Key Takeaways
- Haoxi Well being Tech’s shares tanked by 28% after it introduced plans to boost extra funds only a half 12 months after its Nasdaq itemizing
- The supplier of digital promoting companies for healthcare firms has expanded shortly since its 2018 launch, with each sturdy top- and bottom-line progress
By Edith Terry
Haoxi Well being Know-how Ltd. HAO rode a post-Covid increase in China’s healthcare sector to turn out to be one among six Chinese language companies to record within the U.S. in January. It was typical of the roughly 20 Chinese language and Hong Kong firms to record in New York to date this 12 months, which have quietly raised a collective $195 million. In contrast to blockbuster Chinese language IPOs of the previous, the newest listings have all been comparatively pint-sized, together with Haoxi’s at simply $11 million.
Traders lapped up Haoxi’s story of feeding on demand for advertising companies from China’s vibrant healthcare trade, not less than initially. After debuting strongly, the inventory traded properly above its IPO worth of $4 in its first 4 months, valuing the corporate at greater than $200 million at its peak. However a Could 5 announcement of a rebate plan to advertisers introduced an abrupt finish to the honeymoon, touching off a downward development.
These considerations accelerated after the corporate introduced plans final week to promote an extra 1.5 million shares, in addition to warrants with an train worth of $6.26 per share – the value inventory on the time of the announcement. That will elevate as a lot as $9 million, barely lower than the quantity it raised in its IPO. Traders dumped the inventory after that, wiping one other 28% off the corporate’s worth within the subsequent 4 buying and selling days.
Even after the selloff, the inventory’s Tuesday shut of $4.60 means the shares are nonetheless above the IPO worth of $4. However it could possibly be only a matter of time earlier than they fall beneath that stage if the inventory retains falling from its all-time peak of almost $9 in early Could.
Two of the most important losers from the selloff are Haoxi Chairman and CEO Fan Zhen, who controls 91.25% of the corporate’s voting energy after the newest providing, and firm founder and COO Xu Lei, who will maintain 2.83% of the voting energy. Fan’s background lies in fintech, whereas Xu arrange Haoxi in 2018 after a profession in medical promoting.
Regardless of the waning investor confidence, there’s little doubt that Haoxi’s financials are wholesome. Its income and earnings have each been rocketing alongside within the final two years, buoyed by a booming Chinese language trade the place healthcare spending doubled between 2016 and 2021 to 7.6 trillion yuan ($1 trillion), making it the world’s second largest market after the U.S.
Haoxi provides promoting content material technology companies, primarily within the type of brief movies, to healthcare suppliers, together with dentistry. Well being companies is a distinct segment of the broader digital promoting sector, accounting for about 9% of an estimated $189 billion in international spending on digital promoting in 2024, in response to Statista. Third-party analysis in Haoxi’s IPO prospectus mentioned China’s web healthcare market was value 343 billion yuan that 12 months, a determine that grew throughout the pandemic as extra folks had been pressured to hunt medical care on-line.
Within the ultimate six months of final 12 months, which corresponds to the primary half of Haoxi’s fiscal 12 months, the corporate’s total shopper base grew to 338 promoting clients from 183 within the year-ago interval, in response to its newest monetary report launched final month. Common income per shopper elevated by 39% over that point to $69,538. That translated right into a 157% improve in income from $9.2 million to $23.5 million over the interval, with its gross revenue up 65% to $1.2 million.
Massive Hopes
Haoxi is aiming to enroll 10% of advertisers in China’s healthcare trade as its clients by 2025, which it might do by buying 150 to 200 new advertisers per 12 months, in response to its prospectus. Its title, Haoxi, interprets to “nice hopes.”
One in all Haoxi’s largest dangers is its heavy dependence on ByteDance as a associate for placement of Haoxi’s advertisements. The father or mother of TikTok, which operates the same Douyin service in China, was accountable for 96% of Haoxi’s advert placements in its 2023 fiscal 12 months, representing $34.8 million of its income. Drilling down into the corporate’s price construction, its price of revenues – largely funds to ByteDance – rose from $8.4 million within the final six months of 2022 to $22.3 million within the final six months of 2023, nearly tripling.
ByteDance has turn out to be a serious goal for Chinese language regulators these days, in a sector that has obtained intense scrutiny over the previous few years. In 2018, the corporate was fined 3.7 million yuan after failing to submit advertisements for 2 healthcare merchandise and a non-prescription drug for regulatory checks, in addition to for failing to confirm the content material of the advertisements.
One other regarding metric is the explosion in Haoxi’s accounts payable, which ballooned to about $1 million by the top of December final 12 months from simply $27,312 six months earlier. This might imply the corporate’s purchasers are falling behind of their funds as China’s financial system slows. Haoxi’s rebate to advertisers in Could might additionally mirror difficulties dealing with the trade, forcing it to make such rebates as a type of low cost.
On a extra constructive observe, Haoxi nonetheless trades at a powerful worth to gross sales (P/S) ratio of three.44. That’s properly forward of the 1.0 for Shanghai-listed Neusoft (600718.SS), which supplies software program and know-how for the healthcare trade, together with e-commerce and promoting companies. It additionally leads the 1.7 P/S for main search engine Baidu BIDU, which is commonly seen as a benchmark for digital promoting companies.
Haoxi could also be too new and too small for analysts to comply with simply but, however it might be only a matter of time earlier than it features consideration for its progress potential. Merely Wall Avenue described it in January as a “high quality firm” based mostly on its return on fairness of 62%, and its low debt-to-equity ratio of 0.55. Whereas its most up-to-date fundraising might dilute current shareholders, the difficulty of recent shares may even enhance the scale of its public float, which might appeal to new traders searching for greater liquidity earlier than shopping for in to the inventory.
This text is from an unpaid exterior contributor. It doesn’t characterize Benzinga’s reporting and has not been edited for content material or accuracy.
