Noah's 1 billion target for a single product has been achieved, but the market is more eager for positive cash flow?

NH HEALTH announced on the evening of January 22, 2024, that its colorectal cancer early screening product, Changweiqing, achieved sales of over 1.1 billion RMB in 2023, successfully becoming a blockbuster product with annual sales exceeding 1 billion.

In addition, the company's full-year revenue exceeded previous guidance and surpassed market expectations.

However, despite the impressive performance, this achievement did not have a significant impact in the current cold atmosphere of the Hong Kong stock medical technology market. The company's stock price only rose slightly by 1.72% on January 23, 2024.

For medical technology companies, growth is undoubtedly important, but in the current difficult financing environment, the speed of positive cash flow may be more worthy of investors' attention than revenue growth.

Performance exceeds market expectations, flagship product Changweiqing achieves sales of over 1 billion

In 2023, NH HEALTH achieved revenue of 1.9788-2.0498 billion RMB, a year-on-year growth of 158.9%-168.2%. This exceeded the company's mid-year performance guidance of 1.7 billion and also surpassed the consensus expectation of 1.788 billion from WIND.

NH HEALTH expects gross profit in 2023 to be 1.808-1.873 billion RMB, an increase of 179.9%-190.0% compared to the 646 million RMB in 2022.

At the same time, the company updated its revenue forecast for the 2024 fiscal year during the performance conference call, expecting revenue to reach 3.1-3.3 billion RMB, corresponding to a revenue growth rate of 55%-65%. Among them, Changweiqing's sales revenue will reach 2.1 billion, an increase of 1 billion compared to 2023, making it a blockbuster product with sales exceeding 2 billion.

Looking at the revenue confirmation institutions for Changweiqing, the clinical (hospital) channel accounts for 54%, DTC (direct-to-consumer) is over 40%, and private physical examinations account for about 5%.

In 2023, the company's business in public hospitals showed significant growth, especially in the second half of the year, with revenue from public hospitals being 3.3 times that of the first half of the year.

This growth was due to more hospitals admitting patients after the company determined prices in multiple provinces from 2022 to the first half of 2023.

The entire sales process in public hospitals includes admission, visits (6-8 times), trial use, and continuous use, which takes about six months.

By the end of 2023, the company had obtained access to 73 benchmark hospitals, with the goal of increasing to 150 in 2024 and reaching 300 in 2025. The annual sales target for each benchmark hospital is to exceed 3,000 units. However, the DTC market, which has grown rapidly with the support of insurance companies, still maintains a growth rate of about 200%.

The early cancer screening characteristics of Changweiqing are highly in line with the needs of insurance product users, especially life insurance customers who are concerned about their health. This makes Changweiqing the preferred choice for insurance companies to provide benefits to their customers.

At the same time, the company offers insurance companies a significant discount on the factory price, giving them a sense of satisfaction with the price difference. Therefore, Nuohui plans to continue focusing on marketing through insurance channels.

The market is more concerned about when Nuohui will achieve self-sufficiency

Changweiqing, as the flagship product of NH HEALTH, has achieved significant sales performance in the market. However, relying solely on sales growth cannot fully reflect the overall financial health of a company, which is also crucial for growth-oriented companies.

Although the sales of Changweiqing reached 1.1 billion yuan in 2023, this achievement did not lead to positive operating cash flow for the company as a whole (specific figures will be disclosed in the official annual report). Naturally, the market will have doubts about the company's business model.

However, with the rapid growth of sales, NH HEALTH is gradually approaching its goal of achieving positive operating cash flow.

In 2023, NH HEALTH's business activities generated 1.42 billion RMB in cash receipts, including 1.18 billion RMB from accounts receivable and 240 million RMB from advance payments.

In 2023, Nuohui experienced two significant cash flow changes: completing a $100 million equity financing in January and facing short-selling pressure from August to October. During this period, the company invested 160 million HKD to repurchase approximately 2.0% of its shares (the company stated that the shares will be cancelled after the official financial report is released).

NH HEALTH's R&D efforts mainly focus on two projects: "Gongzhengqing" for cervical cancer screening and the "PANDA project" for early screening and diagnosis of various cancers in the Chinese market. The R&D funding for these two projects is not substantial, but the challenge lies in the need for continuous research over a relatively long period, usually within 3 to 5 years. Despite facing such a long R&D cycle, the company is still able to maintain its R&D expense ratio below 15%.

Regarding marketing expenses, NH HEALTH told Wall Street News · Zhitong App that future marketing expenses will still be based on cost-effectiveness, with a greater focus on targeting precise audience channels.

During the three years of cold investment in the biopharmaceutical industry, the market has witnessed many medical technology companies facing survival pressure due to funding issues. Some excellent companies have achieved self-sufficiency by selling products to generate cash. However, most companies have had to take measures such as reducing R&D, layoffs, and selling production lines to survive.

The market has become wary. Clearly, what the market wants to see is NH HEALTH achieving self-sufficiency through Changweiqing sales. In response to the market's concerns about cash flow, NH HEALTH has taken note of the market's worries. The company's management has clearly stated that it expects to achieve a positive cash flow turnaround by 2024. In addition, the company emphasizes that it has a sufficient cash balance of 1.8 billion, which can cover the operational needs until the cash flow turns positive.

In the performance forecast, NH HEALTH not only disclosed the balance of cash flow, but also provided detailed information on the accounts receivable period and balance.

Specifically, compared to the end of June, the balance of accounts receivable over 1 year has not shown a proportional increase. Looking at the balance of accounts receivable in the 181-365 day range, the company's general collection period is mostly over half a year but not exceeding one year.

Due to the significant growth in product sales in the second half of the year, the balance of accounts receivable in the 0-180 day range has also increased accordingly. Based on the general collection period, it is expected that the company's operating cash flow will show significant improvement starting from the first quarter of 2024.

Therefore, in addition to the increase in sales, how to improve the efficiency of collection and enhance the quality of cash flow will also be a key focus for investors to observe in 2024.

As an important product in the field of early cancer screening, Chang Weiqing has achieved sales of over 1 billion and has become a major product. For NH HEALTH, the key challenge in the next stage is how to quickly improve the turnover rate of cash flow and accounts receivable. This not only relates to the company's financial health, but also directly affects the company's "value".