Authentic Product Holdings' net profit plummets by 90%: Over 90% of revenue depends on Watsons, with Deer Bone Pills supporting half of the business.

Ask AI · Relying on Wanning for Over 90% of Revenue—What Breakthroughs Does the Company’s Customer Diversification Strategy Have?

《Harbor Business Observation》Xu Huijing

Recently, Hong Kong health and beauty supplement supplier Zhengpin Holdings Limited (hereinafter referred to as Zhengpin Holdings) is once again making an attempt to push forward with the Hong Kong Stock Exchange.

On July 29, 2025, Zhengpin Holdings first submitted a listing application to the HKEX Main Board. BOC Capital Limited served as the sole sponsor. However, because the review process was not completed within six months, the initial filing later lapsed.

As a Hong Kong-based health brand, before submitting its filing, Zhengpin Holdings had already completed multiple rounds of financing and introduced institutional investors such as BOC International. Yet the company’s business model that is highly dependent on a single channel partner, its gross margin declining year by year, and multiple compliance issues are drawing heightened attention from the market.

1

Lukugu Pill props up half the business; net profit plunges sharply

According to the prospectus and Tianyancha, Zhengpin Holdings was established in 2011, and its predecessor was Zhengpin Pharmaceutical Co., Ltd. The company is mainly engaged in the development, sales, marketing, and distribution of health and beauty supplements. Its main products include deer-related health supplements, joint and pain products, and topical pain-relief products, among others. The company owns self-developed brands such as “Zhengpin,” “Yantongxiao,” “Organicpharm,” “Riyaotang,” “Weizhengsheng,” and “Profix.”

Financial data shows that in fiscal year 2023, fiscal year 2024, fiscal year 2025, and January–June 2026 (hereinafter referred to as the reporting period), Zhengpin Holdings recorded revenue of RMB 43.1930 million, RMB 110.0 million, RMB 130.0 million, and RMB 52.4420 million, respectively, while profit for the period was RMB 11.3130 million, RMB 35.4830 million, RMB 36.2570 million, and RMB 9.4400 million, respectively.

Judging from the growth trend, the company’s operating revenue maintained rapid growth from 2023 to 2025, with a compound annual growth rate of about 73.6%; however, in the first half of 2026, revenue fell by 1.0% year over year, and the growth rate clearly slowed. In terms of net profit, profits increased by 213.6% year over year during fiscal year 2024, but only increased by 2.2% in fiscal year 2025. From January to June 2026, profit fell sharply by 92.4% year over year, and the momentum for earnings clearly weakened.

Regarding the fluctuations in profit during the period, Zhengpin Holdings explained in the prospectus that the increase in profits in fiscal year 2024 was mainly due to: (1) an increase in revenue of about RMB 31.00 million generated by brand products “Growing Calcium,” “Xuanfei Bu,” “Yantongxiao,” and “Riyaotang,” because marketing and promotional activities were strengthened, and the market acceptance and recognition of the company’s self-owned brand products improved; (2) self-owned brands (including “Weizhengsheng” and “Profix”) contributed revenue of about RMB 20.00 million from newly launched products; and (3) after COVID-19 restrictions were removed in February 2023, the number of tourists visiting Hong Kong increased significantly.

The slight increase in profit in fiscal year 2025 was mainly due to: (1) an increase in revenue of about RMB 11.50 million generated by third-party brands. The reason was that after the company was appointed as the exclusive distributor for those two brands in Hong Kong and Macau in December 2023 and June 2024, respectively, the market acceptance and recognition of the brands’ products increased; (2) ongoing and effective marketing successfully enhanced brand awareness and recognition, continuously improving the brand awareness and popularity of “Growing Calcium,” resulting in an increase in revenue of about RMB 7.00 million; and (3) revenue generated by newly launched products in fiscal year 2025.

Profits in January–June 2026 decreased sharply to RMB 9.4400 million, mainly due to IPO expenses. The company stated that these expenses were one-off listing-related costs. After excluding this factor, adjusted profit (non-Hong Kong Financial Reporting Standards measurement) was RMB 10.8090 million.

In terms of product structure, deer-related health supplements are the company’s absolute mainstay. During the reporting period, revenue from deer-related health supplements was approximately RMB 17.8080 million, RMB 56.7150 million, RMB 70.2070 million, and RMB 31.00 million, respectively, accounting for approximately 41.2%, 51.7%, 53.9%, and 59.1% of total revenue, respectively. Among them, “Growing Calcium” and “Deer Tendon Bone Pain Pill” are the top two best-selling products for fiscal year 2025 by revenue.

Joint and pain products, as well as topical pain-relief products, are the second-largest product category. During the reporting period, revenue from this category was approximately RMB 8.6570 million, RMB 16.9150 million, RMB 22.8210 million, and RMB 6.9370 million, respectively, accounting for approximately 20.0%, 15.4%, 17.5%, and 13.2% of total revenue, respectively.

During the reporting period, the company’s gross margin was 81.6%, 78.6%, 75.0%, and 76.6%, respectively. Although it rebounded slightly over the six months of 2026, overall it showed a downward trend. Among them, the gross margin of the wholesale business fell from 81.2% in fiscal year 2023 to 74.5% in fiscal year 2025, while the gross margin of the retail business fell from 82.6% to 75.2%.

Regarding the decline in gross margin, Zhengpin Holdings explained that it was mainly due to changes in product mix, intensifying market competition, and adjustments to pricing strategies to expand market share.

Of note, the company has a situation of “distributing dividends before raising funds,” and dividends account for a relatively high proportion of net profit. As of the years ended March 31, 2023, 2024, and 2025, the company declared dividends to its controlling shareholder, Mr. Zhang Yunyu, of approximately RMB 14.40 million, RMB 10.20 million, and RMB 37.10 million, respectively, with cumulative dividends of about RMB 61.70 million, to offset balances related to amounts due to and from the ultimate controlling party. In fiscal year 2025, the dividend amount represented as much as 102.3% of the profit for the year, which is extremely high.

Famous economist Song Qinghui believes that before the IPO, the company continued to distribute large dividends in succession, mainly flowing to the actual controller, while the company’s performance saw a clear decline and net profit plunged by more than 90%. Cash flow tightened but shifted toward fundraising. This “distribute dividends first, then finance” arrangement is very likely to trigger market doubts regarding the transfer of benefits and the reasonableness of motivations.

From the perspective of corporate governance, dividends should be based on stable profitability quality and ample cash flow. Yet distributing large dividends during a period when performance is under pressure may weaken the company’s ability to withstand risks.

From the perspective of regulators and the market, even if such conduct does not necessarily constitute a direct violation of regulations, it will be closely watched for whether there is a suspicion of “extracting profits and letting the public investors take the bag,” which would in turn affect the assessment in the IPO review. For small and medium investors, this means that when they enter, the company is already at a stage where “profits have been distributed in advance and future uncertainty increases.” Therefore, potential returns and risks are clearly not asymmetrical. As a result, this approach would significantly damage market trust, depress valuation levels, and have a material negative impact on the reasonableness of the IPO and the issuance pricing.

In addition, in January 2026, the company obtained a new financing of RMB 7.30 million. The loan bears interest at a rate of Hong Kong Interbank Offered Rate (HIBOR) plus 2% for a period of one year. The loan is secured by personal guarantees provided by the controlling shareholder and pledged by insurance contracts for key management.

2

Customer concentration exceeds 90%; accounts receivable continue to rise

A major risk facing Zhengpin Holdings is extremely high customer concentration. During the reporting period, revenue from the company’s five largest customers was approximately RMB 39.10 million, RMB 98.00 million, RMB 109.0 million, and RMB 51.10 million, respectively, accounting for approximately 90.6%, 89.4%, 83.4%, and 97.5% of total revenue, respectively.

Among them, the Milk Company (Wanning’s parent company) has consistently been the company’s most core single customer. During the reporting period, revenue from the Milk Company was approximately RMB 38.50 million, RMB 84.00 million, RMB 97.10 million, and RMB 48.20 million, respectively, accounting for approximately 89.1%, 76.7%, 74.5%, and 91.9% of total revenue, respectively. From January to June 2026, the proportion rose again to above 90%.

The prospectus’ risk warning states that if the company is unable to maintain its relationship with the Milk Company, or expands its wholesale network in other ways, it may have a significant adverse impact on the company’s business. In addition, under the parties’ trade terms agreement, there is no minimum purchase amount or contract purchase guarantee. The Milk Company may reduce or stop placing orders at any time for any reason.

Song Qinghui said that Zhengpin Holdings has long earned more than 90% of its revenue from a single customer, Wanning. Essentially, this is a highly concentrated and fragile business structure. From the perspective of continuous operations, this means the company’s bargaining power is extremely weak; order stability depends entirely on the procurement strategy of the core customer. Once the cooperation relationship changes or the counterparty adjusts its supply chain, the company’s performance faces the risk of a cliff-like drop. More importantly, there is no long-term binding agreement between the two parties, and the lack of institutional constraints makes this dependence even more uncertain.

In the IPO review logic, regulators typically focus on “customer concentration + business independence.” With such an extreme single-customer structure, companies often need to provide sufficiently reasonable explanations and risk-mitigation measures; otherwise, they will be questioned as “quasi-outsourced subsidiary suppliers,” rather than companies with independent competitiveness.

From an investment value perspective, this model is difficult to support stable cash flow and long-term growth expectations, so the valuation should be discounted significantly. Overall, the model does not necessarily mean the company cannot be listed, but the prerequisites are full disclosure of risks, proof of stability of cooperation, and the ability to expand customers. Otherwise, both the reasonableness of its IPO and its long-term appeal for investors will face substantial controversy.

Supplier concentration is also relatively high. During the reporting period, the company’s purchases from the five largest suppliers were approximately RMB 6.20 million, RMB 22.20 million, RMB 22.30 million, and RMB 13.00 million, respectively, accounting for approximately 86.3%, 77.3%, 80.3%, and 77.1% of total purchase amounts, respectively. Among them, the largest supplier’s purchase amount accounted for approximately 55.6%, 34.5%, 27.8%, and 28.0%, respectively.

As the business scale expands, Zhengpin Holdings’ trade receivables continue to rise. At the end of each period during the reporting period, the company’s trade and other receivables were RMB 19.7530 million, RMB 44.9400 million, RMB 47.3890 million, and RMB 87.0750 million, respectively, accounting for approximately 89.7%, 83.9%, 91.1%, and 89.4% of current assets, respectively.

As of January 31, 2026, the amount further increased to RMB 87.7520 million, up 85.2% from March 31, 2025, far exceeding the revenue growth rate.

Among them, the amounts due from the Milk Company and other wholesale customers accounted for approximately 98.9%, 99.4%, 95.5%, and 99.5% of total trade receivables, respectively, highlighting prominent credit concentration risk. During the reporting period, overdue receivables were approximately RMB 0.1000 million, RMB 0.3000 million, RMB 0.4000 million, and RMB 0.7000 million, respectively, showing an upward trend.

At the end of each period during the reporting period, the company’s inventories were RMB 2.1560 million, RMB 7.9890 million, RMB 3.8210 million, and RMB 7.7370 million, respectively, accounting for approximately 9.8%, 14.9%, 7.3%, and 7.9% of current assets, respectively.

Specifically, as of March 31, 2024, inventories increased by approximately 270.5% compared with March 31, 2023, mainly due to an increase in inventories resulting from higher revenue. As of March 31, 2025, inventories decreased by approximately 52.2%, mainly due to a reduction in inventories caused by increased revenue close to the year-end. As of January 31, 2026, inventories increased by approximately 102.5% compared with March 31, 2025, mainly due to increased purchases made near the end of the period.

3

Imbalanced cost spending structure; frequent compliance issues

In terms of expense control, as the business scale expands, Zhengpin Holdings’ sales and distribution expenses continue to rise. During the reporting period, the company’s sales and distribution expenses were approximately RMB 14.9120 million, RMB 30.6300 million, RMB 36.4350 million, and RMB 18.8590 million, respectively, accounting for approximately 34.5%, 27.9%, 28.0%, and 36.0% of revenue, respectively.

Administrative and other operating expenses also grew noticeably. During the reporting period, such expenses were approximately RMB 6.8590 million, RMB 10.2010 million, RMB 15.3890 million, and RMB 7.7080 million, respectively, accounting for approximately 15.9%, 9.3%, 11.8%, and 14.7% of revenue, respectively. The company explained that this was mainly due to higher employee costs, increased rent expenses, and additional other administrative expenses incurred to support business expansion.

Regarding R&D, because the company adopts an asset-light operating model, product production is mainly outsourced to suppliers, and the company does not directly engage in production and manufacturing. Therefore, R&D expenses were not separately disclosed.

On the compliance front, during the track record period, the company received five warning letters from the Department of Health, covering restrictions on certain wording used in advertisements for certain products, which may violate the Misleading Advertisements (Medicines) Ordinance. Under this ordinance, upon a first conviction, a fine of HKD 50,000 and imprisonment for six months may be imposed; upon a second or subsequent conviction, a fine of HKD 100,000 and imprisonment for one year may be imposed. Although the company said it revised the relevant wording immediately, the frequent receipt of warning letters reflects loopholes in the advertisement review mechanism.

For product labels, the company received a letter from the Center for Food Safety of the Food and Environmental Hygiene Department, alleging that it failed to comply with the applicable nutrition labeling requirements under the Food and Drugs (Composition and Labelling) Regulations. Violations of this ordinance may incur a Level 5 fine (up to HKD 50,000) and imprisonment for six months. Although the company has reviewed its packaging and updated its labels, the inaccurate product descriptions have already affected the brand image.

For tax compliance, Zhengpin Hong Kong and Wanjiabao had late tax payments in the 2022/2023 and 2023/2024 tax years, while Sansin Pharmaceutical had late tax filings in the 2023/2024 tax year. Under the Tax Ordinance, late tax filings may be subject to a fine of HKD 10,000, and an additional penalty equal to three times the amount of tax underpaid may also be imposed. In addition, Junhui and Wanjiabao each have records of late employer tax filings.

More worth noting is that Zhengpin Hong Kong and Wanjiabao previously failed to register as food importers/distributors respectively before November 21, 2023 and August 29, 2025. Under the Food Safety Ordinance, the maximum penalties are a fine of HKD 50,000 and imprisonment for six months. (Produced by Harbor Finance)