Meihua’s IPO might set the stage for revival of Chinese listings in the US

Meihua International Medical Technologies is the latest healthcare company to seek Wall Street listing, even as the IPO market picks up momentum after witnessing record activity last year. However, the number of listings so far this year is relatively low compared to the same period of last year.

The China-based company, a leading provider of disposable medical devices, looks to raise around $55 million through the offering. It will start trading on the Nasdaq stock exchange this week under the ticker symbol MHUA. As per a regulatory filing, the company intends to offer around five million shares in the $9-11 range.

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It will mark the first U.S listing of a Chinese firm in about seven months. Earlier, restrictions imposed by both Chinese and U.S regulators had halted listings of overseas companies. It is expected that if successful, Meihua’s IPO would attract more Chinese companies to the U.S.

IPO Ban

Chinese companies have been staying away from Wall Street after the Securities and Exchange Commission brought new rules that allow regulators to stop US-listed overseas companies from trading if they fail to provide the information required by them. The move followed Chinese authorities’ repeated denial of requests made by US auditors to have US-listed firms inspected.

Meanwhile, Beijing revised its regulatory rules putting curbs on foreign listings. It was triggered by a review of the controversial NYSE IPO by ride-hailing company Didi Chuxing Technology Co. in June, which allegedly violated security rules of that country.

Stricter Rules

While an array of Chinese firms — mainly in the technology and healthcare space — are gearing up for offshore listings, the stringent regulatory scrutiny and ongoing US-China tension could be a concern for them. As per the new rules set by the Cyberspace Administration of China, all platform companies having data on more than one million users should undergo a security review before they list in a foreign country.

Meanwhile, reports of Didi exiting the U.S market and entering the Hong Kong Stock Exchange added to speculation that the regulatory crackdown would put an end to Chinese IPOs in the U.S. But the SEC filing by Meihua is seen as a sign of both sides softening their stance and easing the tension. But some experts believe that the stalemate is unlikely to end soon, considering the depth of the hostility between the two countries.

High Demand

The demand for personal protective equipment in China, mainly masks, and gloves, is estimated to have increased ten-fold after the COVID-19 outbreak. The market for low-value-added medical disposables grew by 26% year-over-year to $14.9 billion in 2020. Meihua has been serving hospitals, pharmacies, medical institutions, and medical equipment companies for more than three decades, with around 800 products for domestic sales and 120 products for exports.

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Read management/analysts’ comments on quarterly reports

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In the fiscal year ended 2020, the company generated total revenues of $89.1 million, which is up 12% from the prior year. Reflecting the positive top-line performance, net income increased to $19 million from $15 million.