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Public company info - Yestar Healthcare Holdings Company Limited , 02393.HK

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Yestar Healthcare Holdings Company Limited, 02393.HK - Company Profile
Chairman HARTONO James
Share Issued (share) 2,356,000,000
Par Currency Hong Kong Dollar
Par Value 0.025
Industry Medical Equipment & Services
Corporate Profile Business Summary: The principal activities of the Group comprise the manufacture, distribution and sale of medical imaging products, distribution of In Vitro Diagnostic (“IVD”) products and the manufacture and sale of dental films. Performance for the year: Revenue increased by approximately 10.3% to approximately RMB4,903.3 million in 2019 from approximately RMB4,447.0 million in 2018. Gross profit increased by approximately 5.5% to approximately RMB1,265.3 million in 2019 from approximately RMB1,198.8 million in 2018. Profit for the year decreased by approximately 13.8% to approximately RMB301.3 million in 2019 from approximately RMB349.5 million in 2018. Excluding the impairment loss on goodwill of one of the subsidiary for an amount of RMB39.9 million, profit for the year only decreased by 7.3% as compared with the corresponding period in 2018. Profit attributable to owners of the parent decreased by approximately 19.5% to approximately RMB202.7 million in 2019 from approximately RMB251.7 million in 2018. Earnings per share decreased to RMB8.5 cents in 2019 from RMB11.5 cents in 2018 Business Review Increased penetration of top-tier hospitals Yestar retained a strong and solid network among hospitals in China, as they have generated approximately 70% of medical revenue of the Group, versus only 30% coming from distributors. To further capture opportunities coming from the volume-based tendering policy, the Group has been aggressively boosting the installation of Roche’s newest modular analyzer, the cobas e801 module in top-tier hospitals. Cobas e801 is compatible with other lab automation systems, and is capable of testing more than 90 types of immunoassays, including 9-minute STAT, and can deliver up to 1,200 tests per hour, which is three time faster than other existing products, across up to 192 reagent positions. It suits well for top-tier hospitals with massive amount of patients, as the system is highly automated, allowing the continuous loading of reagents and consumables and has a high uptime while requiring less hands-on time, improving the overall efficiency. Through the installation of such closed-end system, the Group would be able to raise stickiness of top-tier hospitals, while also laying a solid foundation for lab automation in the PRC as a whole. During the Year, the number of Cobas e801 installed by Yestar accounted for 27% of Roche’s 2019 total installation in the PRC. Given the well-documented cost efficiency of lab automation, it is expected that the upgrade will persist among hospitals in the PRC. With Roche being the market leader in the area, accounting for 35% of market shares in 2019, Yestar, who also involved in 27% of Roche’s 2019 total lab automation installation in the PRC, is expected to benefit. The remaining 65% of market share also represents a huge market for Yestar to further penetrate. Stable organic growth with regional expansion Between 2014 and 2017, the Group has completed a series of mergers and acquisitions, and organic growth has kicked in after successful integration, with revenue enjoying a 10.3% YoY increase to RMB4,903.3 million during the Year. However, network coverage remains the bread and butter of medical distributors, and Yestar continued to make stride in its geographical expansion. Riding on its entry into Hebei province last year, the Group has once again successfully expanded into Inner Mongolia, the autonomous region, as a result of its continuous upgrade on products and services offering. Since more resources will be flowed to lower-tier medical institutions under the hierarchical medical system, the Group has also strategically focused more on lower-tier hospitals in Hebei. During the Year, the Group newly penetrated into 63 hospitals, in which 90% were second-tier or lower hospitals. In terms of product range, the Group has also adapted its mix to promote middle size machines for diagnostics to cater their specific needs. Yestar’s Northern China centre was recognized as Roche’s training centre During the Year, the Group expanded three of its logistics centres located in Northern China, Eastern China and Southern China. Apart from increasing the gross floor area, the Group also divided certain areas in the Northern China hub and upgraded them for training purpose, including new seminar rooms and labs for equipment demonstration. Through the provision of product education and after-sales services to hospital personnel, lab operators, distributors and others, the Group aims to strengthen client relationship and promote the sales of latest products, Yestar was honored to have the centre recognized by Roche as its designated and authorized training centre. This offers much encouragement as it shows increasing commitment from Roche in Yestar as its major distributor, allowing the Group to radiate its services and products to nearby customers through the latest authorized training center. Profit Guarantee in relation to the Acquisitions Reference is made to the announcements of Yestar Healthcare Holdings Company Limited (the “Company”) dated 13 October 2016, 27 October 2016, 11 November 2016 and 20 September 2017, respectively, in respect of, amongst other things, the acquisition of 70% equity interests in each of the four companies, all are principally engaged in distribution of medical devices including in-vitro diagnostic products. Pursuant to the respective share transfer agreement for each of the four companies, there is a provision of profit guarantee (the audited consolidated net profit after taxation in accordance with the IFRS) undertaken by the respective vendors for each of the four companies for the year ended 31 December 2019. The Board of the Company announces that the 2019 actual net profit after taxation for each of the four companies (except Derunlijia) is more than that of their respective annual guarantee profit undertaken by the respective vendors for the year ended 31 December 2019. As the annual guarantee profit for each of the four companies (except Derunlijia) has been fulfilled, no compensation is required to be paid by the respective vendors for each of the respective four companies (except Derunlijia) pursuant to their respective share transfer agreements. Profit Guarantee in relation to Derunlijia Pursuant to the share transfer agreement in relation to Derunlijia, the vendors shall pay compensation to the purchaser calculated by the following formula in the event that actual net profit after taxation is less than the annual profit guarantee for the respective years ended: (annual profit guarantee – actual net profit after taxation) x 2. The compensation shall be payable in cash by the vendors to the purchaser within 30 days after the issue of the audited report for the respective years ended. As disclosed above, the 2019 actual net profit after taxation of Derunlijia was approximately RMB87.12 million, which falls short of the annual profit guarantee of RMB92.00 million undertaken by the vendors of Derunlijia for the year ended 31 December 2019 by approximately RMB4.88 million (the “Profit Shortfall”). Accordingly, the vendors of Derunlijia are obliged to compensate an amount of RMB9.76 million (the “Compensation Amount”) (being 2 times of the amount of Profit Shortfall) to the purchaser. As at the date of this announcement, the purchaser of Derunlijia has issued a debit note to request the vendors of Derunlijia to pay for the Compensation Amount pursuant to the terms of the share transfer agreement, which is pending for the settlement as 30 days payment term has yet to be due. As such, the Board considers that the obligation of the vendors of Derunlijia in relation to the annual profit guarantee for the year ended 31 December 2019 has yet to be fulfilled and the issuance of debit note for the Compensation Amount at this stage is fair and reasonable and in the interests of the shareholders of the Company as a whole. Further announcement will be made by the Company as and when appropriate in respect of the payment of the Compensation Amount by the vendors of Derunlijia. The Directors of the Company also confirmed that there is no change to the terms of guarantee as stated in all respective share transfer agreement for each of the four companies since its execution up to the date of this announcement. Impairment of Goodwill and Other Intangible Assets As at 31 December 2019, the Group performed a year end annual impairment test on goodwill and other intangible assets (which included distribution rights and customer relationship) by performing discounted free cash flow forecasts for each of the acquired subsidiaries in previous years, namely Shanghai Anbaida Group Companies, the Four Acquired Companies and Yestar Biotech (Jiangsu) Co., Ltd. The impairment test is based on the recoverable amount of each cash-generating unit to which the goodwill is allocated and each intangible asset. The recoverable amount of each cash-generating unit and individual asset is the higher of its fair value less costs of disposal and its value in use using a cash flow projection based on a financial budget covering a five-year period. Taking into consideration their respective projection on future results of cash-generating performance and financial results, the Group recorded an impairment loss on goodwill in one of the non wholly-owned subsidiaries for an amount of approximately RMB39.9 million (2018: 18.5 million), which was due to its lower recoverable amounts in relation to the estimated future business performance and hence the value of the discounted cash flow of that subsidiary taking into account the budgeted gross profit margin and estimated growth rate of different product mixture, which are the assumptions adopted in value-in-used calculation. Use of Proceeds from Allotment of 230,000,000 New Shares On 19 December 2018, the Company completed the allotment and issuance of 230,000,000 new shares (the “Subscription Shares”) to Fujifilm Corporation at HK$1.79 per share. The Subscription Shares represented approximately 9.56% of the issued shares after the completion of allotment and issuance of the Subscription Shares of the Company. The aggregated gross and net proceeds received from the subscription of 230,000,000 new shares amounted to approximately HK$411.7 million and approximately HK$409.7 million respectively. The scheduled use of proceeds as disclosed in the announcement of the Company dated 30 November 2018 was based on the best estimation of future market conditions and business strategy of the Group at the time of preparing the announcement, while the net proceeds were applied with consideration of the actual development of business and market. As at the date of this announcement, the Company intends to use the net proceeds as planned as disclosed in the related announcement. The Directors are not aware of any possible material change to the planned use of proceeds from the allotment of the Subscription Shares as at the date of this announcement. The majority of the unused net proceeds have been placed as interest bearing short-term demand deposits with licensed bank in Hong Kong and the PRC. Prospects: Looking into the near future, the Group will continue to increase its market shares by expanding its distribution network, products and services offering. Network Expansion Yestar will continue its network expansion plan both horizontally and vertically. Leveraging its market presence and resources, the Group will seek opportunities to penetrate into new regions with market potential. The Group will tap into different tiers of new hospitals by promoting the newest cobas e801 module for top-tier hospitals, and by focusing more on point of sales products for lower-tier hospitals. The Group will also proactively upgrade its two other logistics centres in Eastern China and Southern China into a multifunctional training centres, with the aim of providing one-stop and comprehensive solutions to its customers on medical products and after-sale services. With these two newly-established centres, the Group is capable to serve other national healthcare groups in the country, proactively tapping into this potential market segment in order to broaden its revenue stream and distribution network. Collaborate with strategic partners to introduce new products Yestar will continue to work closely with Roche on the introduction of new products and services in order to remain as one of the key beneficiaries of Roche’s strong brand equity and product innovation. In the coming years, the Group will mainly focus on immunoassay and molecular diagnostics products, as there is an increasing incidence of chronic and communicable diseases that leads to the rising need for early diagnosis for immunoassay, along with the fast growing demand of early detection for cancer, infectious diseases and genetic disorders whereas for molecular diagnostics. As the people in the PRC become increasingly health-conscious, Yestar can help patients to take precautionary measures by introducing checkup products to intervene in early stages. Meanwhile, Fujifilm, Yestar’s long term and trustworthy partner, aimed to co-develop products catering the fast-growing medical market in the PRC. The Group has already tapped into some provinces in Northern China through machines installation, including Anhui, Hebei, Inner Mongolia, Jiangsu, Liaoning, Shandong and Tianjin, and will start distributing Fujifim’s clinical chemistry products, which are complementary to Roche’s products. Leveraging the newly-extended network through Fujifilm’s partnership, the Group can introduce a broad range of high-quality products to its customers in the future. In the face of a coronavirus outbreak, Yestar will also continue to develop medical consumables products in order to further contribute to the combat. Apart from the disinfection consumable products that were launched in February, the Group is expected to commence mass production of the medical disposable mask products in late March 2020. With the aforementioned strategies on channel and product expansion, the Group is confident to capture more market shares in the China IVD market. Through its healthy financial position, the Group will also continue to seek for suitable merger and acquisition opportunities to enhance its market position and performance, creating more fruitful return to all shareholders.

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