New Stock Preview | From Loss to Profit: Dissecting the Merger and Acquisition Growth Logic and Financial Risks of Beijing Tongrentang Health Care

In recent years, with the accelerated aging process in China, the medical and health industry has seen explosive growth. After the listing of Beijing Tongrentang, TONG REN TANG, and TONGRENTANGCM, if Beijing Tongrentang Medical Care and Health successfully goes public this time, it will become the fourth listed company under Beijing Tongrentang Group. According to the Hong Kong Stock Exchange, Beijing Tongrentang Medical Care and Health Investment Co., Ltd. (Beijing Tongrentang Medical Care and Health) has submitted the third application for a Hong Kong stock IPO, with CICC as the sole sponsor. This Chinese medicine service platform, which focuses on "medical and health integration," has made a new application just 6 months after the last application. Previously, the company attempted to go public twice in June 28, 2024, and December 31, 2024, but was unable to proceed due to the expiration of the prospectus. If Beijing Tongrentang Medical Care and Health's IPO is successful this time, it will become the third Hong Kong-listed company under Beijing Tongrentang. Previously, TONG REN TANG and TONGRENTANGCM have been listed on the Hong Kong Stock Exchange, forming a "one mother, three sons" capital structure, constructing a Hong Kong stock triangle structure of "medical industry + retail + medical care," covering the entire industry chain of traditional Chinese medicine. Relying on acquisition to expand Annual revenue approaching 1.2 billion RMB The prospectus shows that Beijing Tongrentang Medical Care and Health is a traditional Chinese medicine healthcare group. It provides comprehensive traditional Chinese medical services to individual customers, standardized management services to institutional customers, and various pharmaceutical products and other products. The company combines "medicine" and "care", offering modern and customized traditional Chinese medical services, and combining traditional Chinese medicine drug therapy and non-drug therapy, providing suitable treatment plans for customers with standardized management to meet their diverse needs. As of June 24, 2025, the company has established a hierarchical medical service network, including 12 self-owned offline medical institutions and an Internet hospital, as well as 10 offline managed medical institutions. The company relies on the well-known brand "Beijing Tongrentang" and quality drugs, and has accumulated and integrated a large number of medical resources from Wuxi Online Offline Communication Information Technology Co., Ltd. According to the total outpatient and inpatient visits in 2024, the company is the largest traditional Chinese medicine hospital group in China's non-public traditional Chinese medicine service industry, with a market share of 1.7%. In terms of total medical service revenue in 2024, the company ranks second in the non-public traditional Chinese medicine service industry with a market share of 0.2%. Its market size accounts for 46.5% of the total market size of China's traditional Chinese medicine service industry in the same year. From a financial perspective, from 2022 to 2024, Beijing Tongrentang Medical Care and Health achieved revenues of approximately 911 million RMB, 1.15 billion RMB, and 1.17 billion RMB respectively; during the same period, the annual profits were -923.3 million RMB, 42.63 million RMB, and 46.197 million RMB respectively. In terms of revenue structure, the company's revenue mainly comes from medical services, management services, sales of health products, and other products. In terms of medical services, traditional Chinese medicine accounts for more than 80% of the total revenue in the period, making it the main business of the company. The sales of health products account for 14% of the revenue, with a significant increase in profits in recent years, mainly due to the popular sales of the Angong Niuhuang pills series. In fact, the core driving force that Beijing Tongrentang Medical Care and Health have turned losses into profits mainly comes from acquisitions. In 2022, Beijing Tongrentang Medical Care and Health signed a series of equity transfer agreements and supplemental agreements, acquiring 65% equity in Sanxi Hall Health Center and Sanxi Hall Chinese Medicine Store, and the two companies were included in the financial statements that year. The two companies have contributed a substantial amount of revenue to Beijing Tongrentang Medical Care and Health, with a total revenue of approximately 199 million RMB, 360 million RMB, and 374 million RMB from 2022 to 2024, accounting for 21.9%, 31.2%, and 31.8% of the total revenue that year. In addition, in 2022 to 2024, the gross profit of the two companies accounted for 44.8%, 44.6%, and 41.3% of the total gross profit of the company in the same year. With the push from the two companies, Beijing Tongrentang Medical Care and Health quickly turned losses into profits. In 2024, Beijing Tongrentang Medical Care and Health continued to expand by acquiring Shanghai Chengzhitang and Shanghai Zhonghetang, holding 70% and 60% of the shares respectively. With the push from these two companies, the revenue generated from medical services in the first 4 months of 2025 increased by over 3% compared to the previous year. In the coming years, Beijing Tongrentang Medical Care and Health will continue to expand. The prospectus reveals that the company plans to acquire 5 for-profit medical institutions by the end of 2029, with a strategic focus on economically active areas such as Beijing, the Yangtze River Delta, Central China, and the Greater Bay Area. In fact, the strategic focus of Beijing Tongrentang Medical Care and Health can be seen from these acquisition cases. Sanxi Hall Health Center and Sanxi Hall Chinese Medicine Store are located in Yiwu City, Zhejiang Province, while Shanghai Chengzhitang and Shanghai Zhonghetang are located in Shanghai. "Acquisition-led" business goodwill increases Struggling to break out in a competitive track Financially, continuous acquisitions test a company's ability to sustain growth. Cash flow is required for continued acquisitions. As of December 31, 2024, Beijing Tongrentang Medical Care and Health had a total cash and cash equivalents of 297 million RMB, a decrease from December 31, 2022. At the same time, Beijing Tongrentang Medical Care and Health's debt ratio has been rising, from less than 10% in 2021 to around 40% from 2022 to 2024, at 39.7%, 35.1%, and 45.2% respectively. Furthermore, multiple acquisitions have led to a significant increase in Beijing Tongrentang Medical Care and Health's business goodwill. In 2021, the goodwill was valued at 26 million RMB, but after acquiring the two Sanxi Hall companies in 2022, it increased to 187 million RMB. In June 2023, Beijing Tongrentang Medical Care and Health transferred the equity of 7 non-profit medical institutions to Beijing Tongrentang Kangyang, reducing the goodwill value by 13.9% to 161 million RMB that year. However, after the acquisition of Shanghai Chengzhitang and Shanghai Zhonghetang in 2024, the goodwill increased to a high of 263 million RMB, a 63.4% increase from the previous year. In 2024, the net assets of Beijing Tongrentang Medical Care and Health were 707 million RMB, with goodwill accounting for 37% of the net assets. For listed companies, a goodwill-to-asset ratio below 30% is generally considered a safe range. Additionally, Beijing Tongrentang Medical Care and Health have pledged shares of the acquired companies for loans. The prospectus reveals that Beijing Tongrentang Medical Care and Health has pledged 43.74% of the equity of Sanxi Hall Health Center and 43.75% of the equity of Sanxi Hall Chinese Medicine Store to a commercial bank, and also pledged the 70% equity of Shanghai Chengzhitang to another commercial bank, in order to obtain bank credit financing for the acquisition transactions. As of April 30, the total outstanding balance of the bank loans was 142 million RMB. On an industry level, the pursuit of rapid expansion by companies is driven by the increasing acceptance of traditional Chinese medicine in recent years. With economic development and the continuous increase in disposable income per capita, Chinese residents' awareness of preventive healthcare, chronic disease management, and overall health is growing, driving the demand for traditional Chinese medical services. According to the total revenue generated by traditional Chinese medical service providers, the market size of China's traditional Chinese medical service industry has grown from 659.9 billion RMB in 2019 to 897.6 billion RMB in 2023, with a compound annual growth rate of 8.0%, accounting for 13.9% of the total market share of China's medical service industry in 2023. According to Frost Sullivan's data, the market size is expected to grow significantly, reaching 1.478 trillion RMB in 2028, with a compound annual growth rate of 10.2% from 2024 to 2028, accounting for 15.55% of the total market share of China's medical service industry in 2028. Although China's traditional Chinese medical service industry is growing rapidly, the competition is fierce and highly fragmented. While Beijing Tongrentang Medical Care and Health ranks second in terms of outpatient medical service revenue in 2024, its market share is only 0.2%, indicating high fragmentation in the industry. Beijing Tongrentang Medical Care and Health also stated in the prospectus that the company operates in a fiercely competitive and fragmented market environment, mainly competing with various traditional Chinese medical service institutions and comprehensive hospitals with traditional Chinese medicine departments in the same region. Beijing Tongrentang Medical Care and Health is in a race track of prosperity, but the industry's competition is fierce and highly fragmented. The traditional Chinese medicine is deeply tied to famous doctors, making it difficult to replicate and expand, so it is not easy to achieve rapid expansion through self-construction. The fastest way to expand is through "acquisition-led" growth, but this approach can bring a lot of goodwill that can easily lead to impairment, and the performance may not be realized. In addition, "acquisition-led" growth requires substantial financial support, which Beijing Tongrentang Medical Care and Health currently does not have enough cash to support for continued large-scale acquisitions. Therefore, going public and financing is the best way for the company. In conclusion, Beijing Tongrentang Medical Care and Health's path to capitalization is a microcosm of the transformation of traditional time-honored brands into modern medical and health services. In the short term, it needs to "borrow capital for blood transfusion", and in the long term, it needs to "rely on operations for blood cell formation." If it can balance scale and efficiency, it may become a benchmark enterprise in the traditional Chinese medicine and healthcare industry; if it overly relies on acquisitions and neglects internal cultivation, it may fall into a growth trap.