Psychiatric Care Group May Tempt China's Anxious Investors

  • Wenzhou Kangning Hospital raises $88 million in Hong Kong IPO
  • Mental services burgeon with 180 million underserved sufferers

Anxious and depressed investors who bailed out of China’s stock market in recent months may be tempted instead by the company that treats those conditions. 

While the Shanghai Composite Index has tumbled 30 percent from a June peak, demand in China for mental health services is booming, helped by an increasingly stress-fraught society and rapidly aging population. That’s boosting expansion plans for Wenzhou Kangning Hospital Co., the nation’s largest private psychiatric health-care group, which started trading in Hong Kong Friday after raising HK$681.1 million ($88 million) in an initial public offering.

The stock closed at HK$49.1, after rising 27 percent in Hong Kong trading.

About half the proceeds will be used to revamp and expand the group’s existing network of five hospitals and four clinics, according to an offer document. China has more than 180 million sufferers of psychiatric disorders, but lacks the psychiatrists and psychiatric beds to handle the growing burden of mental illness. Investment from private companies, such as Wenzhou Kangning, may increase access to care, said Yan Alicia Hong, who studies psycho-social issues at Texas A&M University, where she’s an associate professor.

Dearth of Resources

“Psychiatric resources are too scarce in China,” said Hong, who was born and raised in China. “If the market can drive more psychiatric service organizations to open, it may in the long term benefit the patients and general public.”

Wenzhou Kangning, named after its largest facility and first hospital, opened in 1996, sold 17.6 million so-called H-shares at HK$38.70 a piece, the top end of a marketed range.

The company, based in the city of Wenzhou in Zhejiang province, operated 2,210 psychiatric beds as of June 30, giving it 5.8 percent share of China’s private mental-health-care market, it said in the offer document. The number of beds has more than doubled since January 2002, it said.

It had profit of 27.4 million yuan in the six months ended June 30, 15 percent than reported a year earlier, according to the filing. Sales jumped 17 percent to 160.7 million yuan. Profit in 2014 surged 41 percent to 51.2 million yuan, while revenue advanced 31 percent to 296.3 million yuan.

Private psychiatric health-care generated 5.1 billion yuan ($800 million) in China last year, a market that’s more than doubled since 2010, according to Frost & Sullivan, which was commissioned by Wenzhou Kangning to undertake research cited in its prospectus. The consultancy predicts the market will expand an average of 22 percent annually to 13.6 billion yuan by 2019.

Health Law

China has an average of 15 psychiatrists and 147 psychiatric beds for every 1 million people -- five to seven times less than the average across the Group of Seven countries, according to the offer document.

“Historically in China, there was never a culture to convey your mental disorders: people saw that as weakness of character rather than being sick," Hong said. While there’s a “long, long way to go, impressive progress has been made" in the past 20 years for more awareness and dialogue surrounding mental illnesses.

And a government mental health law introduced in 2013 to promote prevention and treatment of psychiatric disorders is bolstering demand for services.

Number of psychiatrists per 100,000 people across different nations
Number of psychiatrists per 100,000 people across different nations

Public health insurance is contributing to the demand. Wenzhou Kangning says its medical bills covered by insurance increased an average of 59 percent a year to 134.2 million yuan in 2014 from 53.3 million yuan in 2012.

For years, psychiatry was one of the less-favored medical disciplines in China, Hong said.

“People didn’t see a career path,” she said. “If you were in the psychiatric department, it was probably because your boss didn’t like you.”

That’s changing. That a psychiatric health-care group is growing rapidly and listing on a stock exchange: “that itself is an indicator of progress,” Hong said.

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