600 million yuan acquisition of major shareholder's assets, Tongce Medical faces inquiry

Jingjing News reporter Su Hao, Lu Zikun, Beijing report

On March 24, an announcement once again pushed Tongce Medical (“Yamao”) (600763.SH) to the forefront of attention.

According to the announcement, the company plans to acquire 100% equity interests in four companies—Hangzhou Cunji Glasses Co., Ltd. (hereinafter referred to as “Hangzhou Cunji”), Ningbo Guangji Optometry & Vision Technology Co., Ltd. (hereinafter referred to as “Ningbo Guangji”), Hangzhou Guangji Optometry & Vision Technology Co., Ltd. (hereinafter referred to as “Hangzhou Guangji”), and Xinchang Guangji Eyeglasses Co., Ltd. (hereinafter referred to as “Xinchang Guangji”)—using RMB 600 million of its own funds.

This seemingly ordinary transaction, however, has drawn widespread market attention due to its related-party nature, the “quality asset + loss-making asset” bundling model, an appraisal value increase rate of over 12x, and a regulator work letter issued by the exchange on an urgent timetable.

In response to the specific details of this acquisition, on March 30, a reporter from The China Business News sent a letter and made a call to Tongce Medical requesting an interview. A staff member from its securities department said that they are currently working on preparing the reply to the regulator’s work letter, and that they will provide explanations after the company’s official response.

On April 2, Tongce Medical released an announcement regarding its reply to the Shanghai Stock Exchange’s work letter. It stated that the assets underlying the acquisition possess notably strong financial quality characteristics and will have a direct and positive impact on the listed company’s financial statements. At the same time, as optometry and vision care is the core business of ophthalmic medical services, and as a supplement to dental medical services, it will enhance the company’s overall ability to withstand cyclical volatility. In addition, the optimization of the business structure of the target assets and their excellent cash flow performance will help the listed company improve its overall asset turnover rate and cash collection capability, further strengthening financial resilience.

“Bundled sale” draws attention

The announcement shows that the counterparty for Tongce Medical’s transaction is Zhejiang Tongce Ophthalmology Hospital Investment and Management Co., Ltd. (hereinafter referred to as “Tongce Ophthalmology Investment”). This company is controlled by Lü Jianming, the actual controller of Tongce Medical, and therefore constitutes a related-party transaction. The announcement also states clearly that the transaction does not constitute a material asset restructuring and still needs to be submitted to the shareholders’ meeting for consideration.

Looking at it in detail, the operating conditions of the four target companies show extreme “polarization.” Among them, the core profit-generating asset is Hangzhou Cunji. The company was established in 2017 and is a retail and services company for optometry products. Relying on the Hangzhou Cunji Eye Hospital, it is the core asset held by Tongce Ophthalmology Investment.

According to financial data, in 2025 Hangzhou Cunji generated operating revenue of RMB 153 million and net profit of RMB 55.5848 million, with a net profit margin as high as 36%, having already formed a stable profit model.

However, it is precisely this company with strong profitability whose appraisal value increase rate reaches as high as 1,282.14%. As of the appraisal benchmark date December 31, 2025, Hangzhou Cunji’s net assets were RMB 50.8779 million, while the appraisal value under the income approach was as high as RMB 703 million. Based on the transaction pricing of RMB 600 million, the overall premium rate still stands at 1,066.30%.

For this high premium, the appraisal institution Zhejiang Zhonglian Asset Appraisal Co., Ltd. explained in its reply to the work letter from the Shanghai Stock Exchange that Hangzhou Cunji operates under a light-asset model, and in recent years its operating performance has been strong. The company distributes profits every year, and its net asset size at the benchmark date is not large, which leads to a relatively high appraisal value increase rate. From historical dividend data, between 2021 and 2024, the company distributed 100% of its net profit for each year; over four years, cumulative dividends exceeded RMB 200 million.

If measured by price-to-earnings ratio, Hangzhou Cunji’s static P/E is approximately 12.65 times (based on the RMB 600 million consideration and 2025 net profit). The appraisal institution compared this valuation with acquisition cases of Oupu Kangshi in recent years, concluding that it is within a reasonable range for the industry—the comparable transaction premium-rate range is 193.71% to 1,608.96%, with an average of 700.47%.

Meanwhile, bundled and sold together with the core asset are three other companies that are loss-making or have not yet commenced operations: Ningbo Guangji was established in 2022, with 2025 revenue of only RMB 455.2k and net profit of minus RMB 72k; Xinchang Guangji was established in 2024, with 2025 revenue of RMB 1.0118 million and net profit of minus RMB 77.5k; Hangzhou Guangji was established in 2019 and, as of the date of the announcement, has not actually carried out any business. These three asset holdings were transferred for zero consideration or nominal consideration and are included in the total transaction consideration of RMB 600 million.

To ease concerns about the high-premium acquisition, the transaction counterparty made performance commitments at the same time: the core target Hangzhou Cunji’s cumulative net profits for 2026–2028 will not be less than RMB 180 million; cumulative net profits for 2026–2030 will not be less than RMB 300 million. A dual cash compensation mechanism of “three-year settlement + five-year final settlement” was also set up, with a compensation cap of 100% of the equity transfer payment of RMB 600 million.

Worth noting is that the transaction counterparty only set performance commitments for the core asset Hangzhou Cunji, but did not set any performance-guarantee clauses for the other three “burden” assets—meaning the subsequent operating risks are entirely borne by the listed company.

In fact, this kind of combination package of “mature assets + cultivated assets” is not uncommon in capital operations. By bundling high-quality assets together with loss-making assets, the listed company obtains a growth engine in terms of profitability on one hand, while on the other hand it also resolves the problem of exiting non-quality assets for the actual controller. However, the market questions are that this model is precisely an embodiment of the actual controller maximizing personal interests—exiting the core assets at a high price while successfully stripping out non-quality assets personally held.

In response, Tongce Medical stated: “There is no situation in this transaction where interests are transferred to the controlling shareholder and its related parties, and there is no situation where the lawful rights and interests of the listed company and its minority shareholders are harmed.”

Growth hits a bottleneck

To understand the logic behind Tongce Medical’s related-party transaction, it is necessary to examine the operating difficulties the company is currently facing.

Tongce Medical was once known as “Yamao” and, thanks to its unique expansion model of “regional center hospitals + chain clinics,” it laid out nearly 30 dental hospitals nationwide, with Hangzhou Stomatology Hospital among the largest global dental specialty hospitals. From 2017 to 2021, the company’s stock price surged more than 20 times, and its market value at one point exceeded RMB 135 billion, making it one of the most influential leading companies in the medical services sector.

However, good times did not last. In 2022, Tongce Medical’s performance became a turning point. In that year, the company delivered its first annual results since going public with both revenue and net profit declining: revenue for the same period was RMB 455.2k, down 2.23% year over year; attributable net profit was RMB 548 million, down 21.99% year over year.

In 2024, the company’s revenue was RMB 72k, up only 0.96%; net profit was RMB 501 million, up 0.20%. Although the downward trend was halted, growth almost came to a standstill. In the first three quarters of 2025, although the company’s performance gradually recovered—with revenue of RMB 77.5k, up 2.56% year over year, and net profit of RMB 514 million, up 3.16% year over year—its growth rate still remained significantly below the industry average.

From the business structure perspective, there are mainly two core reasons for performance fluctuations: first, the implementation of the central procurement program for dental implants compressed profit margins in its high-gross-margin business; although it maintained business scale through “volume to offset price,” the consolidated gross margin kept falling. Second, elective consumption businesses such as orthodontics have declined for three consecutive years due to weak consumer demand; in 2024, orthodontics revenue fell 5.05% year over year.

Against this backdrop, Tongce Medical urgently needs to find a second growth curve.

According to materials, Tongce Medical began laying out the ophthalmology sector as early as 2017. In that year, the company indirectly entered the ophthalmology sector by participating in the investment management of Zhejiang Tongce Ophthalmology Hospital Investment and Management Co., Ltd. In May 2017, Zhejiang Tongce Holding Group signed the “Cooperation Agreement” with Zhejiang University and the Second Affiliated Hospital of Zhejiang University Medical College. Under the agreement, Zhejiang Tongce Holding Group, as the investor, would build Zhejiang Guangji Eye Hospital; the cooperation term would be 20 years (from May 2017 to May 2037). During the cooperation period, the ophthalmology hospital would be managed under a custody arrangement implemented by Zhejiang Two.

In 2021, Tongce Medical’s official website explicitly listed ophthalmology as a strategic business segment, proposing to rely on the ophthalmology hospital of Zhejiang University (Zhejiang University Second Affiliated Hospital Eye Center) to build a domestic leading and internationally first-class optometry and vision care center. In 2023, the company further increased its shareholding in the ophthalmology investment and also explicitly stated that the ophthalmology business is intended to open a second growth curve beyond dentistry.

The four optometry and vision care companies to be acquired in this deal are precisely mature assets cultivated by the actual controller over the years, injected into the listed company with the aim of quickly reflecting performance on the financial statements. The company’s announcement states that bringing the target assets onto the consolidated statements will directly enhance the listed company’s profitability and earnings per share, improving the certainty and sustainability of earnings growth.

Tongce Medical claims that optometry and vision care services and dental medical services are highly aligned in terms of business attributes, enabling space reuse and complementary customer life cycles. Specifically, the company plans to establish optometry and vision care zones at existing dental hospital branches, enabling space reuse at different time slots and team integration, thereby significantly improving the efficiency of existing premises and human resources.

However, whether a true cross-industry transformation from “silver teeth” to “golden eyes” can be supported by just these optometry and vision care companies acquired in this deal still remains to be answered with a question mark.

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