The company hopes to become Hong Kong’s first listed animal hospital chain, hoping investors will overlook its weak performance figures
Key Takeaways:
- Ringpai has applied for a Hong Kong stock exchange listing, reporting a cumulative loss of 450 million yuan in the past three years
- The animal hospital operator continued to bleed red ink in the first half of this year, reporting a loss attributable to common shareholders of 28.42 million yuan
Pet ownership has increasingly become a lifestyle choice among China’s increasingly affluent Chinese over the past two decades, fueling early investor enthusiasm about the sector’s great potential. But the reality has been much less to bark about, with most pet-focused companies offering options that often leave investors in the financial doghouse.
One of these is veterinary leader New Ruipeng, whose recent struggles include a failed attempt at a US listing a few years ago. Now Ruipeng’s biggest rival, Ringpai Veterinary Hospital Management Holdings Co., is hoping. Ltd., is making its own home in the financial markets with its filing this month for an initial public offering in Hong Kong’s hot market.
Ringpai founder Li Shoujun is certainly qualified for the job. He graduated from Inner Mongolia Agricultural University in 1988 and received a PhD in Preventive Veterinary Medicine from China Agricultural University in 2005. He worked at Tianjin Fuyuan Food from 1988 to 1997, before striking out on his own by founding Ruipu (Tianjin) Biological Pharmaceutical and Ruipu (Baoding) Biological between 1998 and 2001. Pharmaceutical.
Using his extensive background in animal health and growing expertise, Li saw an opportunity presented by China’s booming economy and rising prosperity, which were fueling a new desire for pet ownership. To meet that demand, he founded Ringpai in 2012, banking on the pet health care industry to quickly become a big business.
Top investors agree with Li’s view. The company’s backers include Mars China, Goldman Sachs, Hao’s International and Yuexiu Capital, which have collectively pumped 2.1 billion yuan ($300 million) into Ringpai over four funding rounds.
Buoyed by that capital, Ringpai expanded rapidly and operated 548 animal hospitals in 70 cities in 28 Chinese provinces by the end of June this year. Within that network, 120 of the veterinary centers were built in-house, while the vast majority, 428, were acquired as it emerged as a major consolidator in the fragmented sector.
Operational headwinds, continued losses
Although once a darling of private equity and venture capital, China’s PET sector has proven less investor-friendly than many had imagined. The situation has been particularly difficult for pet care providers, whose operations remain challenging.
Even the larger New Ruipeng, which has investors including Tencent, Hillhouse Capital, CICC, Boehringer Ingelheim and Snow Lake Capital, and was once valued at almost 30 billion yuan in 2020, has struggled. New Ruipeng’s 2022 US IPO filing revealed cumulative losses of 3.3 billion yuan between 2020 and September 2022, ultimately scuttling the listing as investors objected to the company’s high target valuation.
Compared to its larger rival, Ringpai’s main selling point is its status as China’s first pet healthcare player to report profits in publicly available filings. But a closer look shows that Ringpai lost money every year from 2022 to 2024, including a loss of 65.04 million yuan last year. Ultimately, it went into the black with a profit of 15.54 million yuan in the first half of this year. But those profits went entirely to minority interests, and the company still reported a net loss of 28.42 million yuan attributable to the company’s shareholders.
High labor and equipment costs
The bottom line is that profitability in China’s pet healthcare market remains elusive, and even breaking even is no easy feat. The core problem is high operating costs, which keep gross margins stubbornly low. Ringpai’s gross margins have ranged between 21% and 22% over the past three years, although this figure rose to 24.8% in the first half of this year.
The high costs are partly due to the high salaries of veterinarians, which Ringpai recognizes in its prospectus as necessary to attract and retain the best talent. Also making things difficult is the limited development of veterinary drugs in China, resulting in high drug costs due to dependence on expensive imports.
Setting up animal hospitals that must meet stringent government requirements is also expensive, forcing operators to purchase expensive diagnostic and surgical equipment, which entails both significant upfront investment and ongoing maintenance costs.
Too rosy projections?
There are also doubts about the expected growth trajectory of the sector. Several years ago, major institutions predicted that China’s pet healthcare market would rise from 55 billion yuan in 2021 to 136 billion yuan in 2026, implying an annual growth of 20% over that period.
However, Ringpai’s IPO prospectus, citing more recent third-party market data, estimated the market at only 36.6 billion yuan for 2024, indicating that the actual market is far behind previous bullish forecasts.
Third-party data from Ringpai’s new listing document now shows that the market will grow from 69.9 billion yuan in 2030 to 139.2 billion yuan in 2035, representing an average annual growth rate of 14.8%. Yet previous forecasts predict the market would be worth more than 130 billion yuan by 2026 – a target that now appears to be at least a decade away.
Even the latest estimates should be viewed with caution, as such projections tend to skew toward optimism in IPOs.
The numerous challenges Ringpai and his colleagues now face are complemented by frequent consumer complaints about high and non-standardized medical costs for pets. Unlike human health care, there is no National Insurance reimbursement plan for pet care, nor are there subsidies or special tax write-offs. As the economy slows and consumers become more cautious, households may become increasingly reluctant to spend on expensive pet care.
It just goes to show that while pets are meant to be pampered, investors are far from assured of such luxuries when they put their money into the sector.
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Benzinga Disclaimer: This article is from an unpaid third party contributor. It does not represent Benzinga reporting and is not edited for content or accuracy.
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