(Yicai Global) Jan. 8 -- Wenzhou Kangning Hospital Co. [HK:2120], one of the leading players in this field, is preparing for an initial public offering on the A-share market, two years after its stock listed in Hong Kong.

The firm plans to issue up to 8.1155 million shares on the Shanghai Stock Exchange, and the proceeds will go to fund an extension project in its hospital in Cangnan, a hospital construction project in Pingyang and a training center project in Wenzhou, all in China's southeastern Zhejiang province, per the IPO prospectus that China Securities Regulatory Commission recently posted online.

The company formed in 1996 as a mental hospital, and it has since established itself as the largest private mental asylum in China, public information shows. Its revenues in 2014, 2015, 2016 and the first half of 2017 were CNY296 million (USD46 million), CNY344 million, CNY415 million and CNY2.83 million, respectively, with overall gross margins standing at 39 percent, 38 percent, 34.5 percent and 32 percent, per its prospectus.

The firm has three revenue earners -- clinical and other medical services, drug sales and management service, the profit model disclosed in the prospectus reveals.

The first item refers to beds, medical examination, treatment and nursing services the hospital provides for both inpatients and outpatients, making up about 70 percent of its core business income.

The total number of bed-days and the daily treatment spending per bed at Kangning Hospital have increased steadily over the years, the prospectus shows. The total bed-day number was up from 615,242 in 2014 to 815,883 in 2016, and the daily average spending per bed from CNY312 in 2014 to CNY329. Wenzhou Kangning Hospital registered the highest treatment spending per bed of CNY421 per day in 2016.

"Judging by its cash flow, Kangning Hospital does not need an IPO to finance the three projects at all," an analyst at a private equity firm told China.org.cn. As of June 30, the firm had CNY360 million on the books, and almost all the money was in bank deposits. In other words, its cash reserve is equivalent to 1.86 times the proposed IPO size.

"For most companies, major shareholders can benefit the most from an A-share market flotation. In many cases, shareholders chose to reap high returns on investment after the lock-up period," the analyst added.

The number of China's registered patients with serious mental disorders reached 5.4 million by last year's end, statistics from the National Health and Family Planning Commission indicate.

The ranks of mental patients have caused psychiatric hospitals in the country to flourish in recent years.