Behind the increasingly heated bidding for equipment updates, why do the revenues of many listed companies not increase but decrease?

Recently, more and more listed medical device companies have started to show investors their “report cards” for the first quarter. Surprisingly, more than a year after the release of the equipment update policy, there are few profitable companies, and more are still “persisting in the face of difficulties”.

However, according to Joinchain’s calculation, since the end of the first wave of equipment renewal tendering boom at the end of 2024, the equipment renewal tendering has entered a period of intensive launch in the past two months. The total scale of equipment renewal tendering last week exceeded 630 million yuan, and the cumulative amount of public tenders has reached 11.8 billion yuan so far.

Why does the market, which is accelerating its recovery under the country’s tens of billions of yuan in financial subsidies and policy support, lead to a situation where the revenue of so many medical device companies is not increasing but decreasing instead?

01 

The intensifying competition in the scale – effect – supporting market has led to a significant decline in the final winning bid price of equipment compared with previous years

The primary factor affecting the revenue of medical device companies is the current market environment. The scale effect brought about by large – volume procurement and the “price war” under intense competition in the initial stage of market recovery have led to a decrease in the companies’ operating income.

From the current large number of equipment update projects, it can be clearly seen that most of the projects are led by the Health Commission at the provincial and municipal levels. Subordinate hospitals centrally report their demands. After conducting demand and market research before procurement, they centrally initiate projects and make purchases.

This form is similar to the centralized procurement of medical equipment. The purchaser often has a relatively strong bargaining power. At the same time, large-scale centralized procurement by various provinces and municipalities also means that winning this procurement is equivalent to seizing the market share for the next few years.

Therefore, medical device companies burdened with the pressure of warehousing costs are eager to clear their inventory and seize market share. In a short period, the competition among bidding enterprises is extremely fierce.

It can be clearly seen from a large number of recently tendered equipment renewal projects that the project cost – saving rates are all at a relatively high level. Most projects can achieve a cost – saving rate of 30 – 40%, and the cost – saving rate of some projects can even reach as high as 50 – 60%.

02

The implementation pace of the equipment update policy is relatively slow, which may lead to the project payment collection time exceeding one year   

Another factor affecting the company’s revenue in the first quarter lies in the time when the contract payment arrives.

In the financial reports of some enterprises, a similar key term frequently appears: “The implementation pace of the domestic equipment update policy.” For example, in the performance statement of United Imaging Healthcare, it is stated that due to the impact of the implementation pace of the domestic equipment update policy, the overall industry scale has shrunk significantly compared with the same period of the previous year, and domestic revenue has still decreased compared with the same period of the previous year.

This is mainly reflected in the time interval between the project approval for procurement, the bidding process, and the receipt of payment after winning the project bid.According to the calculation of Joinchain, a single project requires a process of up to 6 – 8 months from project approval to bidding. After winning the bid for the project, it is necessary to supply goods, install and provide training as required by the purchaser. The procurement contract payment will be made only after the user designated by the purchaser has inspected and approved. If it is a procurement project partially paid through the centralized treasury payment, the payment collection time may be even longer.

Therefore, it may take up to one year or even longer from the initiation of an equipment update project to the final collection of contract payments by the enterprise.

This is also reflected in Mindray Medical’s first-quarter financial report statement: “…… In the current competitive environment, the time lag from public bidding to revenue recognition has significantly lengthened. Therefore, the domestic revenue in the first half of this year actually reflects a significant decline in last year’s bidding.”

Summary   

Judging from the current distribution of tender projects, they are mainly concentrated in two peaks from October 2024 to January 2025 and from March to May 2025. Considering the cycle from project tendering to winning the bid and then to financial approval and payment, the arrival time of the payment for these two batches of tender projects may be concentrated from the second half of 2025 to the beginning of 2026.

Therefore, although the first-quarter revenue of most listed companies has declined to varying degrees at present, it is foreseeable that with the completion of supply, installation, commissioning, training and other work of the purchased equipment, a large number of equipment renewal projects will start to pay project funds before the end of the year, and the revenue data of listed medical device companies are also expected to turn positive in a concentrated manner.

China is encouraging China end uses for more domestic products in latest years. Thus, more and more overseas manufacturers are planning localization in China. BradyKnows localization team has extensive experiences in facility establishment, audit, supplier evaluation, manufacturing, registration, and marketing in China. Pls feel free to let us know any questions on China entry via info@bradyknowsmedical.com

Source： Joinchain
Translated & edited： Bradyknown