派财经

wrote a post ·

High gross margins, low net profit margins, and heavy reliance on marketing—how long can this mixed high growth be sustained?

Produced by Corporate Research Office IPO Group

By Wang Zheping

In China's oral care market, which has long been dominated by established players such as Colgate-Palmolive, Crest, and Yunnan Baiyao, Canyou is one of the most competitive new consumer brands in recent years.

On March 27, the parent company of CanYao, Shenzhen Xiaokuo Technology Co., Ltd., filed its prospectus with the Hong Kong Stock Exchange in a bid for an IPO. The company’s revenue in 2023, 2024, and 2025 reached 1.096 billion yuan, 1.369 billion yuan, and 2.499 billion yuan respectively, doubling its income within two years. Based on 2025 retail sales, CanYao has become the third-largest group in China's oral care market and ranks first in retail sales via online channels.

What perhaps attracts the capital markets most about CanYao is its compelling narrative: a high school dropout who emerged from a factory assembly line, twice brought his company back from the brink when cash flow nearly bottomed out, and finally pushed this young brand to the doorstep of the Hong Kong Stock Exchange.

However, behind the rapid growth, CanYao also faces undeniable real-world challenges: firstly, under heavy marketing-driven growth, its profit quality still cannot withstand close scrutiny; secondly, during the transition from an online hit to a nationwide offline brand, the foundation of its distribution channels and long-term competitive barriers still need to be validated.

CanYao has yet to prove to the market that it can convert growth into the ability to generate high-quality profits.

“The unbreakable cockroach”: Yin Kuo and CanYao’s two comebacks from the edge

In 1989, Yin Kuo was born in Lingbi County, Anhui Province. He dropped out of high school and moved south to Guangdong, where he worked as an assembly line worker, kitchen helper, and hotel employee.

As Wu Shichun of Plum Ventures put it, Yin Kuo belongs to the type of entrepreneur he “favors” – a small-town youth who is “unbreakable like a cockroach, poor, smart, and ambitious.”

In 2011, Yin Kuo embarked on his first entrepreneurial venture, partnering with others in smart hardware. In a rented apartment of just over 60 square meters, the company reached nearly 100 million yuan in scale, making him realize for the first time that products and equity could create such immense value.

In October 2015, Yin Kuo exited that company and registered Shenzhen Xiaokuo Technology Co., Ltd. to begin his second entrepreneurial journey.

At the start of his venture, Yin Kuo chose electric toothbrushes as his single product. However, the high unit price, low repurchase rate, and high inventory costs of electric toothbrushes placed significant pressure on the company’s cash flow.

After completing inventory preparation at the beginning of 2018, the company had only 270,000 yuan left in its account, barely enough to cover payroll. That was the first real life-or-death moment for Canhalf.

To survive, Yin Kuo and his team cut expenses while finding ways to sell their electric toothbrushes through Xiaohongshu, eventually recouping about 3 million yuan in funds, barely getting through the crisis.

It was also during this year that Yin Kuo began shifting towards the toothpaste market, establishing the 'Canhalf' brand, which means 'half handmade, half technology.' But at this point, Yin Kuo had yet to grasp the essence of the consumer goods industry.

From 2018 to 2020, Yin Kuo lived in constant anxiety, urgently seeking a flagship product, leading to the development of a range of products. The company tried various high-end toothpastes and explored cosmetics and personal care products, but most received lukewarm responses.

In the second half of 2020, the company once again found itself on the brink, with only 14 million yuan remaining in its account. At that time, Yin Kuo made a risky decision: to cut all non-oral care businesses and bet all resources on one category—mouthwash.

Yin Kuo believed that 'the battlefield must ignite all at once to have a chance.' So he fired all his bullets, but no one knew if there would be more funding to keep the company alive.

In September 2020, Canhalf’s probiotic mouthwash launched, achieving 100 million yuan in sales within 80 days thanks to concentrated marketing on Douyin and Xiaohongshu, exploding onto the market. As of the date of the prospectus, this portable mouthwash has sold nearly 300 million units.

The success of the mouthwash not only saved the company but, more importantly, allowed Yin Kuo and Canhalf to find their methodology: focusing on single products, amplifying user experience, and rapidly scaling up with the help of content platforms.

Following Canhalf's rise, capital quickly poured in. From 2020 to 2021, Canhalf completed multiple rounds of financing in succession, with investors including well-known institutions such as Plum Ventures, ByteDance, Innovation Works, Clearvue Capital, Cornerstone Capital, and Huaxing Capital. Within three years of the brand's founding, it completed nine rounds of financing.

In 2022, Yin Kuo made his third key decision: to focus on the toothpaste category. He believed that while mouthwash could help the brand break through, it was insufficient to support a company becoming a true mass-market consumer brand. The larger, higher-frequency, and more essential market was still toothpaste.

Thus, Canhalf began shifting its strategic focus to toothpaste and launched a series of products featuring probiotics, lysozyme, hydroxyapatite, and zeolite.

The results showed that this was the right move. From 2023 to 2025, the company's revenue grew from 1.096 billion yuan to 2.499 billion yuan, with an 82.5% year-on-year increase in 2025, and a two-year compound annual growth rate of 51.0%.

According to Frost & Sullivan data, by retail sales in 2025, Canhalf ranked third in China’s oral care product market with a 6.5% market share; it ranked first in the premium toothpaste market with a 19.2% market share.

Canhalf has not only survived but also grown bigger. However, getting bigger and staying stable are never the same thing.

The Illusion of High Gross Margins: Revenue Doubled, But Where Did the Profit Go?

Canhalf’s revenue growth is impressive, but its profit performance raises concerns.

From 2023 to 2025, the company’s gross profit was 790 million yuan, 956 million yuan, and 1.797 billion yuan respectively, with a gross margin consistently maintained at around 70%, which is quite remarkable for consumer goods.

However, during the same period, the company’s annual net profit was only 41.624 million yuan and 34.228 million yuan, and by 2025, it even turned into a loss of 18.251 million yuan.

While Canhalf’s revenue continued to grow, its net profit kept declining. The reason, almost identical to most new consumer brands, is that Canhalf’s sales expenses were too high.

In 2025, Canhalf’s sales and distribution expenses reached 1.534 billion yuan, with a sales expense ratio of 61.4%, accounting for 85.4% of gross profit. Though it seemed like a high-margin business, in reality, most of the gross profit was consumed by channel investments, traffic acquisition, and marketing promotions.

We can compare Canhalf with Perfect Diary. The gross margin of Perfect Diary's parent company, Yatsen E-commerce, was 78% in 2025, but the company’s sales expense ratio was as high as 66%. Since 2021, Yatsen E-commerce has incurred losses for five consecutive years, and its revenue in 2025 is far lower than in 2020 and 2021.

In a sense, Canhalf’s approach resembles that of an internet product manager making consumer goods. It excels at capturing young people’s sensory preferences and social expression needs, turning toothpaste and mouthwash into 'photogenic, easy-to-promote, and highly shareable' content-driven products. Then, leveraging Douyin, Xiaohongshu, Weibo, and a large number of key opinion leaders (KOLs) and key opinion consumers (KOCs), it quickly pushes these products in front of users.

This strategy is extremely effective during the brand’s initial growth phase from zero to one, which also contributed to Canhalf’s rapid rise.

The problem, however, lies in the fact that this growth model is essentially driven by heavy marketing. But once the pace of marketing slows down or consumers shift their attention to newer brands, the real test will be whether Canhalf can sustain its high growth and whether the brand can maintain its position through natural repurchases.

Even more concerning is that Canhalf’s investment structure is imbalanced. In 2025, the company’s R&D expenditure was only 19.39 million yuan, while its sales expenses were 79 times its R&D expenses.

For consumer goods companies, the proportion of R&D doesn’t need to be particularly high. However, when the gap between sales investment and R&D investment becomes so extreme, the market naturally raises a question: Is your current success due to having strong product barriers, or simply because you’re better at marketing?

If it’s the former, it means Canhalf has the opportunity to gradually unlock profits as it scales up. If it’s the latter, it means the company may remain stuck in a phase of 'high growth but high consumption' for the long term.

Taking Yatsen E-commerce as an example again, its current market capitalization is only $310 million, less than a fraction of its peak value of over $16 billion.

Before going public, Canhalf can rely on scaling up to tell its story, and it has already proven that it can achieve scale through traffic and content.

However, once listed, investors will become more critical, and the company’s profitability will come under scrutiny. Canhalf has yet to prove that it can turn scale into stable profits. If revenue growth stalls and profitability remains absent, it may follow the same fate as Yatsen E-commerce—peaking at the time of its IPO.

Half Full's Growth Potential: How to Raise the 'Ceiling' Through Offline Expansion and Diversification?

As a consumer goods company, Half Full’s current strategy is similar to that of most companies: first, expanding channels to shed the label of being a 'pure online influencer brand,' and second, diversifying product categories to find a 'second growth curve.'

However, neither of these paths can be achieved overnight.

Since 2022, Yin Kuo has been frequently traveling to offline markets across the country. He once visited a new city every day for over 40 consecutive days.

After more than four years of effort, the number of Half Full’s offline distributors grew from 162 at the beginning of 2023 to 1,105 by the end of 2025; its offline retail outlets now exceed 110,000, covering nearly all prefecture-level cities in mainland China.

In the prospectus, Half Full stated that by 2025 it had achieved a balanced ratio of approximately 50:50 between online and offline sales. However, a closer look at the financial data reveals that there remains a discrepancy between Half Full’s online and offline revenue proportions.

In 2025, online channel revenue accounted for as much as 80.3% of Half Full’s income, while offline revenue made up only 19.7%. The gap between revenue and retail sales indicates that Half Full’s growth engine remains online.

Moreover, in 2025, Half Full terminated partnerships with 324 offline distributors but added 611 new ones during the same period. The high turnover rate of distributors shows that its offline network is still undergoing rapid adjustments, and offline channels have yet to fully stabilize.

According to offline retail monitoring agency Soonwin Data, in the offline toothpaste market, Half Full rose one position in Q2 2025 with a growth rate of 184%, ranking seventh. Part of the reason for Half Full’s rapid growth is the relatively small base of its offline channels.

However, its competitors are unlikely to give up their market shares easily. In Q2 2025, Yunnan Baiyao held a market share of 25.3%, far exceeding other brands and maintaining its long-term position as the market leader; Cold Acid Spirit retained over 60% of the anti-sensitive toothpaste market share; and multinational brands like Procter & Gamble, Unilever, and Hawley also have deep roots in the offline market.

As Yin Kuo said, there are no shortcuts in offline markets; only diligence matters. Given the complexity and diversity of China's offline channels, this path is destined to be a long one.

Yin Kuo once mentioned in an interview that becoming 'China's Procter & Gamble' is a dream shared by many household chemical entrepreneurs. To become a comprehensive consumer goods group like Procter & Gamble, CanHalf needs to expand its product categories and find its 'second curve'.

In 2025, the company launched the personal care brand 'Little Arrow', targeting hair care and body care, while also introducing the 'Focus' brand through a collaboration with Hua Chenyu, covering categories such as floral water, hand cream, and lip balm.

However, from the perspective of revenue structure, basic oral care still accounted for 92.9% of income in 2025, with other personal care businesses making up only 0.3%. Clearly, both 'Little Arrow' and 'Focus' are at very early stages. Whether CanHalf can replicate its success in the oral care sector to other fields remains uncertain.

Conclusion

From the perspective of entrepreneurial stories, CanHalf has been full of drama. Yin Kuo, a high school dropout who started as a factory worker, has now reached the doorstep of a Hong Kong IPO. The company’s journey from having only 270,000 yuan left in the bank to generating nearly 2.5 billion yuan in annual revenue is quite compelling.

However, CanHalf has already passed the 0-to-1 phase, and how it will scale from 1 to 10 or even 100 is what investors are concerned about.

CanHalf has room for imagination in terms of offline expansion and multi-brand extension, but it simultaneously needs to address issues like high marketing costs and a single-business structure.

Capital markets aren’t afraid of companies losing money during their expansion phase; they fear companies that can only rely on expansion-phase narratives. Without stable profitability, if growth slows, Yatsen E-commerce's performance in the capital markets over the past few years could serve as a cautionary tale for CanHalf.

1085 Views