The limit of spin-offs?
Once touted as the Minimally Invasive Medical (0853.HK) that aimed to compete with Medtronic, it is now deeply mired in losses.
On the evening of March 28th, Minimally Invasive Medical released its 2023 financial report, showing a current revenue and net loss attributable to shareholders of $951 million and $478 million respectively. Revenue increased by 15.8% year-on-year, while losses narrowed by 9.4% year-on-year.
The bigger challenge facing Minimally Invasive Medical is the need to prepare $743 million in cash for 2024 to redeem convertible bonds and repay loans.
Although as of the end of 2023, Minimally Invasive Medical still had cash and cash equivalents of $1.02 billion, due to its substantial ongoing losses, the main way to address the debt is still through external sources.
Minimally Invasive Medical acknowledges that it is currently in contact with banks, potential investors, and others for debt restructuring.
As the auditing firm of Minimally Invasive Medical, KPMG has highlighted significant uncertainties in its ability to sustain operations in the financial report.
In 2024, whether Minimally Invasive Medical can successfully overcome the crisis is a matter of ongoing market attention.
Liquidity Crisis
The release of Minimally Invasive Medical's 2023 financial report was quite challenging.
On March 5th, Minimally Invasive Medical issued a performance forecast for 2023, expecting a loss of no more than $580 million. However, just half a month later on March 22nd, it updated the forecast to an expanded loss of $650 million.
Explaining the main reasons for the deviation in the performance forecast, Minimally Invasive Medical attributed it to "the impact of one-time and non-cash provisions and losses increasing."
On the evening of March 28th, Minimally Invasive Medical's 2023 financial report was released, with data similar to the second version of the performance forecast. Current revenue and net loss were $951 million and $649 million respectively, with revenue increasing by 15.8% year-on-year and losses expanding by 10.4% year-on-year.
This means that since 2020, Minimally Invasive Medical has been in continuous losses for 4 years.
From a financial perspective, the main reason for the expanded losses lies in the increase in "other operating costs," which reached $169 million in 2023, a year-on-year increase of 242.38%.
Minimally Invasive Medical explained that the main reason for the change in other operating costs was the increase in impairment provisions for goodwill and equity-method investees during the reporting period.
"This is due to the impairment of goodwill and equity-method investees, resulting in an increase in operating costs." An auditor from a South China auditing firm explained to TradeWind01.
It is worth noting that KPMG, as the auditing firm of Minimally Invasive Medical, pointed out significant uncertainties in its ability to sustain operations in the financial report.
The main reason is the liquidity pressure faced by Minimally Invasive Medical.
This event can be traced back to June 2021. At that time, Minimally Invasive Medical issued $700 million of zero-coupon convertible bonds due in 2026, with $665 million of convertible bonds still outstanding as of December 5, 2023 On December 6, 2023, MicroPort Medical announced a plan to redeem $665 million convertible bonds.
Although MicroPort Medical did not specifically explain the reason for the redemption in the announcement, according to the convertible bond issuance agreement, bondholders have the right to request MicroPort Medical to redeem the bonds before June 11, 2024. MicroPort Medical's urgent redemption of the bonds may be related to this.
It is worth noting that compared to when the stock price reached 70 yuan per share in June 2021, MicroPort Medical's stock price has now fallen by over 90%. This background may have prompted bondholders to choose to sell back the bonds.
Thus, MicroPort Medical has started the operation of "borrowing new debts to repay old debts".
On December 6, 2023, MicroPort Medical issued $220 million convertible bonds due in 2028 with an annual interest rate of 5.75% on one hand, and redeemed $217 million convertible bonds on the other hand.
By the end of 2023, the remaining balance of convertible bonds that MicroPort Medical needs to redeem before June this year still amounts to $448 million, in addition to $295 million in short-term bank loans due this year. In total, MicroPort Medical needs to prepare as much as $743 million in cash.
Although MicroPort Medical's cash and cash equivalents amounted to $1.02 billion by the end of 2023, due to its continued significant losses and insufficient self-generating ability, the pressure to raise a large amount of cash in a short period of time is not small - the net loss in 2023 was as high as $649 million, with a net cash outflow from operating activities of $232 million during the same period.
In response, MicroPort Medical has proposed three measures to address the funding pressure.
First, to maintain stricter cost control measures, significantly reduce research and development cost budgets, and plan to realize cash by selling certain assets or equity of invested companies.
Second, to negotiate with multiple banks and potential investors on refinancing the convertible bonds.
Third, to negotiate with banks to renew existing bank loans and obtain new bank financing.
As a result, KPMG also provided a risk warning in MicroPort Medical's financial report about the significant uncertainty in its ongoing operating capability.
"The Group's working capital mainly depends on its ability to obtain external financing before June 2024 to meet the redemption requirements of convertible bondholders, renew existing bank financing or refinance, and repay its borrowings using the cash and cash equivalents available to the Group," KPMG pointed out.
Obstacles on the Road to "Giving Birth to Listing"
At the shareholders' meeting in 2020, MicroPort Medical's founder, Shan Zhaohua, publicly stated, "MicroPort is a company with the genes of a trillion-dollar market value," and declared that "MicroPort Medical will be built into a Chinese medical device company that can compete with Medtronic."
Four years have passed, and Medtronic's total market value has reached $115.72 billion. In contrast, MicroPort Medical's total market value is only $1.67 billion, nearly a quarter less than in 2020 In fact, the operating model cultivated by MicroPort is to acquire new businesses, spin off subsidiaries, or promote joint ventures to go public, creating a "MicroPort series" spanning both A-shares and H-shares, in order to increase the overall group's market value and realize its dream of a trillion-dollar market cap.
In 2019, MicroPort spun off MicroPort MedBot (688016.SH) for listing on the Sci-Tech Innovation Board. In 2021, it spun off MicroPort MedTech (2160.HK), MicroPort Robotics (2252.HK) for listing on the Hong Kong Stock Exchange. In 2022, it also spun off and promoted its subsidiaries MicroPort NeuroTech (2172.HK) and joint venture MicroPort Electrophysiology (688351.SH) for listing on the Hong Kong Stock Exchange and Sci-Tech Innovation Board respectively.
MicroPort has thus become one of the few companies in the industry covering specialized products for laparoscopy, orthopedics, endovascular, natural orifice transluminal endoscopic surgery, and percutaneous puncture.
However, as more subsidiaries are spun off, MicroPort's "sons are not performing well."
Apart from MicroPort MedBot and MicroPort NeuroTech achieving net profits of 492 million and 146 million RMB in 2023, MicroPort MedTech and MicroPort Robotics are still deeply mired in unprofitability, with net losses attributable to shareholders reaching 472 million and 1.012 billion RMB respectively during the same period. MicroPort's joint venture company MicroPort Electrophysiology is only slightly profitable, with a net profit attributable to shareholders of 5 million RMB in 2023.
Furthermore, with the A-share market emphasizing profitability and the cooling of the Hong Kong stock financing market, MicroPort's model of pushing unprofitable subsidiaries directly into the capital market for financing to maintain its expansion pace is unsustainable.
During a press conference by the State Council Information Office on March 15th, the China Securities Regulatory Commission pointed out that it will further tighten the review of unprofitable enterprises, requiring them to fully demonstrate their ability to continue operations, disclose expected profitability, and seek opinions from industry-related departments on attributes such as innovation.
At the same time, the overall financing situation in the Hong Kong stock market is also not optimistic.
In 2023, the amount raised through IPOs in the Hong Kong stock market was only 37.189 billion HKD, a year-on-year decrease of 64.44%, hitting a new low in nearly 10 years.
Some companies listed on the Hong Kong Stock Exchange raised less than 100 million HKD through IPOs. In 2023, a total of 17 companies including Zhengwei Group (2147.HK) and Easy Point Cloud (2416.HK) raised less than 100 million HKD through IPOs, accounting for a quarter of the total number of companies.
In May 2023, MicroPort spun off its subsidiary MicroPort Arrhythmia Management Limited (referred to as "MicroPort Arrhythmia") for listing in Hong Kong, but there have been no new developments to date.
MicroPort Arrhythmia, which focuses on arrhythmia management with implantable medical devices, is also deeply mired in unprofitability, with a net loss of as high as 759 million RMB in 2022.
After excessive spin-offs, MicroPort's core business in cardiovascular intervention and orthopedic medical devices has been impacted by centralized procurement and is also performing poorly.
In 2023, the revenues for cardiovascular intervention and orthopedic medical devices were 147 million USD and 237 million USD respectively, with only a 9.8% and 6.2% year-on-year growth. The net profits for these two divisions during the same period were 4 million USD and -80 million USD respectively Iron still needs to be hard. MicroPort Medical faces numerous challenges in 2024