New Stock Outlook: With a 4 billion valuation, can Annoyuda become the "BGI Genomics of the Hong Kong market"?

In August this year, the financial reports of the two leading companies in the field of non-invasive prenatal gene testing (NIPT) in China, BGI Genomics and Berry Genomics, were successively disclosed. The former saw a 12.82% decrease in revenue year-on-year, with its net profit after non-recurring items recorded as a loss for the first time; while the latter saw an 18.91% decrease in revenue year-on-year, with a net loss of over 27 million yuan. According to the financial reports of the two companies, the significant decline in NIPT business revenue is a key factor contributing to their revenue fluctuations. In recent years, the structural changes in the domestic NIPT business market combined with industry group purchases have led the NIPT market to bid farewell to the era of high growth and enter a new stage of stock competition. As the third largest player in the domestic NIPT industry market share, Annoroad is knocking on the door of the Hong Kong Stock Exchange during this industry transition period. It was observed that on September 30th, Annoroad filed documents with the Hong Kong Stock Exchange Main Board, with BUILD INTERNATIONAL, GUOTAI JUNAN I acting as its joint sponsors. The company had initially submitted its application for listing to the Hong Kong Stock Exchange on March 25th of this year, but the prospectus expired after six months on September 25th. This makes it the company's second submission. How big of a market share can the third player in the NIPT industry get? The prospectus shows that Annoroad is a company focusing on IVD (in vitro diagnostic products) medical devices and omics life science research services based on molecular diagnosis, and is also specialized in prenatal testing IVD products based on NGS. Annoroad's clinical sequencing solutions include self-produced gene sequencing-based IVD test kits, gene sequencers and bioinformatics analysis software, as well as supporting technical support and laboratory design services. However, as about 60% of Annoroad's revenue comes from clinical sequencing solutions (mainly including NIPT and CNV-seq test kits), and the company expects its future revenue growth to depend on the continued popularity of its existing products, the growth and competitiveness of the NIPT industry are closely related to Annoroad. From a market perspective, in recent years, China's encouragement of fertility policies has promoted NIPT (non-invasive prenatal genetic testing) to become one of the fastest growing genetic sequencing products in China, widely used in prenatal screening for pregnant women. According to data from ZHOU Knowledge Consulting, the penetration rate of NIPT test kits for pregnant women in China has increased from about 15.4% in 2018 to about 48.8% in 2023, and is expected to reach 97.8% by 2033. This brings certain benefits to companies in the domestic fertility health genetic testing related business. Taking the top two leading companies in the industry as examples, from 2015 to 2019, BGI Genomics' revenue from fertility health services increased from 568 million yuan to 1.176 billion yuan, with this business accounting for more than half of its total revenue at one point; while Berry Genomics, with NIPT as one of its core businesses, has seen its revenue steadily increase and reach a peak of 1.618 billion yuan in 2019. In this context, Annoroad, the third player in the domestic NIPT market share, also enjoys the benefits of development. In its prospectus, the company mentions that the revenue generated by the sale of clinical sequencing solutions in 2022, 2023, and 2024 is expected to be 251 million yuan, 270 million yuan, and 329 million yuan respectively, mainly due to the increase in sales of NIPT and CNV-seq test kits. Since the revenue from its CNV-seq test kit business is only about 30 million yuan, it can be reasonably inferred that the NIPT business accounts for the majority of its revenue growth. However, as NIPT becomes more widespread, the industry has reached a stage of price regulation, and the emergence of group purchasing has to some extent squeezed the profit margins of NIPT suppliers. It is understood that before this, the price of NIPT in China was around one thousand yuan or more. But in recent years, policies introduced in Beijing, Hebei, Tianjin, and other places have led to a noticeable decrease in final prices. In July last year, the Jiangsu Provincial Medical Insurance Administration issued a NIPT quantity purchase plan, setting the highest effective declared price at 345 yuan, and stipulating that companies with a quoted price not exceeding 275 yuan would be directly selected. Compared to before, the price of NIPT has dropped by over 70%. The logical reshaping of pricing brought by this group purchasing is one of the direct reasons for the fluctuation in the performance of the two leading companies, BGI Genomics and Berry Genomics. It is worth mentioning that NIPT is currently one of the most mature businesses in the IVD market, often only allowing one manufacturer to bid in a region, with high substitution costs. According to the prospectus, among the companies providing NIPT test kits approved by the National Medical Products Administration in China by the end of 2023, the top three market shares were 50.5%, 15.9%, and 12.1%, with Annoroad ranking third in market share. Therefore, in the current context of stock competition in the industry, Annoroad faces considerable challenges in catching up with the market share of the top two players in a short period of time. This also means that the company may face significant hurdles in achieving sustained growth in its performance. What supports the valuation of 4 billion? Since its establishment, Annoroad has completed 6 rounds of financing, with shareholders including well-known investment institutions such as Milestone Capital, Gaotejia Investment, and Northern Light Venture Capital. After completing the final round of financing in October 2022, the company's post-investment valuation has reached 4.049 billion yuan (calculated at 67.61 yuan per share from the last round of financing). However, in order to maintain a stable valuation of 4 billion after listing in the Hong Kong market, it still needs the support of fundamentals. However, as the third company in the NIPT industry, amidst the performance fluctuations of the top two players, Annoroad's profitability situation is also affected. The prospectus shows that in 2022, 2023, 2024, and the first half of 2025, Annoroad's revenue was 435 million yuan, 475 million yuan, 518 million yuan, and 269 million yuan respectively; with corresponding gross profit margins of 31.7%, 32.6%, 35.4%, and 33.9%. Although Annoroad's revenue and gross profit growth during the reporting period are commendable, it still has not been able to avoid losses. The financial report shows that the company's net losses during the reporting period were 67 million yuan, 240 million yuan, 126 million yuan, and 29 million yuan, with net loss rates of 15.4%, 50.6%, 24.3%, and 10.8%. In other words, Annoroad has accumulated losses of about 462 million yuan in the three and a half years, with its losses mainly stemming from high operating expenses and financial costs. The item "Accrued interest on special shareholder rights liabilities" totaled about 338 million yuan from 2022 to 2024. In terms of cash flow, the company's liquidity also needs to be improved. Financial reports show that Annoroad's net cash flow from operating activities has fluctuated significantly in recent years, with net outflows of 26 million yuan in 2023 and 55 million yuan in the first half of this year. It is clear that as Annoroad has yet to achieve stable profitability, there is still significant room for improvement in its fundamentals, which may to some extent affect the market's valuation judgment on the company. Referring to the valuation situations of comparable companies BGI Genomics and Berry Genomics, their PB valuations are currently 2.27 times and 2.83 times respectively. Even calculated at a 3 times PB valuation, based on Annoroad's net asset value of 530 million yuan at the end of 2024, its secondary market valuation would be only 1.59 billion yuan, far below the previous primary market valuation of 4 billion yuan.