of confidence in the company’s long-term value; 2) early investors’ exit needs and wealth realization. However, he noted that Nie Hongxin’s exit from 2021 to 2023 coincided with a high valuation and fundraising boom, making the cash-out logical. Dong Wenxing, with a background at the drug regulatory authority, has advantages in regulatory resources and policy understanding. The concern remains whether the founders’ split will affect Tianxing Medical’s strategic continuity and technological innovation pace.

The Beijing Business Today reporter Wang Yinhao and Song Yuying