New stocks outlook | Zhiyuan Pharmaceutical: "Internet celebrity acne treatment" aura fades, and the combination of declining profits and research and development shortcomings squeezes valuation logic.

Jiangsu Zhiyuan Pharmaceutical Co., Ltd. (referred to as "Zhiyuan Pharmaceutical"), which was once famous on the internet with products such as "Lif" metronidazole gel (commonly known as "Little Pink Tube") and was considered a candidate for the first stock to remove acne in the Hong Kong stock market, recently submitted an application for listing on the Hong Kong Stock Exchange after the termination of its IPO review by the Shenzhen Stock Exchange main board. This pharmaceutical enterprise, which occupies a place in the niche market, despite having the aura of star capital such as L'Oral and ALI HEALTH, has multiple hidden concerns beneath its glamorous "internet celebrity" label, such as declining profitability, heavy emphasis on marketing over research and development, and dependence on channels. Revenue growth fails to conceal profit downturn, continuous decline in gross profit margin From a financial perspective, Zhiyuan Pharmaceutical's growth model exhibits a significant characteristic of "high investment driving low-efficiency expansion," and its profitability faces multiple structural challenges in terms of endogeneity and sustainability. On one hand, the company's profit and loss structure is unbalanced, and the quality and stability of profits are worrying. Although the revenue scale of the company increased from 1.031 billion yuan to 1.324 billion yuan during the reporting period (2023-2025), with a reasonable compound growth rate, the profit side experienced severe fluctuations: operating profit plummeted by 49.9% from 870 million yuan in 2023 to 750 million yuan in 2024, and although it rebounded to 1.43 billion yuan in 2025, there is still a significant gap compared to historical peaks. The company attributed this to non-recurring impairment losses of goodwill and intangible assets, but from a financial analysis perspective, large-scale impairment itself implies an over-optimistic tendency in pricing or asset group cash flow evaluation in previous mergers and acquisitions, reflecting a lack of prudence in capital allocation and internal risk control by the management. In the first quarter of 2026, profit declined by 17.57% year-on-year, further confirming that its profit recovery foundation is not yet solid, and the volatility of the profit and loss statement is significantly higher than the industry average, weakening the predictability of future free cash flows under the DCF model. On the other hand, the company's gross profit margin trend is downward, indicating a weakening ability to transfer costs and bargaining power in the value chain. During the reporting period, the comprehensive gross profit margin continuously declined from 71.8% to 66.8%, a cumulative decrease of 5 percentage points, with no sign of stabilization. The company explained this at the company level as an increase in the proportion of low-margin product revenue and rising raw material costs, but from a financial attribution perspective, this actually reflects a weakness in the upgrade of the product mix and the failure of the supply chain cost hedging mechanism. More concerning is that operating costs have increased by 51.3% over three years, significantly outpacing revenue growth over the same period (28.5%), and the cost elasticity corresponding to income is significantly higher than the income elasticity, squeezing the margin profit space. In comparison, the company's main business gross profit margin has been consistently lower than comparable peers such as Huapont Life Sciences and 3SBIO, indicating that it does not have a competitive advantage in product pricing power, process cost reduction, or scale effects, lacking fundamental support for valuation premiums. It is worth noting that the customer concentration level is high, and there are inherent risks in the channel ecology. Although the revenue share of the top five customers decreased from 64.9% to about 47.5%, the absolute level is still high, and the diversification of the customer mix has progressed slowly. Of particular concern is the deep relationship with ALI HEALTH - this related party is embedded in the company's business cycle in a triple role as a major customer, significant shareholder, and promotional service provider. Although this kind of differentiated channel structure has promoted scale expansion in the early stages of online transformation, from the perspective of corporate governance and compliance, it is prone to disputes over the fairness of related party transactions and suspicions of benefit transfer, and the company's high dependence on a single ecosystem poses a significant risk of platform channel concentration. Once the platform's policy bias weakens or the flow distribution rules change, the company will face a double impact of decelerating revenue and rising promotion costs, and the resilience of its business model needs to be rigorously evaluated. Marketing-driven "Internet celebrity" model, insufficient research and development foundation Zhiyuan Pharmaceutical's concept of "medicine + cosmetics" has gained popularity in the consumer market, but its business model foundation - research and development capabilities, commercial promotion compliance, and channel health, face multiple severe tests. In terms of sales expenses, the company's marketing-driven characteristics are very prominent. Sales expenses increased from 407 million yuan to 475 million yuan during the reporting period, with a sales expense ratio as high as 39.52%, far exceeding the industry average. In stark contrast to the high sales investment, the company's research and development investment intensity is severely insufficient, with a predominant feature of "heavy marketing, light research and development." From 2023 to 2025, the cumulative research and development expenses were only about 180 million yuan, far less than sales expenses during the same period, and the research and development expense ratio remained below the average of comparable peers. More worrying is that a considerable proportion of the already insufficient research and development investment is used for outsourced research and development (CRO outsourcing), further diluting the proportion of independent research and development. Although this "outsourced research and development" path can quickly supplement the product line in the short term, in terms of building long-term competitive barriers, the company's ability to autonomously control core technology, accumulate process patents, and the internal iterative potential of subsequent innovation pipelines are all significantly lacking. For a target that positions itself as a high-tech enterprise in the field of skin health, if the research and development process is excessively outsourced, the premium valuation logic that should have been part of the valuation will lose its anchor. The "medicine + cosmetics" dual-drive commercial story, in the absence of support from independent intellectual property rights and original formulas, appears more like a stage of leveraging flow dividends and channel leverage rather than a sustainable moat construction. In terms of channel structure, the company's online transformation has been significant, but hidden worries cannot be ignored. Online sales revenue increased from 478 million yuan in 2023 to 768 million yuan in 2025, a cumulative growth of 60.6% over two years, with the revenue share increasing from 46.4% to 58.0%, making the online channel the largest source of revenue surpassing offline. Among them, online retail is the core driver of the online transformation process, with its revenue increasing from 77 million yuan in 2023 to 245 million yuan in 2025, with a growth rate of over 220% over three years, and the revenue share jumping from 7.4% to 18.5%, becoming the fastest-growing segment among all channels. In the first quarter of 2026, the online revenue share reached 61.8%, with online retail contributing 81.26 million yuan in a single quarter, a significant increase of 46.4%, showing strong growth momentum. However, the flip side of online transformation is the continuous decline in the weight of offline channels, with the revenue share dropping from 52.5% to 36.6%. Over the three years, the weight of offline channels decreased by over 15 percentage points. In the broader trend of the outflow of prescriptions in the pharmaceutical industry, the continuous decline of offline channels will weaken the company's ability to reach scenarios such as medical insurance payments and grassroots medical coverage. At the same time, the rapid increase in the share of online retail will push the company into a battlefield directly competing with consumer beauty brands such as L'Oral and Vichy for online traffic, where customer acquisition costs and conversion efficiency will become new competitive variables. More crucially, the higher the share of online channels, the more prominent the risk of customer concentration. Combining data on the concentration of the top five customers (about 64.9% in 2023, still reaching 47.5% in 2025), a structural risk picture is becoming clearer: the higher the online share, the deeper the dependence on major e-commerce platforms, the weaker the bargaining power of channels, and the greater the operational volatility. Especially in the online wholesale scenario, where ALI HEALTH plays the triple role of the largest customer, significant shareholder, and promotional service provider, this "three-in-one" binding relationship means that a significant proportion of the company's online revenue is concentrated on a single major customer. Once the platform adjusts its category strategy, lowers procurement prices, or extends payment terms, the company's revenue and cash flow will come under pressure. Overall, Zhiyuan Pharmaceutical's financial structurural challenges of "increasing revenue without increasing profits" and the continuous decline in gross profit margin, the compliance and channel concentration risks brought about by the excessive tilt towards "marketing-driven" business model, and the erosion of the foundation of the "medicine + cosmetics" story due to insufficient internal motivation on the research and development end, these three pressures have not automatically disappeared due to a change in the listing location. When the flow dividend trend peaks, platform cooperation conditions face reevaluation, and the normalization of generic drug centralized procurement continues to exert continuous pressure on the price system of dermatological external use pharmaceuticals, where will the company's next growth catalyst be? If a more convincing answer cannot be provided in terms of autonomous research and development, channel diversification, or product differentiation, the listing vision of Zhiyuan Pharmaceutical as the "first stock to remove acne" may find it difficult to achieve the same easy popularity as its "Little Pink Tube" did in the field of online marketing.