Bonasia Revenue Under Pressure: Sharp Increase in Accounts Receivable and Turnover Days, Operating Cash Flow Continues to Deteriorate

$PANACRO (Hangzhou) Pharmaceutical Technology Co., Ltd. (811141.HK)$

As the wave of AI technology sweeps through the healthcare sector, a company with over two decades of experience in the clinical CRO industry is attempting to leverage digital transformation to unlock the doors of the capital markets. In February 2026, Bonasia (Hangzhou) Pharmaceutical Technology Co., Ltd. (hereinafter referred to as Bonasia) submitted an IPO application to the Hong Kong Stock Exchange, planning to issue H shares, with joint sponsors being Industrial Securities International and ICBC International.

Bonasia, leveraging self-developed digital systems such as CTMS and eTMF, provides comprehensive clinical trial technical services for pharmaceutical and biotechnology companies, covering everything from IND applications to NDA registrations. However, issues revealed in the prospectus, such as declining revenue volatility, increasing customer concentration, and operating cash flow turning from positive to negative, add uncertainty to its IPO journey.

Revenue Under Pressure, Profit and Gross Margin Show Improvement

According to the prospectus and Tianyancha, Bonasica was founded in 2004 as a clinical contract research organization headquartered in Hangzhou, China. It is committed to empowering innovative drug clinical research through digitalization. The company's core business revenue mainly comes from clinical trial technical services and FSP services, with service coverage including new drug clinical trial applications, Phase I-IV clinical research, new drug marketing application registration submissions, as well as FSP services and other services.

Financial data shows that in 2023, 2024, and January-September 2025 (hereinafter referred to as the reporting period), the company’s revenue was 371 million yuan, 340 million yuan, and 245 million yuan, respectively. This data shows a clear fluctuation and decline: the total revenue for 2024 decreased by 8.15% compared to 2023, and although revenue for the first nine months of 2025 increased slightly by 3.48% compared to the same period in 2024, it still did not recover to the level of the same period in 2023.

In terms of revenue structure, clinical trial technical services have always been the company's core source of income. During the reporting period, revenue from this business segment was 318 million yuan, 290 million yuan, and 199 million yuan, accounting for 85.7%, 85.3%, and 81.1% of total revenue, respectively. In the first nine months of 2025, the revenue share of clinical trial technical services fell below 85% for the first time, while the revenue share of FSP services increased from 14.8% in the same period in 2024 to 18.4%.

Regarding the decline in revenue in 2024, the company explained in the prospectus that it was mainly due to the impact of the overall industry environment, causing delays or cancellations of some client projects. However, according to the Frost & Sullivan report, the market size of China's clinical CRO continued to grow in 2024, while Bonasica's revenue declined against the trend, potentially reflecting certain market share pressures faced by the company in competition.

In terms of profitability, the company’s gross margin showed an initial increase followed by stabilization. During the reporting period, the company’s gross margin was 33.5%, 38.3%, and 37.8%, respectively. The gross margin for 2024 increased by 4.8 percentage points compared to 2023, mainly due to the excellent operational efficiency driven by a refined management system and improved operational efficiency and project quality via digitalization. However, the gross margin for the first nine months of 2025 remained flat compared to the same period in 2024, failing to continue its upward trend.

In terms of net profit, the company’s net profits during the reporting period were 62.412 million yuan, 67.291 million yuan, and 45.22 million yuan, with net profit margins of 16.8%, 19.8%, and 18.5%, respectively. Although the net profit margin for 2024 increased by 3 percentage points compared to 2023, the net profit margin for the first nine months of 2025 decreased by 1.3 percentage points compared to the same period in 2024.

As of September 30, 2025, the company had signed but unrecognized revenue of 519 million yuan, covering multiple therapeutic areas and all stages of clinical development. The company stated in the prospectus that these long-term and stable cooperative relationships demonstrate the strong customer loyalty and market reputation generated by the company’s high-quality services. However, looking at the speed of converting backlogged orders into actual revenue, signed but unrecognized revenue for 2024 was 442 million yuan, while total revenue for the year was 340 million yuan.

Customer concentration exceeds 60%, accounts receivable rise

Another challenge Bonasica faces is the persistently high customer concentration, which continues to climb. During the reporting period, the total revenue from the top five customers was 222 million yuan, 191 million yuan, and 159 million yuan, accounting for 59.9%, 56.0%, and 64.8% of the total revenue for each period, respectively. The largest customer accounted for 21.6%, 16.2%, and 20.3% of total revenue, respectively.

The company highlighted in the prospectus that if it loses any major customers or if any major customer significantly reduces their service demand, and the company's services are not replaced by demand from other customers, the company’s business, financial condition, and operating performance may be materially adversely affected.

Senior researcher Han Jiang of Pangoal Institution indicated that first, the high concentration reflects the typical characteristics of 'major client binding.' Clinical CRO services possess attributes of long cycles, high professional thresholds, and strong reliance on trust. Leading pharmaceutical companies tend to establish long-term strategic cooperation with a few quality suppliers. Second, excessive reliance on a single client poses a significant bargaining power risk. This asymmetric supply-demand relationship weakens Bonasia's pricing power, potentially leading to margin pressure. If a core client is lost, customer acquisition costs in the short term will rise sharply, causing severe fluctuations in performance. Third, high dependency just before an IPO becomes a focal point for regulatory review and also a source of valuation discount. The capital market is concerned about its business independence and risk resistance capability. If it cannot quickly expand its mid-to-long tail client base and optimize the client structure after listing, the market will grant it a lower liquidity premium. The company needs to demonstrate that its digital empowerment has universal applicability and can transition from 'project-based services' to a 'platform-based ecosystem' to mitigate systemic risks caused by fluctuations in a single client.

At the same time, the company's trade receivables continued to increase. Financial data shows that the total amount of the company’s trade receivables and contract assets were 183 million yuan, 215 million yuan, and 242 million yuan, accounting for 52.2%, 48.7%, and 55.0% of current assets respectively. Based on revenue scale calculations, the company’s accounts receivable turnover days extended from approximately 180 days in 2023 to around 231 days in 2024, further climbing to about 270 days (annualized calculation) by the end of September 2025, with the collection cycle continuously lengthening, increasing pressure on capital occupation.

During the reporting period, the total procurement amounts from the top five suppliers were 38.3 million yuan, 29.1 million yuan, and 18.1 million yuan, accounting for 29.0%, 25.7%, and 21.2% of the procurement totals during each period, respectively. Although the proportion showed a declining trend, the largest supplier still accounted for 11.4%, 9.3%, and 11.9% of the procurement totals, involving amounts of 15.1 million yuan, 10.5 million yuan, and 10.2 million yuan, respectively.

During the reporting period, the company cooperated with 296, 324, and 365 hospitals, covering 30 provinces/regions across China, including 212 tertiary class A hospitals out of the 365 hospitals. The company signed strategic cooperation agreements with selected leading hospitals. These agreements typically specify the cooperation model and respective obligations of the parties involved, with general cooperation durations ranging from two to ten years.

Bonasia’s fee model also harbors risks, primarily divided into two types: fee-for-service and full-time equivalent models. Under the fee-for-service model, the company charges project-based fees for agreed deliverables and services, meaning delays or cancellations of projects will directly affect revenue recognition. FSP services are billed under the full-time equivalent model, with fees generally calculated based on fixed rates per person-month. In the context of rising labor costs, this model’s margin improvement potential is limited. During the reporting period, the gross margins of FSP services were 31.5%, 32.5%, and 35.3%, showing an upward trend but still significantly lower than the 38.4% gross margin level of clinical trial technical services.

Operating cash flow turned from positive to negative, R&D expense ratio continued to decline

Bonasia's most prominent financial risk lies in the continuous deterioration of operating cash flow. From 2023 to 2024, net cash generated from operating activities decreased from 67.29 million yuan to 11.506 million yuan; within the first nine months of 2025, operating cash flow turned from positive to negative at -3.535 million yuan. The net operating cash flow in 2024 dropped by 82.89% compared to 2023, and within the first nine months of 2025, it turned from positive to negative.

Regarding the deterioration of operating cash flow, the company explained in its prospectus that it was mainly due to the increase in trade receivables and contract assets. The company's trade receivables continued to increase during the reporting period, exposing it to higher non-payment risks. This trend is closely related to industry characteristics: CRO companies typically receive payments based on milestones during project execution, but the extension of client payment cycles has become a common phenomenon in the industry.

In terms of cash reserves, as of September 30, 2025, the company had cash and cash equivalents of 55.162 million yuan, a decrease of 50.39% from 111 million yuan at the end of 2024. Meanwhile, although the company's current ratio increased from 101.2% in 2023 to 131.7% as of September 30, 2025, the quality of quick assets still requires attention. During the reporting period, the company’s net current assets were 4.152 million yuan, 61.881 million yuan, and 106 million yuan, and net asset values were 16.785 million yuan, 73.133 million yuan, and 120 million yuan, indicating relatively limited capital strength.

Against this backdrop, the company's AI-driven strategy faces the test of balancing investment and returns. The company disclosed in its prospectus that its ongoing R&D projects focus on improving clinical trial technical services and enhancing digital systems. During the reporting period, the company’s R&D expenditures were 15.908 million yuan, 13.648 million yuan, and 9.379 million yuan, with R&D expenditure ratios of 4.3%, 4.0%, and 3.8%, showing a continuous downward trend.

Jiang Han believes: First, the decline in R&D expenditure runs counter to its strategic positioning of 'digital empowerment.' In the context of AI technology sweeping through the healthcare industry, reducing R&D investment may indicate insufficient momentum in building proprietary technological barriers, making it difficult to support the narrative of its high valuation as a tech company. Secondly, this trend reflects short-term financial maneuvering under profit pressure. The prospectus shows that revenue scale is under pressure, and management may have deliberately cut costs to beautify financial statements and meet listing profit targets. This is typical 'sprint phase' behavior, which can improve net profit margin in the short term but sacrifices long-term competitiveness. If competitors increase their investments in AI algorithms and automated processes, Bonasia will face risks such as lagging service efficiency and declining per capita output.

Despite claims that digital transformation has significantly improved operational efficiency, enhanced project quality, and overall competitiveness, the actual effectiveness of digital investments remains to be seen. According to the prospectus, the company has developed digital systems such as the CTMS clinical trial management system, eTMF electronic trial master file system, and CTFS clinical trial financial system to enhance the execution speed and operational efficiency of clinical trials.

More noteworthy is a recent related-party transaction by the company. On October 28, 2025, the company entered into a share transfer agreement with Mr. Zhao Min and other shareholders of Guangdong Weilin to acquire 100% of Guangdong Weilin's equity at no cost. Prior to the acquisition, Guangdong Weilin was directly controlled by Mr. Zhao Min with an 80% stake, while Shanghai Yilian Enterprise Management Center (Limited Partnership) and Shanghai Yiguang Enterprise Management Center (Limited Partnership) each held 10% of the shares. According to the agreement, Bonasia committed to injecting 1 million yuan to fulfill Guangdong Weilin’s existing shareholders' registered capital obligations and will contribute 25 million yuan to Guangdong Weilin. On December 22, 2025, the relevant industrial and commercial changes were completed, increasing Guangdong Weilin's registered capital to 30 million yuan, officially making it a wholly-owned subsidiary of Bonasia, with all original shareholders exiting. Mr. Zhao Min continues to serve as the legal representative, and Gu Zhifu was newly appointed as the financial director on December 29, 2025.

Bonasia stated that Guangdong Weilin has been focusing on developing digital solutions for clinical trials, and this acquisition aims to strengthen the company's internal digital capabilities. However, the fairness of the price and the integration effects of this related-party transaction will become key points of interest for regulators. According to the company's accounting policy, the acquisition is considered a business combination under common control, and Guangdong Weilin's financial performance and status since the historical record period starting from 2023 will be retrospectively consolidated into the company's comprehensive financial statements.

Additionally, the company's equity structure has drawn market attention. As of the date of this document, Mr. Zhao Min controls approximately 78.33% of the company's total issued share capital, including about 61.01% direct equity and approximately 12.99% and 4.33% indirect equity held by Boda Innovation and Bohua Innovation, respectively. Immediately following the completion of the global offering, Mr. Zhao Min will directly and indirectly control a certain percentage of the company's total issued share capital through Boda Innovation and Bohua Innovation.

In terms of competitive landscape, the Sino Biopharm clinical research services market is highly fragmented. According to a Frost & Sullivan report, the top five clinical CROs in China accounted for 29.9% of the total clinical CRO market by revenue in 2024. Bonasia faces fierce competition from leading China-based CROs such as Tigermed, Novelpharm, and Pharmaron, as well as numerous small and medium-sized CROs and in-house R&D departments of biopharmaceutical companies. The company acknowledges in its prospectus that it faces intense market competition both domestically and internationally, and digital capabilities will be the key to differentiated competition.

However, the application of AI technology in the clinical CRO field is still in its early stages. The company's prospectus outlines a strategy to strengthen the AI-driven clinical CRO model, covering the use of LLM large language models, AI agents, and the development and integration of Guangdong Weilin's digital solutions with existing digital systems. The commercialization of these cutting-edge technologies requires time to validate, and whether the company's limited financial resources can sustain this long-term investment remains a point of ongoing concern. (Harbor Finance)

"Harbor Business Observation" Xu Huijing

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