New Stock Outlook | The Worry of the "King of Fish Oil": Yuyu Biological Nutrition's 8.1% Market Share Difficult to Resist the Cost Torrent

On October 20th, Yuwang Biotech Nutrition Co., Ltd. (referred to as Yuwang Biotech Nutrition), the "hidden champion" in the global refined fish oil industry, officially submitted its application for listing on the main board of the Hong Kong Stock Exchange, attracting market attention. With the halo of being the "largest supplier" in the market, with a market share of 8.1%, its prospectus presents a picture of a company occupying a leading position in a segmented track. Profit fluctuations under stable growth The prospectus shows that Yuwang Biotech Nutrition's main business is the development, production, and sales of refined fish oil, fish oil soft capsules, and other dietary supplement products, including CDMO and branded dietary supplement products as well as pharmaceuticals and others. Refined fish oil, fish oil soft capsules, and other dietary supplement products have always been the company's core product line, contributing to most of the revenue during the past performance period, accounting for approximately 97.5%, 97.0%, 98.0%, and 98.8% of total revenue in 2022, 2023, 2024, and the six months ended June 30, 2025, respectively. From the core financial data perspective, Yuwang Biotech Nutrition has shown strong revenue growth in the past few fiscal years. The company's revenue increased from RMB 534 million in 2022 to RMB 661 million in 2023, and further to RMB 832 million in 2024, with a considerable compound annual growth rate. This clearly confirms its leading position in the global fish oil market and the continued growth in market demand. However, the profit performance has been fluctuating. The company's profitability also improved continuously from 2022 to 2024. Net profit increased from RMB 67.297 million in 2022 to RMB 102 million in 2023, and peaked at RMB 125 million in 2024, with profit margins also increasing. This reflects the positive results brought about by the company's scale effects and optimized operational efficiency. However, the most concerning signal for investors is hidden in the latest interim data. For the six months ended June 30, 2025, the company's revenue was RMB 343 million, but net profit dropped significantly to RMB 22.764 million. This means that the net profit margin for the first half of 2025 was only 6.6%, a sharp decline compared to the 15.1% for the full year of 2024 and 18.6% for the same period in 2024. Why would profitability deteriorate sharply in a situation where revenue remains considerable? The answer lies in the various expenses and costs in the profit and loss statement. First, the company's gross profit margin is under pressure. After reaching a high point of 28.1% in 2023, the company's gross profit margin fell to 26.0% in 2024. Further, in the first half of 2025, the gross profit margin plummeted to 20.7%. This directly points to a significant increase in "cost of sales." In the first half of 2025, the cost of sales accounted for 79.3% of revenue, reaching the highest level in history. Possible reasons behind this could include a significant increase in the prices of main raw materials (such as fish sources), increased energy costs, or a decrease in production efficiency. For a company whose core is manufacturing, cost control is essential, and the deterioration of this data is a core risk that cannot be ignored. Second, the expense ratio skyrocketed. In the first half of 2025, administrative expenses amounted to RMB 18.659 million, but the ratio to revenue soared from about 2-3% in previous years to 5.4%. Sales and research and development expenses also saw a noticeable increase as a percentage of revenue in the first half of 2025. These factors collectively led to a significant drop in the company's "operating profit margin" (i.e., earnings before interest and taxes) from 22.6% for the same period in 2024 to 8.8% in the first half of 2025. This reveals that while the company has been pursuing scale expansion, it has not been able to efficiently control operating expenses, leading to a decrease in operational efficiency. Yuwang Biotech Nutrition is undoubtedly a company that has achieved outstanding accomplishments in a segmented field, with its leading position and technological strength deserving recognition. However, the financial data disclosed in this IPO prospectus, especially the "Achilles' heel" of profits in the first half of 2025, indicate that the company should pay more attention to its cost pressures, improve operational efficiency, and maintain a healthy level of profitability in intense competition. The "three swords" hanging over its head The prospectus explicitly states that raw material costs (mainly fish oil) account for a very high proportion of total sales costs, exceeding 87% in each of the past three years. The company acknowledges that any significant increase in the prices of major raw materials could have a "material adverse impact" on profit margins. The performance in the first half of 2025 vividly demonstrates the realization of this risk. Despite being the global leader, a market share of 8.1% in a diversified competitive landscape (the top five manufacturers collectively account for 32.4%) does not give it absolute pricing power. When the price of fish oil surges due to factors such as fisheries resources, climate, and environmental policies, Yuwang finds it difficult to fully and promptly shift the cost pressure to downstream customers. In fierce market competition, raising prices often means losing orders. Furthermore, the company is positioned in the middle of the supply chain, lacking control over the upstream fisheries resources. This passive position means that its profit level is largely dependent on external factors, making its efforts easily offset by external shocks. The fragile pricing power and passive supply chain position make the sword of raw materials the "Achilles' heel" of profit margins. The market sword is manifested in the dependence on overseas markets and the "double-edged sword" of geopolitics. The proportion of the company's overseas income increased rapidly from 47.3% in 2022 to 60.9% in 2024, although it decreased to 55.0% in the first half of 2025, its outward orientation is very clear. Among them, the proportion of revenue from the U.S. market, though showing a downward trend, still contributes to about 12% of revenue. The prospectus specifically mentions the "continued trade tensions between the United States and China." If the United States imposes tariffs on fish oil products from China, the company will immediately face a dilemma: absorbing the cost will damage profits, passing it on to customers will lower competitiveness. This uncertainty poses a significant risk to its largest overseas market. The operational sword is a balancing act between inventory management and efficiency. The company's inventory levels are relatively high, reaching RMB 210 million by the end of 2023. After reaching a peak of 138 days in days inventory outstanding in 2023, it decreased to 92 days in the first half of 2025. As a biological product, fish oil has a clear shelf life. Huge inventories of over RMB 100 million are like a "Sword of Damocles." If market demand falls short of expectations or product iterations occur, a substantial inventory write-down will directly impact the profit and loss statement. In addition, the decrease in days inventory outstanding can be interpreted as an improvement in operational efficiency. However, considering the sharp drop in profit margins, the more likely explanation is that the company, in response to the cash flow pressure from rising raw material prices, actively reduced its inventories. While this may provide short-term relief to cash flow pressures, it could also mean that the company did not stock up enough on low-cost raw materials, leading to a lack of cushioning as costs continue to rise, posing a greater challenge to the recovery of gross profit margins. Yuwang Biotech Nutrition is a typical narrative of a "fragile leader." It shows us that even at the top of a segmented field, it does not mean that all worries are over. Its core capability lies in scale and industrial production, but this model also appears fragile in the face of cost storms and external shocks.