IPO Report: Fujian Haixi Pharmaceuticals Co., Ltd.(02637.HK)
Basic Information
02637.HK
Company Name: Fujian Haixi Pharmaceuticals Co., Ltd.
Industry: Pharmaceuticals
IPO Price: 69.88–86.40 HKD
Oustanding Shares: 11,500,000 shares
Expected Market Capitalization: HKD 5.5–6.8 billion
Board Lot Size: 50 Shares
Minimum Investment Amount: 4,363.57 HKD
Listing Date: 2025-10-17
Use of Proceeds: Approximately 52% for ongoing R&D, 23% to enhance R&D capacity and pursue collaboration opportunities, 10% for operations, 7% to improve R&D and manufacturing systems
Greenshoe: No
Sponsor: Huatai Financial (HK), CMB International
Cornerstone Investor: 1 cornerstone investor; total subscription 19.05% of the offering; 6-month lock-up
Company Overview
Founded in 2012 in Fuzhou, the Company advances chemical generics and early-stage innovation across multiple therapeutic areas. VBP and consistency evaluations lifted revenue to RMB 467 million in 2024, alongside strong margins and positive cash flow.
Business Model Analysis
Core Business
Generics generate cash to fund R&D, while innovation pipelines progress mainly through preclinical and Phase I stages. Product selection, cost control, and bioequivalence capabilities support scaled bidding success and pricing competitiveness under VBP. A multi-category portfolio spans digestive, cardiovascular, endocrine, neurology, and anti-infection, balancing cash cows with pipeline incubation.
Target Customer
Public hospitals dominate demand through national and provincial VBP, enabling large-volume procurement and centralized price negotiations. Retail pharmacies and primary healthcare are covered, addressing affordability and chronic disease refills with cost-effective generics. Over 500 distributors support nationwide coverage, while hospital committees and academic promotion convert tenders into prescriptions.
Revenue Streams
Sales of generics represent the primary revenue, with innovation yet to form meaningful commercial contribution. In 2024, revenue reached RMB 466.7 million, with top five products contributing RMB 338.9 million, or 72.6%. Haihuitong contributed about 45.6% alone, while government subsidies recorded in profit totaled roughly RMB 86 million.
Key Resources
Two-platform R&D covers generics development and multi-target small-molecule innovation, supported by 37 patents, including 18 overseas. Process scale-up and bioequivalence experience strengthen bidding prices and cost control advantages under procurement regimes. A Changle base is designed for 20 billion tablets or capsules annually, targeted for commissioning during 2025.
Cost Structure
Costs are driven by APIs and formulation, with scale and VBP negotiations reducing unit costs and sustaining margins. In 2024, selling expenses were RMB 165.7 million, up 78%, while R&D reached RMB 67.5 million. G&A was RMB 31.2 million, around 6.7%, as management focused on efficiency to protect profitability and cash.
Industry & Market Analysis
Market Size
China's pharmaceutical market was about RMB 1,781.6 billion in 2024, projected to reach RMB 2,914.9 billion by 2032. This implies a compound annual growth rate of approximately 6.3% over the forecast period. Innovation drugs totaled RMB 1,074.3 billion in 2024, potentially expanding to RMB 2,040.5 billion by 2032. Corresponding CAGR for innovation is about 8.3%, outpacing the overall market's expected trajectory through 2032. Generics and biosimilars amounted to RMB 707.3 billion in 2024, estimated to reach RMB 874.5 billion by 2032. Digestive, metabolic, cardiovascular, and anti-infective fields rank top by scale, together exceeding half of total demand.
Industry View
Generic competition is fragmented, creating large markets filled with small companies across many narrowly defined products. Volume-based procurement establishes winner-takes-most dynamics, with rapid share losses for non-winning peers. Leaders such as Hansoh and Sino Biopharm leverage capital, R&D capabilities, and channels to defend share. Mid-sized players compete on cost and product selection, increasingly benefiting from consolidation under normalized procurement. Haixi gained leading positions in products like Haihuitong, evidencing cost and quality competitiveness within tenders. Innovation segments remain led by top companies, where differentiated targets provide selective entry opportunities for challengers.
Trends & Growth
Healthcare cost containment and VBP continue compressing generic prices, while volume trade-offs secure sales and cash generation. Regulatory review acceleration and priority channels benefit innovation drugs, improving approval timelines and market access efficiency. Originator patent expiries plus negotiated price cuts rebalance dynamics between high-quality generics and branded therapies. Academic promotion standardizes channels, and hospital prescriptions emphasize evidence-based practice alongside cost-effectiveness metrics in formularies. By 2032, innovation could approach roughly seventy percent of total market size, materially shifting industry structure. For Haixi, sustaining generic cash cows while accelerating innovation transition remains the central strategic trajectory.
Main Competitors
02637.HK
Haixi generated 2024 revenue of about HKD 0.512 billion and net profit near HKD 0.149 billion. Gross margin was approximately 79.8%, supported by VBP-driven scale, while operating cash flow in RMB remained positive. R&D intensity reached around 14.5%, and the pipeline has eight clinical permits, largely preclinical or Phase I. At HKD 5.5–6.8 billion market cap, valuation implies about 41–42x P/E and 10.7–13.3x P/S, versus peers' lower median levels.
03692.HK
Hansoh Pharmaceutical reported 2024 revenue of about HKD 13.43 billion and net profit of HKD 4.787 billion, implying 35.6% margin. Haixi's 2024 revenue was roughly HKD 0.512 billion, around 3.8% of Hansoh's scale, highlighting stark size differences. R&D intensity was about 22.0% at Hansoh versus 14.5% at Haixi, indicating stronger innovation commitment at the leader. Innovation and collaboration revenues contributed approximately 77.3% at Hansoh, while Haixi's innovation revenue contribution remained near zero. Valuation contrasts show P/E near 45x for Hansoh and about 41–42x for Haixi; P/S trails at 10.7–13.3x versus 16.0x.
01177.HK
Sino Biopharm delivered 2024 revenue of about HKD 31.62 billion and net profit of HKD 3.833 billion, margin 12.1%. Haixi's revenue equaled around 1.6% of Sino Biopharm, underscoring a scale gap exceeding sixty times today. Innovation revenue mix was roughly 41.8% at Sino Biopharm, whereas Haixi's innovation revenue was effectively negligible. Gross margin was about 81.5% at Sino Biopharm versus 79.8% at Haixi, reflecting broadly similar cost structures. Valuation shows P/E near 39x at Sino Biopharm, with Haixi around 41–42x and notably higher P/S multiples.
02096.HK
Simcere recorded 2024 revenue near HKD 7.268 billion and net profit about HKD 803 million, margin 11.9%. Haixi's revenue represented approximately 7.0% of Simcere, positioning it as a smaller, fast-following challenger nationwide today. Innovation revenue mix reached roughly 74.3% at Simcere, while Haixi's innovation revenue contribution remained near zero. R&D spend at Simcere was about RMB 1.3 billion, implying intensity near 19–20%, above Haixi's 14.5%. Haixi's P/E of around 41–42x aligns with Simcere near 41x, though P/S multiples remain significantly higher.
Porter’s Five Forces Model
Existing Competitors
China's generic drug rivalry is intense, with numerous competing manufacturers across indications and tight hospital access windows. VBP consolidates share toward winners, while non-winning firms face rapid volume erosion and unfavorable price benchmarks. Leaders deploy funding, sales channels, and R&D pipelines to defend scale and negotiate better formulary positions. Haixi shows share leadership in selected products, but must continually defend tender renewals against aggressive peers.
New Entrants
Regulatory, funding, and GMP requirements elevate entry barriers, reducing risks from completely new standalone entrants materially. Adjacent players such as API, CRO, or retail chains can enter through acquisitions, presenting medium-level competitive threats. Multinational originators may re-enter post-patent-expiry at lower prices, intensifying rivalry and squeezing margins in targeted hospital tenders. Local government or industrial capital projects may foster regional competitors, though national scaling remains challenging today.
Threat of Substitutes
Multiple mechanisms within indications create substitutability, while generic homogeneity keeps switching risks meaningfully elevated nationwide today. Originators entering reimbursement after patent expiry at reduced prices may directly replace generics in practice nationwide. Innovative therapies with superior efficacy or adherence could become strong substitutes once evidence and access are established. If Haixi's oral ophthalmology innovation succeeds, substitution risks may decline, though development uncertainty remains high today.
Supplier Bargaining
API and excipient suppliers are fragmented with high substitutability, generally limiting upstream bargaining power over manufacturers. Scale expansion improves negotiation leverage, and extended centralized procurement upstream can further compress input costs materially. Single-source arrangements for complex intermediates or protected processes may temporarily raise supplier power and risk exposure. Haixi mainly uses mature compounds, indicating sufficient upstream competition and limited profit splitting by suppliers today.
Customer Bargaining
Downstream hospitals, reimbursement bodies, and procurement platforms are highly concentrated, exerting strong bargaining power on pricing. National procurement compresses prices significantly, pushing companies to exchange volume for price to secure access today. Non-procurement channels like pharmacies and distributors are fragmented, yet discounts still pressure distribution profitability and returns. Reimbursement negotiations determine access terms and payment standards, ultimately shaping realized volumes and final transaction prices.
Financial Analysis
Growth Potential
VBP-driven volume and deeper channels should sustain double-digit generic growth after a 2022–2024 CAGR near 47%. New products entering provincial procurement and hospital formularies can expand regions and upgrade the revenue mix. Capacity additions increase supply elasticity, supporting broader national coverage and improved service levels for tenders significantly. Innovation milestones, if achieved, would open a second growth curve beyond the generics cash engine. Overall, near term growth relies on generics, while medium to long term depends on innovation conversion further.
Profitability
Gross margin was about 79.8% in 2024, slightly down around 2.3 percentage points year over year. Net margin was roughly 29.1% in 2024, reflecting increased selling and R&D expenses supporting execution and innovation. Selling expense ratio rose from about 29% to near 35.5% to secure post-award hospital utilization. R&D intensity climbed to around 14.5%, building capabilities for bioequivalence and early-stage novel programs and clinical operations. Higher spending supports growth, but near-term profitability remains pressured until scale and mix improvements materialize.
Cash Flow
Operating cash inflow in 2024 was about RMB 163.9 million, materially exceeding net profit on improved collections. Capital expenditures increased steadily as the manufacturing base capitalized, raising fixed assets for future output capacity. Short-term wealth management movements influenced reported cash, ending 2024 with about RMB 38.3 million balances. Free cash flow remained positive, comfortably funding R&D and commercial investments without straining liquidity internally. IPO proceeds would further strengthen flexibility and support scale-up of capacity, pipelines, and market coverage nationally and efficiently.
Financial Health
Interest-bearing debt was about RMB 56.87 million, implying net debt to EBITDA well below one times. The asset-liability ratio was near 56.5%, expected to decline toward roughly twenty percent after fundraising. Interest coverage was high, indicating limited near-term refinancing pressures and comfortable debt service capacity. The current ratio was slightly below one due to contract liabilities, though operating cash cycle hovered around five days. Overall financial profile appears prudent and supportive of expansion and sustained R&D commitments ahead over time.
Risk Assessment
Renewal uncertainty in volume procurement could reduce sales or margins if core products fail to win or reprice sharply. High reliance on a few products, with top five contributing 72.6%, increases earnings volatility from single-product swings. Innovation risk is elevated as programs concentrate in preclinical and Phase I, with failure or delay affecting valuation. Escalating selling and R&D intensity may erode margins if marginal benefits underperform expectations post tender awards. Dependence on over 500 distributors introduces regional management, compliance, and credit risks that could disrupt cash flows. Manufacturing scale-up increases quality control demands, where recalls or inspections could damage brand and financials materially. Competition from domestic leaders and multinationals with price and brand advantages may pressure share and hospital access. Originators granted reimbursement at reduced prices could directly substitute generics across the same indications in formularies. Frequent policy changes in reimbursement and procurement rules create pricing and access uncertainty across provinces today. Ramp-up at new production lines may lag plan, impairing supply reliability and cost absorption during early phases. Government subsidies contributed meaningfully in 2024; future reductions would slow earnings growth versus plan materially if. Valuation near 41–42x P/E is elevated; insufficient growth delivery could trigger de-rating and share price volatility.
Management & Shareholder Background Analysis
Core Management Team
The founding team combines deep pharmaceutical training with extensive industry experience across development, manufacturing, and commercialization. Leadership established a two-platform R&D framework balancing generic development with exploratory small-molecule innovation programs and disciplined governance. Cross-disciplinary talent was recruited to cover regulatory, clinical, process engineering, and quality management needs companywide and effectively. Regional sales heads coordinate closely with distributors under a province-manager model to secure hospital execution post-tenders. R&D leads possess strong bioequivalence and small-molecule screening methodology expertise built through repeated program cycles internally. Finance and legal teams advanced listing preparation and implemented internal controls aligned with public company requirements. Human resources emphasizes performance systems and equity incentives to attract, develop, and retain critical technical talent. Governance and execution discipline underpin the dual-track strategy of generics cash generation and innovation incubation today. Overall, the organization appears stable and capable of supporting expansion, compliance, and accelerated R&D delivery ahead.
Key Shareholders
Controlling shareholders are the founding group and affiliates, collectively holding approximately 35.16% before the offering today. The register includes local industrial capital and venture investors, including municipal and provincial state-backed platforms today. No significant earnout or performance-compensation arrangements were disclosed pre-listing, with governance centered on board authorization structures. The offering introduces cornerstone demand of 19.05% with a six-month lock-up, signaling initial external support commitments. Post-fundraising, shareholders' equity should rise materially, while the asset-liability ratio is expected to decline materially post-listing. Debt levels are moderate, and improved capitalization de-risks expansion, R&D investment, and potential business development initiatives. The ownership structure balances control with market orientation, facilitating sustained, long-horizon research commitments and disciplined allocation. Investors should monitor future unlock schedules that could influence liquidity and secondary market supply dynamics materially. Overall governance appears supportive of commercialization while safeguarding R&D focus and strategic optionality under market conditions.
Investment Horizon Analysis
Short-term View
Fundamentals show high gross margin and strong cash conversion, with 2024 net margin near 29.1% currently. Offering valuation around 41–42x P/E and 10.7–13.3x P/S sits at higher industry percentiles versus comparable peers. Execution visibility benefits from VBP share at Haihuitong around 59.3% and clear scale-up pathways across provinces today. Risks include rising expenses and single-product dependence; rating is Neutral, with better value nearer mid-range pricing.
IPO Subscription Rating: Neutral
Long-term View
Long-term value hinges on commercializing innovation while preserving the generics foundation and procurement-driven volumes across China. If one to two innovative assets launch and scale within three to five years, valuation could sustain or improve. Generics likely grow at low double digits, supplying stable free cash flow to fund research and commercialization. Execution priorities include raising R&D intensity toward 18–22%, improving efficiency, and accelerating conversion of clinical milestones.
Overall Rating
Bullish
64/100
*Sources: HKEXnews disclosures, listing documents/prospectus, listing announcements, company reports and IR releases; minor scope/timing variance; for research only, not investment advice.
0 Comments