Two Acquisitions with Performance Reversals Still Completed at 24x Premium, Sapu Love Thinking Lin Brothers' Asset Shuffling Questioned by Exchange Late-Night Inquiry Letter

Question: Why did the high premium acquisition of AI Shapuaisi trigger overnight regulatory inquiries?

(Image source: Visual China)

Blue Whale News, March 18th (Reporter Shao Yuting) On the evening of March 17th, Shapuaisi (603168.SH) issued a major related-party transaction announcement, stating that it plans to acquire 100% equity of Shanghai Qinli Industrial Co., Ltd. (hereinafter “Qinli”) held by Shanghai Yihe Medical Management Co., Ltd. (“Yihe Medical”) and Shanghai Yanghe Industrial Co., Ltd. (“Yanghe Industrial”) for 528 million yuan in cash.

After the completion of this acquisition, Shapuaisi will indirectly hold 100% of Shanghai Tianlun Hospital Co., Ltd. (“Tianlun Hospital”), a core asset under Shanghai Qinli, further expanding its healthcare service segment. The ultimate shareholders behind this asset are Lin Hongli and Lin Hongyuan, who are the actual controllers of Shapuaisi.

However, this acquisition, with an appraisal appreciation rate of 2,417.87%, the special nature of related-party transactions, and Shapuaisi’s recent underperformance, quickly drew market attention and regulatory inquiries. The Shanghai Stock Exchange issued an inquiry letter on the same night, requesting the company to explain issues such as valuation reasonableness, achievement of performance commitments, and funding capacity.

Behind this acquisition, brothers Lin Hongli and Lin Hongyuan, from one of the “Putian system” hospital families, have repeatedly injected their assets into listed companies at high premiums after gaining control, potentially exposing the company to high debt and goodwill impairment risks, with some assets failing to meet performance expectations. Based on this background, the SSE promptly issued inquiries, focusing on whether the transaction involves benefit transfer to related parties, and raising controversy over “high premium acquisition of actual controller’s assets.”

The 2,417.87% appreciation rate has sparked controversy, with a performance commitment of 112 million yuan as a safeguard

Data shows that Shapuaisi, founded in 1978, became famous nationwide with the slogan “If you have cataracts, use Shapuaisi,” and its core product, Bendaryl amino acid eye drops, once dominated the market. It was listed on the Shanghai Stock Exchange Main Board in 2014. However, with stricter pharmaceutical industry regulation and increased market competition, Shapuaisi’s core drug business has gradually hit growth bottlenecks, with recent sales fluctuations.

In this context, since 2020, Shapuaisi has attempted to expand into healthcare services through acquisitions, aiming to reduce reliance on a single drug. The proposed acquisition of Tianlun Hospital is a key part of this strategy, also positioned as a move to address potential industry competition and boost the silver economy.

According to the announcement, the target company, Shanghai Qinli, was established in July 2022, with Lin Hongli as legal representative. Its core asset is a wholly owned subsidiary, Tianlun Hospital. Located in Hongkou District, Shanghai, Tianlun Hospital is a comprehensive medical institution focusing on middle-aged and elderly patients, integrating medical treatment, prevention, and health care, with well-equipped departments mainly providing elderly disease diagnosis, rehabilitation, and related services.

Shapuaisi emphasized that after the transaction, Tianlun Hospital will undergo systematic integration, leveraging capital market operations to enhance its brand and financing capacity, rapidly expanding its scale, and creating synergy with its subsidiaries, such as Taizhou Women and Children’s Hospital and Qingdao Sight & Vision Eye Hospital, to further improve its medical service network.

Additionally, Shapuaisi clarified that this acquisition is also an important step in fulfilling the actual controller’s promise to resolve industry competition. Tianlun Hospital is controlled by the actual controllers Lin Hongli and Lin Hongyuan, and there is potential industry competition with Shapuaisi’s wholly owned subsidiary, Taizhou Women and Children’s Hospital. The brothers have previously made commitments to gradually resolve this issue, and this acquisition is a concrete action to fulfill that promise.

Regarding the performance of the target company, Shanghai Qinli has shown some growth in recent years. The announcement states that in 2024 and 2025, the company is expected to achieve revenues of 134 million yuan and 157 million yuan, with net profits of approximately 18.99 million yuan and 27.14 million yuan, respectively.

However, compared to the performance of the target, the valuation level of this transaction has attracted more attention and become a core point of controversy.

According to the asset appraisal report, the valuation of 100% equity of Shanghai Qinli was conducted using the income approach. As of December 31, 2025, the book value of the consolidated equity was only about 20.97 million yuan, while the appraisal value reached 528 million yuan, with an appreciation of 507 million yuan, a rate of 2,417.87%.

Such a high appreciation rate is uncommon in similar M&A transactions in the A-share market, raising doubts about the fairness of the valuation. According to a research report, the average appreciation rates for M&A events in 2023-2024 in the A-share market were 487.15% and 297.52%; in the pharmaceutical and biological industry, the averages were 831.32% and 801.5%.

In response, Shapuaisi attempted to justify the valuation by comparing it with recent industry M&A cases, listing eight comparable transactions, including Yingkang Life and Samsung Medical. The counterparties also made performance commitments, promising that Shanghai Qinli would achieve net profits of no less than 32.4 million yuan, 37.3 million yuan, and 42.65 million yuan in 2026, 2027, and 2028, respectively, with a total net profit of no less than 112 million yuan.

Shapuaisi stated that setting performance commitments can effectively protect the interests of listed companies and minority shareholders, reducing acquisition risks. It also forecasted that from 2026 to 2031, Shanghai Qinli’s revenue growth rates would be 9.50%, 8.34%, 7.52%, 6.37%, 5.79%, and 5.39%, respectively, reaching 238 million yuan in revenue and 56.34 million yuan in net profit by 2031.

The secondary market responded briefly positively to the acquisition news. On March 18, Shapuaisi’s stock opened sharply higher, hitting the daily limit within 20 minutes of trading. By the close, the stock price was 7.8 yuan per share, up 10.01%, with a total market value of 2.918 billion yuan.

Actual controller’s assets: “Left hand to right hand” — previous two asset injections did not meet expectations

However, doubts from the market and regulators remain.

On the evening of March 17th, the SSE issued an inquiry letter overnight, asking about the reasonableness of the high premium, the feasibility of the performance commitments, and the company’s funding capacity, requiring written responses within five trading days and disclosure obligations.

The inquiry first focused on valuation reasonableness, asking Shapuaisi to explain the basis and achievability of future revenue growth forecasts, and whether the transaction involves benefit transfer to related parties or damages to the company’s interests.

The inquiry also pointed to two previous high-premium acquisitions of actual controller assets by Shapuaisi, which failed.

Public information shows that in October 2020, Shapuaisi acquired 100% of Taizhou Women and Children’s Hospital for 502 million yuan, with an appreciation rate of 278.88%, and the seller’s performance commitment was a total net profit of at least 110 million yuan from 2020 to 2022. In January 2023, the company bought Qingdao Sight & Vision Eye Hospital for 66.5 million yuan, with an appreciation rate of 299.51%, and a commitment of at least 13.5 million yuan in net profit from 2022 to 2024.

However, after the commitments ended, both hospitals’ performance declined. Taizhou Hospital’s 2024 business growth fell short, leading to a goodwill impairment of nearly 30 million yuan. According to the 2025 earnings forecast, the company expects a net loss attributable to shareholders of -3.19 billion to -2.13 billion yuan, the largest since listing, mainly due to large impairment provisions on goodwill from these hospitals.

After two failed attempts, why does Shapuaisi still insist on acquiring related assets?

Data shows that Lin Hongli and Lin Hongyuan are sons of Lin Chunguang, from the “Putian system” hospital families. It is noted that shortly after becoming the actual controllers of Shapuaisi, the brothers signed non-compete commitments, promising to transfer their hospital assets to the listed company or third parties within 48 months after asset commitments are fulfilled. Subsequently, they pushed their medical assets into the company, despite the high valuation premiums, insisting on cash acquisitions.

In 2024, the brothers led Shapuaisi to jointly acquire a 26.49% stake in Shengwugu Biological Valley at a high price of 456 million yuan via judicial auction, with a unit price exceeding 13.91 yuan per share, a premium of over 40% over previous auction prices. Later, on September 24, 2024, they announced a 36-month extension of the “avoid industry competition” commitment.

As of July 2025, this investment has already lost over 80 million yuan.

Now, the brothers are again using the “avoid industry competition” excuse to reintroduce related hospitals into Shapuaisi. Some voices question whether the cash used for acquiring Tianlun Hospital will be used to cover previous high-cost acquisitions’ losses.

The SSE is particularly attentive to these two high-premium acquisitions, requiring Shapuaisi to clarify the feasibility of the current performance commitments and, based on past lessons, explain what measures will be taken to ensure Tianlun Hospital’s stable operation after the commitment period, preventing performance “face-changing” risks.

Cash on hand only 2.23 billion yuan, funding capacity under scrutiny

It is also noteworthy that Shapuaisi’s funding capacity is a major concern for this acquisition.

According to the announcement, the total consideration of 528 million yuan will be paid in cash in five installments, with the first two installments totaling about 370 million yuan, payable within 10 working days after the change of ownership registration. The remaining payments depend on Tianlun Hospital’s performance commitments.

However, recent financial data suggest the company’s cash reserves may be insufficient for such a large cash outlay.

Shapuaisi’s Q3 2025 report shows that as of September 30, 2025, the company’s cash and cash equivalents were about 101 million yuan, and trading financial assets about 122 million yuan, totaling only approximately 223 million yuan, far below the 370 million yuan needed for the first two payments, and nowhere near the total 528 million yuan.

With only 2.23 billion yuan in cash, this situation has attracted regulatory attention. The SSE asked Shapuaisi late at night about the source of funds.

The inquiry requires the company to explain how it plans to raise the funds, considering available cash, operating cash flow, bank credit limits, and progress of acquisition loans. It also asks about the impact of this large cash outlay on liquidity, debt repayment ability, and ongoing operations, and whether there is a risk of transaction failure due to insufficient funds.

Overall, Shapuaisi’s financial situation underscores the urgency and difficulties in its transformation process.

Core drug sales are sluggish, and the healthcare service segment has yet to establish stable profitability, forcing Shapuaisi to accelerate asset integration. The actual controller’s medical assets have become a key means of rapid expansion, but repeated high-premium acquisitions of related assets, coupled with performance “face-changing,” have sounded alarm bells for the company.