On September 14, CR MEDICAL (01515.HK) announced the official conclusion of its long-standing IOT (Invest-Operate-Transfer) agreement with Beijing Yanhua Hospital. A court ruling confirmed the agreement's termination in July 2025, with Yanhua Hospital required to return and pay approximately 348 million yuan to the company. The judgment took effect on September 11, 2026, bringing a seven-year dispute to a close and marking the complete exit of the company's flagship IOT project, which had operated for 15 years.

Historically, Yanhua Hospital served as a hallmark example of CR MEDICAL's IOT model. In 2008, the company invested 72 million yuan to secure hospital operating rights under an agreement originally valid until 2055. However, disagreements over management fees and supply chain settlements emerged in 2019, gradually escalating tensions. By 2022, the company filed a lawsuit, initially seeking debt recovery before shifting its claim to full termination of the agreement, ultimately securing a favorable ruling after multiple judicial rounds. Notably, despite the court victory, the company has not disclosed specific arrangements for collecting the 348 million yuan, leaving uncertainty over whether the full amount will be realized.

IOT Business Contraction Exposes Revenue Concentration Risk

The conclusion of the Yanhua project reflects the broader retreat of CR MEDICAL's IOT segment. As this division phases out, the company's revenue has become increasingly dependent on its wholly-owned hospitals, whose performance now largely dictates overall results, significantly amplifying the risk of an undiversified business structure.

Financial data clearly illustrate this shift. From 2023 to 2025, total revenue declined from a peak of 10.108 billion yuan to 9.176 billion yuan. Hospital business revenue as a share of total revenue rose steadily, reaching 93.1%, 93.2%, and 94.5% respectively. Meanwhile, other business revenue, encompassing IOT management fees, supply chain, and management services, fell consistently, dropping 25.3% year-on-year in 2025. In the first half of 2026, other business revenue further plunged 39.2% year-on-year, with net profit attributable to shareholders down 21.98%, underscoring mounting performance pressure.

The management fees and supply chain gains once generated by the IOT business are rapidly disappearing, yet the company has not disclosed clear asset disposal or acquisition plans, leaving no defined path to fill the revenue gap left by the former operations.

Medical Insurance Cost Controls Squeeze Core Profits, New Ventures Struggle to Drive Growth

On the external policy front, the full implementation of DRG/DIP 2.0 and the shift in medical insurance payment models directly cap hospital revenue ceilings, exerting sustained pressure on CR MEDICAL's wholly-owned hospital operations. While outpatient visits have maintained growth, per-visit revenue continues to decline: in 2025, per-visit outpatient and emergency revenue fell 6.6%, and per-admission inpatient revenue dropped 4.9%, dragging hospital business gross margin down to 15.8%. In the first half of 2026, outpatient and emergency visits grew 5.2%, but per-visit revenue still decreased 6.1%. The rise in patient volume has failed to offset profit erosion from lower unit prices, constraining the profitability of the core business.

To address these challenges, CR MEDICAL has outlined in its "15th Five-Year" strategy plans to develop three tracks: comprehensive medical services, smart health services, and derivative health products, aiming to shift from "medical care" to "health." However, these new ventures remain in early-stage development: a health mall has been launched, pharmacies are operational, derivative health products are only in pilot phase, and the smart health service system is still being built. Revenue contributions are currently minimal, far from establishing a reliable second growth curve.

With the old IOT business exiting faster, traditional hospital operations constrained by medical insurance cost controls, and transformation initiatives still in their infancy, CR MEDICAL finds itself in an awkward position of revenue shortfall. How to mitigate revenue concentration risk, improve hospital profitability, and effectively implement new business lines will be critical tests for this central state-owned healthcare platform moving forward.