Core Viewpoint - Haixi New Drug, the first pharmaceutical company in Fujian to obtain a drug production license, is advancing its IPO process on the Hong Kong Stock Exchange, showcasing significant revenue growth but facing various operational risks [1][2]. Financial Performance - Haixi New Drug's revenue surged from 2.12 billion in 2022 to 4.67 billion in 2024, with a net profit increase from 690 million to 1.36 billion during the same period, reflecting a compound annual growth rate (CAGR) of 48.2% for revenue and 40.5% for net profit [4]. - In the first five months of 2025, the company reported revenue of 2.49 billion and a net profit of 902 million [4][20]. Revenue Dependence and Risks - The company heavily relies on 13 approved generic drugs, with 4 included in the national volume-based procurement (VBP) program, leading to a significant dependency on VBP products, which accounted for 72.6% of revenue in 2024 [6]. - The top five customers contributed over 70% of total revenue, with the largest customer accounting for 44.5% [6]. - Key VBP products are approaching contract expiration, with two set to expire by the end of 2025 and others in subsequent years, raising concerns about future revenue stability [6][7]. Cash Flow and Financial Health - Despite impressive revenue growth, the company's cash flow is under pressure, with a cash balance of only 380 million at the end of 2024, covering just 21% of current liabilities [15][21]. - The operating cash flow has shown fluctuations, with a net cash flow of 1.64 billion in 2024, but a decline to 800 million in the first five months of 2025 [11]. Sales and Marketing Expenses - The sales expense ratio increased from 22% in 2022 to 35.5% in 2024, significantly higher than the industry average, which may erode profit margins [12][13]. - The rising sales costs are attributed to increased channel maintenance expenses and the need for additional marketing resources for newly included VBP products [12]. Innovation Pipeline - Haixi New Drug has four innovative drugs in development, but all are in early stages, with the first clinical trials just starting [17][19]. - The company’s R&D expenditure is relatively low, with rates below the industry threshold of 20%, which may hinder future innovation [19][23]. - The company plans to use funds from the IPO to support clinical development and expand its sales network, but faces competition from established products that are already ahead in the market [24]. Production Capacity Concerns - The company’s production facility in Chang Le has a designed capacity of 2 billion tablets per year, but actual sales in 2024 were only 460 million tablets, raising concerns about potential overcapacity [25].