The secondary market has delivered a clear negative verdict on Tongrentangcare (02667.HK), which listed on the Hong Kong Stock Exchange under the prestigious Tongrentang brand, with its share price nearly halving from the HK$5.5 IPO price within the first week, leaving a total market cap below HK$1.3 billion. The company had previously halted its March IPO attempt due to weak subscription, and despite lowering its price range, it still faced a 39% plunge on its first trading day. As China's largest private non-public traditional Chinese medicine hospital group by outpatient scale, the market's rejection stems from the simultaneous exposure of multiple risks concerning performance, valuation, finances, and compliance.
Stagnant Core Business and Policy Headwinds
The company's scale advantage has failed to translate into growth momentum, with its core business fundamentals nearly stagnant over the past three years. Revenue for 2023 to 2025 was RMB1.153 billion, RMB1.175 billion, and RMB1.171 billion respectively, fluctuating by less than 2%, indicating a complete loss of growth in its main operations. Profit volatility is even more pronounced, with 2025 net profit at RMB33.75 million, a 27% decline from 2024, highlighting the poor quality of earnings.
The slight profit growth in 2024 was entirely reliant on a one-time gain of RMB17.1 million from the sale of its stake in Shijiazhuang Hospital of Traditional Chinese Medicine. Excluding this disposal gain, the profitability of its core business actually deteriorated that year. The company has proactively warned that full-year net profit for 2026 will decline again, with core pressure stemming from the industry's continuously tightening regulatory policies.
The implementation of medical insurance price caps for TCM formula granules and two nationwide centralized procurement rounds for TCM decoction pieces, leading to significant price cuts for frequently used herbs like astragalus and codonopsis, has directly compressed hospital revenue and gross margins from pharmaceutical sales. All its designated hospitals must comply with centralized procurement rules. While drug prices fall, there is a concurrent risk of declining quality, which could trigger patient attrition. The combination of medical insurance cost control, the normalization of centralized procurement, and increased listing-related intermediary expenses continues to depress the company's long-term profit ceiling, with no second growth curve to offset these policy impacts.
Significant Valuation Overhang
Even after the near-halving of its share price, Tongrentangcare's current TTM P/E ratio remains high at 42.1 times, indicating a clear valuation bubble. A horizontal comparison with Hong Kong-listed peers shows the leading private TCM chain, Gushengtang, has a TTM P/E of only 18.3 times. Other entities within the Tongrentang system, Tongrentangguoyao and Tongrentangkeji, have P/E ratios of just 13.8 and 9.5 times respectively. This means the company's valuation is more than double that of the industry leader.
The valuation pricing during the IPO stage was already detached from fundamental support. The initial IPO price range was set at HK$7.3-8.3, aiming to raise nearly HK$900 million. Due to investor skepticism, the issue price was significantly lowered to HK$5.5, yet the stock still experienced a deep discount post-listing. Continued selling pressure in the secondary market, coupled with low average daily turnover and weak liquidity, suggests ongoing downward pressure on the share price until the valuation returns to a reasonable industry level. Against a backdrop of deteriorating annual performance, the high valuation lacks a fundamental safety net.
Financial Risks from Acquisitions
The company's expansion of its clinic network through external acquisitions has come at the cost of substantial goodwill and rising debt risks. Goodwill at the end of 2023-2025 was RMB161 million, RMB263 million, and RMB263 million respectively. The 2024 acquisition of two TCM clinics in Shanghai directly inflated goodwill, which now exceeds 36% of net assets.
The prospectus explicitly highlights impairment risks: if acquired targets underperform, a significant goodwill impairment charge could entirely wipe out annual net profit, while also worsening financial metrics and increasing financing costs. To fund acquisitions, the company has pledged equity in core clinics like Sanxitang and Shanghai Chengzhitang to banks. As of the end of April 2026, outstanding bank loans were nearly RMB90 million, and the asset-liability ratio climbed from 35.1% in 2023 to 46.8% in 2025, indicating increasing pressure to meet debt obligations.
With plans for continued acquisition-driven expansion, pursuing further external mergers in the current state of weakening profits and rising liabilities will only amplify the dual risks of goodwill and debt, leading to a continuous contraction in financial flexibility.
Conclusion
Despite holding a time-honored brand and the industry's largest outpatient volume, Tongrentangcare cannot mask issues of growth stagnation, inflated valuation, and financial strain. The overarching industry trends of centralized procurement and medical insurance cost control are unlikely to reverse in the short term, while the risks related to goodwill, debt, and compliance accumulated through its acquisition model will continue to develop. For investors, with no clear signals of fundamental improvement from the company, the convergence of multiple risks creates significant uncertainty regarding both medium-to-long-term operational performance and valuation recovery.