Preview of new shares| Net profit rollercoaster plus blood pressure, why is it difficult to support the growth of Rongtai Pharmaceutical's 400 billion market?

In recent years, with the continuous efforts of national centralized procurement and medical insurance negotiation policies, the drug sales pattern is facing profound reshaping, and strict hospital admission rules and pricing pressures are also accelerating the flow of prescription drugs. Factors such as the increasing health awareness of consumers, strong demand for pharmaceuticals through retail channels, etc. are also motivating the development of the domestic outpatient pharmaceutical distribution market. As a link between upstream pharmaceutical companies and market end customers, the role of outpatient pharmaceutical service providers is gradually expanding, and Ronshine Pharmaceutical has taken the path to the Hong Kong stock market against this backdrop. On September 26, Ronshine Pharmaceutical submitted its IPO prospectus to the Hong Kong Stock Exchange for the first time, planning to list on the main board in Hong Kong, with CITIC SEC as the exclusive sponsor. Growth prospects in a market of over 400 billion It is understood that the company is a leading outpatient pharmaceutical service provider in China, focusing on digital marketing and supply chain solutions. According to Frost & Sullivan's data, based on 2024 revenue, we are the fourth largest provider of marketing and supply chain solutions in the Chinese outpatient pharmaceutical market, as well as the largest provider of marketing and supply chain solutions for individual customers in the Chinese outpatient pharmaceutical market. The market position of Ronshine Pharmaceutical is closely related to the changes in the market environment under the influence of centralized procurement. Looking at the sales data of prescription drugs through various channels from 2019 to 2024, the growth in outpatient and offline retail is weak, with CAGRs of only 1% and 2% respectively during the period, while the online channel during the same period reached as high as 41%, forming a clear contrast. The main driving force behind the growth of online channels comes from the outflow of prescriptions from hospitals. In recent years, domestic prescription circulation platforms have accelerated establishment. In addition, Beijing, Shanghai, Guangdong, and other places have also connected online payment systems with medical insurance. For example, since July last year, insured individuals in Beijing have been able to use their medical insurance personal accounts to purchase non-prescription drugs on platforms such as JD and Meituan, injecting vitality into the O2O pharmaceutical market. In its IPO prospectus, Ronshine Pharmaceutical also stated that "since 2017, the prescription outflow policy has been introduced, allowing patients to pick up prescriptions from qualified retail pharmacies, gradually shifting pharmaceutical sales from being hospital-led to diversified outpatient channels. Although challenges such as limited coverage of medical insurance and uneven professional capabilities of retail pharmacies still exist, under the continuous support of favorable policies, the prescription outflow is widely believed to be an irreversible long-term trend." In terms of market size, according to Frost & Sullivan data, from 2019 to 2024, China's outpatient marketing and supply chain services market size increased from 159.7 billion yuan to 242 billion yuan, and is expected to reach 430 billion yuan by 2030, with a compound growth rate of 10.1% from 2024 to 2030. It is worth noting that, unlike traditional distributors, outpatient marketing and supply chain service providers not only distribute, but also focus more on integrating digital business and data platforms with intelligent logistics infrastructure to provide pharmaceutical companies with full-process, multi-channel pharmaceutical sales solutions to accurately and effectively reach and serve end customers. This service model can to a certain extent alleviate the pain points of fragmented outpatient pharmaceutical retail and gradually become the mainstream in the race. It is understood that in order to provide pharmaceutical companies with full-process, multi-channel pharmaceutical sales solutions, Ronshine Pharmaceutical has independently developed a digital precision marketing system and integrated digital business and data platforms with intelligent logistics infrastructure, enabling upstream pharmaceutical companies to effectively reach and serve end customers in the vast and highly decentralized outpatient pharmaceutical market, improving market efficiency and accessibility, driving the expansion of the outpatient pharmaceutical distribution value chain. Based on this, the company mainly generates revenue through third-party e-commerce platforms, online stores, regional sales partners, etc., selling pharmaceutical products to individual customers, grassroots terminals, and large chain pharmacies. This operational ecosystem also accelerates the company's scale development. Development concerns under the halo of a trillion dollar market Although the domestic outpatient pharmaceutical service market is steadily growing towards a 400 billion scale, for companies within the industry, especially for companies like Ronshine Pharmaceutical that have not yet squeezed into the top three market share, the goal of stable and significant growth seems to be a considerable distance away. As mentioned earlier, although based on 2024 revenue calculations, among competitors in the Chinese outpatient marketing and supply chain services market, Ronshine Pharmaceutical ranks fourth, but its market share is only 1.2%, which is significantly lower than the market leader, reflecting the Matthew effect in the industry development. The issue of market share and scaling is also somewhat reflected in Ronshine Pharmaceutical's financial data. According to the prospectus, for the three fiscal years ending December 31, 2024, and the first half of 2025, Ronshine Pharmaceutical's revenue was approximately 5.336 billion yuan, 6.228 billion yuan, 7.949 billion yuan, 2.978 billion yuan, and 4.919 billion yuan, with a compound annual growth rate of 22.05%. Positive revenue growth and performance that outpaces the industry's overall growth rate demonstrate Ronshine Pharmaceutical's achievements in scaling development in recent years. However, in terms of profit quality, Ronshine Pharmaceutical's performance is not entirely satisfactory. Intuitive financial data shows that over the period from 2022 to 2024, Ronshine Pharmaceutical's gross profit margin was 7.6%, 6.7%, and 6.0%, with a continuous decline in annual gross profit margin during the period, cumulatively decreasing by 1.6 percentage points. Although it rebounded to 7.2% in the first half of 2025, it still significantly lags behind the arithmetic mean gross profit margin of 54% for the healthcare industry in the Hong Kong stock market. In terms of net profit, although Ronshine Pharmaceutical has consistently achieved positive profits during the reporting period, net profit has fluctuated significantly. For example, the year-on-year growth rates for 2023, 2024, and the first half of 2025 were 208.86%, -91.54%, and 359.66%, respectively. Furthermore, due to the nature of the industry in which the company operates, its sales costs are greatly influenced by procurement costs. During the reporting period, the proportion of product procurement costs to total sales costs has remained stable at 99.5% or higher, while the proportion of total sales costs to total income during the period has remained between 92% and 94%, indicating the company's dependence on long-term stable suppliers. For downstream industries, Ronshine Pharmaceutical's bargaining power also needs to be improved. The prospectus shows that Ronshine Pharmaceutical usually allows downstream buyers a credit period of 30-60 days, but during the reporting period, the accounts receivable turnover days increased from 49 days to 63 days, and corresponding accounts receivable increased from 455 million yuan in 2022 by 38.4% to 629 million yuan by the end of June 2025, exceeding the company's revenue growth rate for the same period, indicating a certain level of accounts receivable pressure on the company. This accounts receivable pressure is also reflected in the company's cash flow. Data shows that the company's net operating cash flow has been negative throughout the reporting period. From 2022 to the first half of 2025, the net cash outflows from operating activities were 178 million, 104 million, 99 million, and 133 million yuan, respectively. To maintain stable operations, Ronshine Pharmaceutical has continuously borrowed from banks during the reporting period, accumulating bank loans of 488 million yuan by the end of July this year, significantly higher than the total amount of restricted bank deposits and cash and cash equivalents of 149 million yuan for the same period, indicating significant "blood pressure" for the company.