Hanfang Pharmaceutical files for listing on the Hong Kong Stock Exchange: "Compound Huangbai Liquid Ointment" accounts for 99% of revenue, with two brothers controlling all shares before listing

Recently, Shandong Hanfang Pharmaceutical Co., Ltd. (referred to as “Hanfang Pharmaceutical”) submitted an application for listing on the Main Board of the Hong Kong Stock Exchange, with Zhongtai International serving as its sole sponsor.

According to the prospectus, Hanfang Pharmaceutical is a comprehensive pharmaceutical company engaged in the production, sales, and research and development of traditional Chinese medicine products, focusing on the treatment of skin and mucous membrane diseases. The company’s flagship product is “Compound Huangbai Liquid Ointment,” a prescription external Chinese medicine.

Revenue Highly Dependent on a Single Product, Accounting for Over 99%

Based on financial data disclosed in the prospectus, in 2023, the first nine months of 2024, and 2025, revenue was RMB 1.052 billion, RMB 991 million, and RMB 802 million, respectively; gross profit was RMB 887 million, RMB 818 million, and RMB 676 million; gross profit margins were 84.3%, 82.5%, and 84.3%; and profits were RMB 237 million, RMB 198 million, and RMB 144 million.

As of the last practicable date, the company has commercialized the classic prescription Chinese patent medicine An Gong Niu Huang Wan, while another classic prescription Chinese medicine, Wu Ji Bai Feng Wan, will be supplied through retail pharmacies.

From the information in the prospectus, Hanfang Pharmaceutical’s operations are highly reliant on the “Compound Huangbai Liquid Ointment,” which accounted for over 99% of revenue during the reporting period.

During the same period, the gross profit margin of the Compound Huangbai Liquid Ointment exceeded 80%, at 84.4%, 82.6%, and 84.4%, respectively.

Hanfang Pharmaceutical emphasizes in the prospectus that this product is currently the only approved prescription ointment in China’s Chinese patent medicine field. It is classified as a second-level national protected Chinese medicine. According to the “Regulations on the Protection of Chinese Medicine Varieties,” this designation grants exclusive protection, legally prohibiting other entities from producing the same medicine. This national second-level protection grants the company an exclusive market position for the Compound Huangbai Liquid Ointment, with no direct competition from similar products.

Citing Frost & Sullivan data, Hanfang Pharmaceutical states that, based on 2024 sales revenue, the Compound Huangbai Liquid Ointment ranks fourth in China’s external Chinese patent medicine market, holding a 1.1% market share. Building on the success of this mature product, the company is expanding its product portfolio by offering cosmetics and other Chinese patent medicines.

It is noteworthy that the revenue structure’s over-reliance on a single product means Hanfang Pharmaceutical’s performance is deeply tied to the product’s lifecycle.

In the prospectus, Hanfang Pharmaceutical admits that the company’s business heavily depends on sales of the Compound Huangbai Liquid Ointment. A decline in this product’s performance would have a significant adverse impact on the company.

To break this deadlock, Hanfang Pharmaceutical is attempting to find a “second growth curve” through diversification of its product portfolio, with one of its strategic directions being the rapidly growing cosmetics sector.

Hanfang Pharmaceutical’s cosmetics brand is called “Slaor.”

According to the prospectus, this brand leverages the core acne-removal technology based on the medicinal “Huangbai Liquid,” aiming to extend the rigorous standards of pharmaceutical-grade products into the skincare field. The product line includes acne gels, single-use serums, facial cleansers, masks, and more.

However, this product is still in its early stages. Hanfang Pharmaceutical admits in the prospectus that the commercialization timeline for its cosmetics and classic prescription Chinese medicines is short, with low sales proportions, making it uncertain whether they can generate substantial and sustainable revenue and profits. If the company cannot develop a sustainable profitable market for these products, its strategic goal of reducing dependence on the Compound Huangbai Liquid Ointment will be difficult to achieve.

Sales Mainly Through Distributors, Founders’ Brothers Hold 100% of the Company

In terms of sales channels, Hanfang Pharmaceutical mainly adopts distribution and direct sales, with distribution accounting for over 90%.

In the first nine months of 2023, 2024, and 2025, the company’s revenue from distribution was RMB 1.003 billion, RMB 915 million, and RMB 748 million, respectively, accounting for 95.3%, 92.3%, and 93.2%.

During the same period, Hanfang Pharmaceutical had 1,078, 992, and 930 distributors conducting transactions. These distributors primarily supply the Compound Huangbai Liquid Ointment to medical institutions nationwide and retail pharmacies.

Direct sales focus on two main customer groups: chain retail pharmacies and individual pharmacies with prescription drug counters, selling the Compound Huangbai Liquid Ointment and An Gong Niu Huang Wan; and through qualified e-commerce platforms, directly selling the same products and cosmetics, enabling the company to reach a large retail network directly.

Revenue from direct sales during the reporting period was RMB 49.1 million, RMB 76.56 million, and RMB 54.32 million, representing 4.7%, 7.7%, and 6.8% of total revenue.

Hanfang Pharmaceutical’s five largest customers are all distributors.

During the reporting period, revenue from these five customers was RMB 590 million, RMB 554 million, and RMB 441 million, accounting for 56.1%, 55.9%, and 55.0% of total revenue, respectively. Additionally, revenue from the largest customer was RMB 238 million, RMB 215 million, and RMB 166 million, representing 22.7%, 21.7%, and 20.8% of total revenue.

Regarding suppliers, during the same period, procurement from the largest single supplier was RMB 147 million, RMB 59.4 million, and RMB 21 million, accounting for 24.4%, 10.0%, and 4.5% of total procurement, respectively. Procurement from the top five suppliers was RMB 224 million, RMB 159 million, and RMB 76.2 million, representing 37.1%, 26.9%, and 16.4% of total procurement.

Hanfang Pharmaceutical states in the prospectus that its production process relies on the continuous supply of high-quality raw materials and other ingredients purchased from third-party suppliers. If the company fails to maintain relationships with these suppliers, ceases operations, or breaches agreements, its recourse options may be limited, making it difficult to obtain substitute sources of comparable quality in a timely or cost-effective manner. Such supply disruptions could negatively impact production stability and the company’s ability to fulfill orders for key products like the Compound Huangbai Liquid Ointment.

From an ownership structure perspective, Hanfang Pharmaceutical is a typical family-owned enterprise.

The prospectus discloses that Qin Wenji, Qin Yinji, and Ms. Qin Shufen are siblings. Before the IPO, Chairman Qin Wenji held a 90% stake, while his younger brother, General Manager Qin Yinji, held 10%. Qin Wenji’s daughter, Professor Qin Chengxue, also serves as an executive director. The Qin family collectively owns 100% of the company.