• Three Business Segments Maintain Rapid Growth
  • To Deepen Medical Institution Alliances to Drive Growth

Yunkang Group Limited (Yunkang or the Group; HKG: 2325), a leading medical operation services provider in China, has announced its first interim results for the six months ended 30 June 2022 (the Reporting Period) since its listing. Driven by favorable government policies promoting healthcare in China, the three business segments of the Group, including Diagnostic Outsourcing Services, Diagnostic Testing Services for Medical Institution Alliances, and Diagnostic Testing Services for Non-Medical Institutions have achieved rapid growth, with total revenue increasing by 81.9 % year-on-year to RMB1,378.7 million. Gross profit also increased by 68.6% to RMB651.1 million compared with the same period last year, and net profit rose by 50.0% to RMB234.4 million, establishing a new high within the same responding period.

Business Review

High-quality growth of three business segments and continuous expansion of income and service levels
During the Reporting Period, revenue from diagnostic outsourcing services rose 40.8% to RMB680.4 million, as products involved in such areas as tumors, infectious diseases, and blood diseases were maintaining steady growth. The Group offers diagnostic outsourcing services to hospitals, other medical institutions and public institutions, along with dozens of independent laboratories, including central laboratories, provincial comprehensive laboratories and regional rapid response laboratories nationwide, covering all major clinical testing technology platforms (such as immunoassay, mass spectrometry, PCR, high-throughput sequencing, liquid chip, ultrastructural pathology and digital pathology remote diagnosis) with more than 2,000 testing items and growing.

Diagnostic testing services for medical institution alliances mainly assist leading hospitals in establishing on-site diagnosis centers covering four main types (i.e. pathology, infectious disease, genetic disease and routine diagnostic tests). Revenue from this segment rose by 166.2% to RMB650.7 million as of the Reporting Period. The increase was primarily due to the rise in the number of on-site diagnostic centers – climbing from 275 as of the end of 2021 to 350 as of 30 June 2022, as well as further improvements in service capabilities and expansion in the service scope of the on-site diagnostic centers after preliminary construction and operation, resulting in rapid growth in average revenue of the unit on-site diagnostic centers. As of 30 June 2022, the semi-annual average revenue of the on-site diagnostic centers was RMB1.9 million, compared with the full-year average revenue of RMB2.2 million in 2021. Diagnostic testing services for medical institution alliances represent a crucial operating segment of the Group, accounting for an increasing proportion of the Group’s total revenue, rising from 32.2% of total revenue for the six months ended 30 June 2021 to 47.2% of total revenue for the six months ended 30 June 2022.

Revenue generated from the diagnostic testing services for non-medical institutions segment increased by 56.7% to RMB47.6 million, primarily due to the significant increase in demand for COVID-19 tests by individual customers and non-medical institution customers amid the ongoing COVID-19 epidemic.

Industry Potential

The year 2022 has witnessed continuous and strengthening support on the policy front. The 2022 Government Work Report has drawn attention to the need to continue promoting hierarchical diagnosis and treatment and enhance the order of medical treatment; expedite the building of national and provincial regional medical centers; promote the extension of quality medical resources to cities and counties; and improve the capacity of primary disease prevention and treatment, so that people can have convenient access to better healthcare services. The Outline of the Fourteenth Five-Year Plan for the National Economic and Social Development and the Long-Range Objectives Through the Year 2035 of the People’s Republic of China, released in March 2022, has pointed out that deepening reform of the medical and health system should be focused. It clearly specifies that reforms, such as establishing a modern hospital management system, expanding the capacity of quality medical resources and balancing regional presence should be expedited. The Outline also clearly states that the capacity of public health services should be significantly enhanced, and the quality of medical and health services should achieve continuous improvement by 2025. Furthermore, the capacity of primary medical and health services should be continuously improved, the comprehensive and full-cycle health services system should be gradually enhanced, and the landscape for hierarchical diagnosis and treatment should be gradually established.

With a series of supportive policies and an array of subsequent national policies for promoting a stable economy set to successively come into effect, the healthcare service market in China will possess tremendous growth potential. According to a Frost & Sullivan Report, the total healthcare service market in China is expected to reach RMB7,519.6 billion by 2025, which represents a CAGR of 9.1% from 2020 to 2025. Benefiting from the introduction of supportive policies, and growing awareness of healthcare among the population, the size of the diagnostic testing services for medical institution alliances market in China is expected to grow to RMB5,903.4 million in 2025, from RMB2,200.9 million in 2020, representing a CAGR of 21.8%, hence will present tremendous business opportunities to the Group.

Development Strategy

Continue to expand and strengthen the medical institution alliance network
Over the next few years, the Group will primarily focus on pathology, genetic and infectious disease laboratories for medical institution alliances and further improve their precision medicine capability, expanding and strengthening its medical institution alliance network. As at 30 June 2022, there were a total of 350 on-site diagnostic centers in hospitals. At the same time, the Group currently has nearly 90 ongoing projects involving on-site diagnostic centers with hospitals that have yet to commence operation. For certain hospitals that do not currently have diagnostic capacities, the Group intends to help them improve, manage, and operate such laboratories.

The Group also plans to establish more sales and customer service representative offices to enable its sales and marketing and after-sales customer service personnel to more closely interact with customers and develop stronger and deeper business relationships. This would also facilitate better understanding of customers’ needs and design and provide solutions to meet such needs, which in turn enable the Group to maintain its market position.

Expand portfolio of diagnostic capabilities
The Group plans to expand its portfolio of diagnostic capabilities, in particular, for tumors, genetic diseases, infectious diseases and pharmacogenetics, hence, it will seek to further enhance its diagnostic testing technologies, upgrade its equipment and recruit more personnel as appropriate to support the expansion. As the Group expands its diagnostic capabilities, it also plans to market its services to more non-medical institution customers, such as corporations and government agencies, so as to enhance its ability to provide omni-scenario medical operation services for customers.

The Group believes that precision medicine will be a growing trend in the healthcare industry as more and more patients seek customized medical solutions. Diagnostic testing is crucial to enhance precision medicine as accurate diagnostic testing will enable physicians to understand the characteristics of the patients to customize their treatment plan. Through continued expansion of its capabilities, the Group endeavors to work with hospitals to provide precision medicine solutions to patients.

Continue to upgrade and enhance operational capabilities
The Group plans to strategically develop small-scale self-operated independent clinical laboratories (ICLs) in selected regions and areas of China, either near the Group’s major customers or based on market needs, with the aim of digitalizing diagnostic testing and developing technical and operating systems to support its operations. In order to further enhance operational capabilities, the Group may consider acquiring or investing in companies that have synergistic businesses with it, such as upstream companies engaged in advanced diagnostic techniques, molecular biology, biotechnology and their clinical applications.

Yunkang Group Limited (HKG: 2325)
Yunkang Group is a leading medical operation service provider in China, which started to provide standardized medical diagnostic services to medical institutions at all levels as early as 2008. Leveraging its own professional diagnostic capabilities and the nationwide service network of integrated healthcare systems, Yunkang has gradually grown to become a medical operation service platform. Meanwhile, Yunkang is a medical operation service provider in China offering a full suite of diagnostic testing services which are diagnostic outsourcing services and diagnostic testing services for medical institution alliances. Yunkang provides diagnostic services through on-site diagnostic centers to collaborative hospitals in the integrated healthcare systems in China, and assists them in improving their clinical diagnosis capabilities through co-developing diagnostic centers. So far, Yunkang has successfully provided professional services to 350 medical institution alliances. As of June 30, 2022, the hospitals we collaborated with were located across 31 provinces and municipalities in China.