IPO Report: iKang Healthcare Group (KANG)

Francis Gaskins |

iKang Healthcare Group (KANG) is the largest provider in China’s fast growing private preventive healthcare services market and is headquartered in Beijing, China.

Twelve other companies are scheduled for the week of April 7, 2014.  The complete IPO calendar is available at IPOpremium.

SEC Filings
The manager and joint managers are BofA Merrill Lynch, Oppenheimer, UBS Investment Bank.

KANG scheduled a $142 million IPO with a market capitalization of $839 million at a price range midpoint of $13 for Wednesday, April 9, 2014 on the Nasdaq.

Overview
KANG is the largest provider in China’s fast growing private preventive healthcare services market, accounting for approximately 12.3% of market share in terms of revenue in 2013, according to Frost & Sullivan.

KANG's business is extremely seasonal (see 'Seasonal' below), and KANG expects a substantial loss for the March '14 quarter.

For the nine months ended December '13 revenue was up 50% to $173 million from December nine months '12.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Dec 12 mos

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

iKang Healthcare Group (KANG)

$840

4.4

40.8

3.1

3.8

17%

             

Conclusion
31% from selling shareholders.  For the 12 months ended December '13 KANG is priced at 40 times earnings, and 4.4 times sales.

KANG is the largest company in its sector, and the other top four major players are not public.

KANG is the only way to play its sector in China.

The rating on KANG is positive.

Business

KANG is the largest provider in China’s fast growing private preventive healthcare services market, accounting for approximately 12.3% of market share in terms of revenue in 2013, according to Frost & Sullivan.

Through its integrated service platform and established nationwide network of medical centers and third-party service provider facilities, KANG provides comprehensive and high quality preventive healthcare solutions including a wide range of medical examinations services and value-added services including disease screening and other services.

Corporate customers

KANG’s customers are primarily corporate customers who contract KANG to provide medical examination services to their employees and clients and pay for these services at pre-negotiated prices. KANG also directly markets its services to individual customers. In fiscal 2012, KANG  delivered its services to 1.9 million individuals in total, including the employees and clients of its corporate customers.

Nationwide network

As of December 31, 2013, KANG’s nationwide network consisted of 42 self-owned medical centers, which contributed the majority of its revenue and its self-owned medical center network covered 13 of the most affluent cities in China, namely Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, Tianjin, Nanjing, Suzhou, Hangzhou, Chengdu, Fuzhou, Changchun and Jiangyin.

KANG has also supplemented its self-owned medical center network by contracting with 300 third-party service provider facilities which include selected independent medical examination centers and hospitals across all of China’s provinces, creating a nationwide network that allows it to serve its customers in markets where KANG does not have self-owned medical centers.

One-stop solution
KANG’s nationwide network offers a wide range of medical examination services and provides a “one-stop” solution to its corporate customers which have a broad geographic footprint in China.

As a single point of contact for its corporate customers, KANG provides consistent and high quality services to their employees and clients in different locations and reduce their administrative burden.

KANG also provides its customers with professional consultation and medical referrals for additional as-needed diagnosis or treatment. KANG’s centers are independent of hospitals and located in prime urban locations with an average size of 2,500 square meters.

Equipped with advanced equipment and staffed with experienced medical professionals, each center provides a comfortable and friendly environment to KANG’s customers.

Seasonal

KANG typically has lower revenues and may incur a net loss during the fourth quarter of a fiscal year (March quarter) primarily because self-owned medical centers generally have lower numbers of customer visits and perform fewer medical examinations around the New Year and Chinese Lunar New Year holidays, which are typically in January or February of each year.

KANG's relatively stronger performance in the third fiscal quarter has been largely due to the fact that many corporate customers arrange for their employees to conduct medical examinations in the third quarter of our fiscal year.

Primarily due to the reasons discussed above, KANG's net loss substantially increased from US$1.7 million for the three months ended March 31, 2012 to US$7.3 million for the three months ended March 31, 2013.

KANG expects to incur a larger amount of net loss for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.

KANG expects such seasonal pattern of our results of operations to continue in the foreseeable future.

Dividend Policy

No dividends are planned.

Intellectual Property

KANG has registered 44 trademarks with the PRC Trademark Office of the State Administration for Industry and Commerce. KANG owns or possesses the rights to 56 domain names that it uses in connection with the operation of its business.

KANG also has copyrighted 11 software programs that it developed for managing its operations.

As its brand name gains more recognition among the general public, KANG will work to increase, maintain and enforce its rights in its trademark portfolio, the protection of which is important to its reputation and branding strategy and the continued growth of its business.

Competition

This market is relatively fragmented with hundreds of competitors. The major players are companies with multiple locations, either across China or regionally. The top five major players in terms of revenues in 2012 were all private enterprises.

5% stockholders

Ligang Zhang   17.4%

Boquan He       16.5%

Top Fortune Win Ltd.    16.5%

ShanghaiMed, Inc.        12.4%

NewQuest Asia Investments Limited      6.1%

Broad Street Principal Investments, L.L.C.                     13%

Ora Investment Pte Ltd.            14.6%

Use of proceeds

KANG expects to net $88 million from its IPO. Proceeds are allocated as follows:

$61.7 million to finance potential strategic acquisitions and construction of new medical centers in China;

$13.2 million to finance potential strategic acquisitions and construction of dental clinics in China;

$4.4 million to upgrade KANG’s information technology systems; and

$8.8 million to fund working capital as well as for other general corporate purposes.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
KANG iKang Healthcare Group Inc. 16.06 0.22 1.39 182,974
JPOYZ Jpmorgan Chse Bk Tulip Tl n/a n/a n/a 0

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