$90 billion AI giant "A splits H" IPO launched: iFlytek Medical submits application to Hong Kong Stock Exchange

On January 26th, Xunfei Medical Technology Co., Ltd. (referred to as "Xunfei Medical") submitted an IPO application to the Hong Kong Stock Exchange.

As the parent company of Xunfei Medical, IFLYTEK (002230.SZ) holds 52.47% of its shares.

The disclosure of this prospectus also allows the outside world to have a glimpse of the overall operation of IFLYTEK's medical sector.

Specifically, Xunfei Medical mainly provides information technology services such as electronic medical records to medical institutions, and the actual payers are the health commissions in various regions.

During the reporting period, Xunfei Medical remained in a loss-making state. The revenue for 2021 and 2022 was RMB 373 million and RMB 472 million, respectively, and the net loss attributable to the parent company during the same period was RMB 84 million and RMB 189 million, respectively.

Xunfei Medical has limited cash reserves, with only RMB 58 million in cash and cash equivalents as of the end of September 2023.

This IPO of Xunfei Medical attracts market attention because it launched the "Xunfei Xinghuo Medical Large Model" in October 2023, which is claimed to perform better than ChatGPT. However, this prospectus does not provide detailed data disclosure on the specific operation of this large model.

Business of ToG

From pharmaceuticals to medical consultations, artificial intelligence is present in various aspects, giving the capital market more room for imagination.

Starting from June 2023, AI pharmaceutical companies Yingxi Intelligence and Jingtai Technology successively submitted IPO applications to the Hong Kong Stock Exchange.

Now, Xunfei Medical, focusing on the consultation process, has also made a sprint to the Hong Kong Stock Exchange.

At this moment, Xunfei Medical has been waiting for 30 months. On August 4, 2021, IFLYTEK (002230.SZ) announced the plan to spin off Xunfei Medical for listing, but there has been no news since then, until this year when its IPO plan officially landed.

Currently, Xunfei Medical's revenue mainly comes from four major sectors: grassroots medical institution services, hospital services, patient services, and regional management platform solutions, among which grassroots medical institution services are the main source of revenue.

In 2021 and 2022, grassroots medical institution services generated revenue of RMB 216 million and RMB 298 million, accounting for 57.90% and 63.20% respectively.

Grassroots medical institution services involve intelligent medical assistants and chronic disease management, with the bill being paid by the health commissions in various regions.

"We mainly sign agreements with local health commissions to provide grassroots medical institution services to them and the grassroots medical institutions they regulate. We provide support through remote support and on-site assistance. We also provide continuous services after project implementation, including software updates and updates to medical knowledge graphs," Xunfei Medical stated.

The intelligent medical assistant mainly provides AI-assisted diagnosis and treatment services to doctors in grassroots medical institutions, covering various services such as intelligent consultation and standardized quality control of cases.

As of late January 2024, Xunfei Medical's intelligent medical assistant has covered 30 provinces nationwide, assisting grassroots medical institutions in providing 280 million electronic medical records and 740 million AI-assisted diagnosis suggestions. In 2022, the Smart Medical Assistant has generated a revenue of 217 million yuan, supporting a significant portion of iFlytek Medical's income.

According to Frost & Sullivan data, the Smart Medical Assistant ranked first in the market for clinical decision support systems in China's grassroots medical institutions, with a market share of 76.6%.

In addition, the Smart Medical Assistant has integrated into the grassroots medical business, family doctor contracting, and other system services, providing comprehensive information solutions for grassroots medical institutions.

According to iFlytek Medical, the Smart Medical Assistant is the world's first and only intelligent solution that has passed the National Medical Licensing Examination (comprehensive written examination). The National Medical Licensing Examination consists of a comprehensive written examination and practical skills.

However, this may not necessarily prove that the Smart Medical Assistant has unique competitiveness.

Public information shows that ChatGPT, which has not undergone professional medical knowledge training, has also passed the medical licensing examination.

In February 2023, ChatGPT passed the United States Medical Licensing Examination, and in June of the same year, a study by the neurosurgery team at the Second Affiliated Hospital of Zhejiang University confirmed that ChatGPT passed the National Medical Licensing Examination in China (practical skills).

"Passing the physician licensing examination through question practice is no longer a novelty. The special significance of this is that ChatGPT is not trained as a specialized model for any specific examination. Its knowledge base is broader, more like a well-read scholar, and also a genius who is proficient in obscure knowledge and everyday life trivia. And by the way, it can also pass the physician licensing examination," commented Wu Chenghan.

Since 2023, after sweeping across various industries, ChatGPT, in October of the same year, iFlytek Medical launched the iFlytek Starfire Medical Large Model, which can be used in over 300 medical scenarios.

Liu Qingfeng, Chairman of iFlytek, pointed out at the 2023 iFlytek Global 1024 Developer Festival that the iFlytek Starfire Medical Large Model has a higher answer rate than GPT4 in medical knowledge Q&A and medical professional document generation.

The prospectus states that "the iFlytek Starfire Medical Large Model has undergone rigorous evaluation and performs better than GPT in various NLP tasks in medical scenarios."

However, the prospectus did not provide more comprehensive disclosure regarding specific data and operational details of the iFlytek Starfire Medical Large Model's superiority over GPT.

The Concept of Large Models on the B-side

Despite the impressive concepts such as large medical models, iFlytek Medical's overall business essence is to provide intelligent medical services such as electronic medical records and online diagnosis and treatment for medical institutions.

Both the A-share and Hong Kong stock markets have seen the listing of smart medical service providers whose main customer base is the National Health Commission or medical institutions.

East Software Xikang (9686.HK), which debuted on the Hong Kong stock market in September 2023, is a cloud hospital platform that provides online diagnosis and treatment, appointment registration, and other services for aggregated medical institutions within a certain region, with the local health commissions being the payers. Weining Health (300253.SZ), which listed on the A-share market as early as 2011, mainly provides clinical information systems, electronic medical records, online diagnosis and treatment, and other intelligent medical services for hospitals. The performance of iFlytek Medical is currently similar to that of Neusoft XiKang, both of which are in a loss-making state. In the first three quarters of 2023, iFlytek Medical's net loss reached 159 million yuan.

In response to this, iFlytek Medical is indeed seeking a new way out by expanding its customer base from the National Health Commission/medical institutions to C-end patients.

Speech recognition technology has always been an important technological advantage of iFlytek Medical, for example, iFlytek Medical's speech recognition technology supports the generation of voice-based electronic medical records.

"Using advanced medical speech recognition and medical image recognition technology, we provide AI-enabled microphone "Xunluo" to support voice-based electronic medical record generation, helping doctors improve work efficiency," iFlytek Medical explained.

iFlytek Medical is now expanding this advantage to the field of intelligent hardware devices.

Currently, iFlytek Medical provides intelligent hardware devices such as hearing aids for patients, as well as patient services such as smart hospital patient services and post-diagnosis management.

However, the revenue scale of this segment is relatively limited, with a revenue of 27 million yuan in 2022, accounting for only 7.80%.

Not only that, the gross profit margin of patient services is lower than that of grassroots medical institution services. The gross profit margin of patient services in 2022 was 39%, which is 14.4 percentage points lower than that of grassroots medical institution services.

At the same time, iFlytek Medical's sales expenses are not low.

The sales expenses for 2021, 2022, and the first three quarters of 2023 were 91 million yuan, 160 million yuan, and 129 million yuan, accounting for 24.3%, 33.9%, and 39.7% of the revenue, respectively.

At the same time, iFlytek Medical's cash position is not abundant, with cash and cash equivalents amounting to only 58 million yuan as of the end of September 2023.

The IPO is imminent, but whether iFlytek Medical's business is attractive enough to the capital market remains to be tested.