ANALYSIS: Aesthetic Medical International Holdings Readies U.S. IPO Effort

Aesthetic Medical has filed to raise $30 million in a challenging U.S. IPO market environment.

Author: Donovan Jones   

Short Take

Aesthetic Medical International Holdings Group (AIH) has filed to raise gross proceeds of $30 million from a U.S. IPO, according to an F-1/A registration statement.

The firm provides aesthetic medical services in China.

AIH has produced positive growth and net results in the most recent period, but given volatile U.S. stock and IPO markets, negative sentiment for Chinese firms due to recent poor post-IPO performance, and a high IPO valuation, the IPO may face challenging prospect in the U.S.

Company & Technology

Shenzhen, China-based AIM provides Chinese citizens with aesthetic medical surgeries.

Management is headed by co-founder, CEO and chairman Zhou Pengwu, who was previously manager at the Shenzhen Pengcheng Clinic, now known as the Pengcheng Hospital.

AIH has developed ‘one-stop' aesthetic service offerings, including both surgical and non-surgical aesthetic treatments, including eyelid surgery, rhinoplasty, breast augmentation and liposuction, coupled with non-surgical aesthetic treatments, which comprise minimally invasive treatments and energy-based treatments such as laser, consisting and ultraviolet light treatments.

The firm also provides other aesthetic solutions such as cosmetic dentistry, as well as general medical services which it provided through an established network comprising 21 medical treatment centers (of which 19 wholly or majority owned centers). AIH has treatment centers in 15 cities in mainland China, Hong Kong and Singapore.

Customer Acquisition

The company acquires customers through a combination of online and traditional media advertising.

The firm continues to grow its network of locations by focusing on major cities with persons who are most likely to use aesthetic services.

Additionally, earlier in 2019 the firm invested in a company that ‘owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers.'

Selling expenses as a percentage of revenue have been highly variable.

The selling efficiency rate, defined as how many dollars of additional new revenue generated by each dollar of sales & marketing spend, was 0.3x in the most recent six-month period.


According to a 2016 report in the South China Morning Post, the Chinese market for aesthetic medical services was forecast to double in size by the end of 2019 versus 2014.

In 2014, the market was valued at 400 billion yuan and is expected to reach 800 billion yuan by 2019.

More than 7 million people received some form of cosmetic surgery in 2014 and most of them were young women, per the China Association of Plastics and Aesthetics.

Major factors contributing to the growth include increased discretionary spending, growing peer pressure from social media as well as the influence of an intensely youth-oriented culture from South Korea's pop culture.

By the end of 2019, China's market is expected to be the third largest cosmetic treatment market in the world.

Financial Performance And IPO Details

The firm's recent financial performance is shown below:

  • Moderately growing topline revenue, at an accelerating rate

  • Increasing gross profit and gross margin

  • A swing to before-tax profit and margin

  • Uneven cash flow from operations

As of June 30, 2019, the company had $11.2 million in cash and $75.2 million in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended June 30, 2019, was a negative ($4.8 million).

AIH has filed to raise $30 million in gross proceeds from an IPO of 2.5 million ADSs representing 7.5 million underlying shares of its common stock at a midpoint price of $12 per ADS, not including customary underwriter options.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $297.8 million.

Per the firm's latest filing, the firm plans to use the net proceeds from the IPO as follows:

  - approximately 5% to finance the implementation of facility upgrades at existing aesthetic medical treatment centers;

  - approximately 15% for redemption of convertible note;

  - approximately 15% to finance the potential establishment of new treatment centers;

  - approximately 60% to finance strategic acquisitions of aesthetic medical treatment centers when such opportunities arise; and

  - approximately 5% of the net proceeds we receive from this offering for general corporate purposes, including working capital.

Management's presentation of the company roadshow is not available.

Listed underwriters of the IPO are Cantor, Haitong International, Prime Number Capital, Maxim Group, Zinvest Global, Tiger Brokers and Valuable Capital.


AIH is attempting to tap U.S. public investors during a difficult time for any company, let alone Chinese companies.

Chinese firms are seeing increased scrutiny from regulators, especially smaller firms.

The company's financials show moderate topline growth and a recent swing to profitability and positive cash flow from operations.

Selling expenses as a percentage of revenue have been highly variable in recent periods.

The market opportunity for aesthetic procedures in China has grown quickly. However, since these are usually elective procedures and are paid from discretionary spending sources, the current downturn in China's economy is a cause for concern.

AIH says that it is one of the three largest aesthetic service providers in China, according to a Frost & Sullivan report commissioned by the firm.

Industry fragmentation is significant and large firms probably have price and marketing efficiencies against smaller players.

As to valuation, according to an NYU Stern survey of a basket of publicly held firms in the Healthcare Support Services sector, as of January 2019, the sector produced an EV / Revenue multiple of 0.63x.

By comparison, AIH is asking investors to pay an EV / Revenue multiple of 2.54x, more than four times the valuation of the survey.

Although AIH has produced positive growth and net results in the most recent period, given volatile U.S. stock and IPO markets, negative sentiment for Chinese firms based on recent negative post-IPO performance, and a high IPO valuation, the IPO may face challenges in the current U.S. market.

Expected IPO Pricing Date:  October 24, 2019.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)