Yuyantang Faces IPO Test in Hong Kong: Expansion Hurdles and Regulatory Sword Hanging High

At the beginning of 2026, Yuyan Tang, a private traditional Chinese medicine group, submitted its listing application to the Hong Kong Exchange, but so far, no substantial progress has been made.

This family-run TCM clinic, which started in Northeast China, has achieved a growth rate and gross margin far exceeding the industry average by leveraging the niche market of medicinal pastes. However, medicinal pastes are currently in a regulatory gray area. How will it address the challenges of increasing industry regulation and intensifying market competition in the future?

[The Mystery of High Gross Margins]

Yuyan Tang originated in Heilongjiang and has now opened 21 clinics and 27 outpatient centers across many areas in northern China. Compared with leading industry players such as Tongrentang, Jiuzhitang, Pien Tze Huang, and Gosuntang, its store scale is relatively small, but its profitability and capability are by no means inferior.

Its operating model differs significantly from that of traditional chain TCM clinics, as it does not rely on revenue from conventional medical services.Rather, it follows a path of “front-end diagnosis driving traffic, back-end product monetization.”

Specifically, Yuyan Tang's core profit source is personalized products like custom-made medicinal pastes for patients, all under an out-of-pocket payment model, without integrating into any health insurance payment systems. This way, it effectively avoids the stringent multi-dimensional requirements of regulatory authorities on clinical trials and quality evaluation systems for proprietary Chinese medicines, and also doesn’t have to worry about policy impacts like centralized drug procurement, gaining significant pricing autonomy.

As a result, Yuyan Tang’s profitability far exceeds the industry average. As of the first three quarters of 2025, the company's gross margin reached 62%, while Tongrentang Healthcare stood at only 18.2%, Gosuntang was around 30%, and Gan Zhicao Technology, which concurrently filed for listing on the Hong Kong stock exchange, was just 26.9%.

Relying on this seemingly flawless business model, Yuyantang has experienced a rapid increase in performance in recent years. From the first three quarters of 2023 to 2025, the company's total revenue increased from 150 million yuan to 284 million yuan, and net profit grew from more than 20 million yuan to over 52 million yuan. Meanwhile, Tongrentang Healthcare, backed by its century-old brand, saw its revenue decline by more than 20% during the same period to 860 million yuan, with net profit still hovering around 20 million yuan.

▲ Net profit trend chart for Yuyantang vs. Tongrentang Healthcare, Source: Wind

The explosive growth of Yuyantang's performance mainly stems from 'increased volume and price.' On one hand, the physical network of TCM clinics rapidly expanded from 14 to 48 locations, with the total number of customers served increasing from nearly 10,000 to nearly 36,000. The repurchase rate for individual customers is over 80%, with annual medical visits reaching 16 to 17 times per year.

On the other hand, the average order price increased by about 40% in less than two years, reaching as high as 392 yuan in the first three quarters of 2025. Pricing power continued to strengthen, with order averages in regions such as Shandong and Tianjin reaching approximately 420 yuan.

However, this seemingly high-margin lucrative business carries significant hidden market concerns.

[Is Expansion Difficult Beyond Shanhaiguan Pass?]

Despite its impressive performance, Yuyantang’s business footprint exhibits notable regional characteristics.

Among the 48 TCM clinics, the vast majority remain concentrated in the Northeast base, accounting for over 80% of revenue. Although there are some operations in Hebei, Shandong, and Tianjin, the proportion of stores in these areas is relatively small. This 'localized' market structure may struggle to support an attractive capital narrative.

To address this, Yuyantang has proposed an ambitious expansion plan, aiming to add approximately 30, 35-40, 40-45, and 50-55 new outlets each year from 2026 to 2029. It plans to expand from its Northeast stronghold into North China, targeting key regions like Shandong, Hebei, Henan, and Tianjin.

However, outward expansion is far from a simple replication of store openings; it is a high-stakes gamble with uncertain outcomes.

On one hand, the northeastern region's cold and dry climate makes the ointment, a type of traditional Chinese medicine that has been concentrated through long hours of boiling and mixed with gelatin or honey, highly suitable for local 'winter nourishment' health needs and the tradition of chronic disease management due to its warming and tonifying properties.

Moreover, within the familiar social networks of Northeast China, Yuyantang has built a trust-based, low-cost and high-sticky customer acquisition model thanks to its good reputation for efficacy. With a small supply chain radius and fast response times, it can support procurement strategies that involve small batches and high frequency.

Once leaving its home base and moving to other northern provinces with different climates, consumer habits, awareness levels, and supply chains, whether this model can be successfully scaled up has not yet been widely validated by the market.

On the other hand, competition in the TCM healthcare services market is becoming increasingly fierce, making large-scale successful expansion far from easy.

Foremost, the TCM departments within public hospital systems are continuously growing. In recent years, driven by national policies, general public hospitals have established TCM clinical departments aiming for full coverage, while simultaneously improving service quality.

Most of these public institutions are covered by medical insurance. Relying on their inherent credibility, deep patient trust, and the ability to attract top TCM practitioners, they firmly dominate the market and are one of Yuyantang’s key competitors.

In the private medical institution sector, competition is equally intense – including nationwide listed chain giants, pharmaceutical companies entering the market, regional chain brands with deep roots, and standalone clinics spread across various locations.

Particularly noteworthy are nationwide chain giants like Tongrentang and Gushentang, which have long been entrenched in economically developed provinces with strong consumer power and large market capacity. Their network depth, density, and operational maturity generally surpass those in the northeastern market.

Therefore, for Yuyantang, outward and downward expansion means entering as a 'market challenger' into a mature market where brand recognition, talent reserves, capital strength, and even patient mindsets have already been cultivated or nearly monopolized by competitors, presenting significant challenges for growth.

As Yuyantang stated in its prospectus, we operate in an extremely competitive industry. This is undoubtedly one of the main challenges Yuyantang will face on its path to future expansion.

[The Potential Sword of Regulatory Compliance]

If expanding beyond Northeast China represents a market-level challenge, then the tightening regulatory environment may become a key operational risk that YuYanTang will have to confront in the future.

As the core support of YuYanTang’s high-margin business,膏方currently remains in a regulatory gray area. The national authorities have yet to issue unified management guidelines for膏方, including standards for preparation processes, prescribing rights for physicians, and definitions of distribution scope, all of which lack clear regulations.

Currently,膏方is classified as a 'temporarily approved preparation,' with regulatory requirements significantly different from those for regular traditional Chinese medicine products — the latter involves a relatively strict process including clinical trials and quality evaluations. However, driven by high profit margins, the膏方diagnosis and treatment field has already seen some disorderly practices.

According to reports by Consumer Daily, many traditional Chinese medicine clinics attract patients with 'low-cost outpatient registration,' and subsequently maximize profits by issuing large numbers of膏方prescriptions and promoting high-priced膏方products, a phenomenon that has become widespread in the private traditional Chinese medicine sector.

However, recent years have seen the introduction and revision of regulations such as the 'Special Provisions on the Registration Management of Traditional Chinese Medicine' and the 'Implementation Regulations of Pharmaceutical Administration,' indicating that regulators are moving towards optimizing and improving oversight in areas like traditional Chinese medicine preparations. The former explicitly states that by July 2026, traditional Chinese medicine varieties labeled as having unclear safety data will face challenges in obtaining registration.

In the future, it remains uncertain whether膏方will continue to operate outside of strict regulation based solely on 'human-use experience' and 'intangible cultural heritage labels,' or whether it will be incorporated into a more stringent pharmaceutical management and supervision system,becoming a sharp sword hanging over YuYanTang's head.

Additionally, the self-funded medical products and services provided by YuYanTang,may also face potential price control measures in the future.

Reviewing the governance trends in the healthcare market in recent years, even for out-of-pocket items not covered by basic health insurance—such as dental implants, orthokeratology lenses, and invisible dental aligners—high-cost services and consumables have been addressed through a combination of centralized procurement and medical service price controls implemented by relevant national authorities.

Take dental implants as an example. In the past, the total cost for a single implant could easily range from 10,000 to 20,000 yuan. Now, the National Healthcare Security Administration has explicitly required tertiary public hospitals to cap the medical service fee for a single routine dental implant at no more than 4,500 yuan, while also initiating centralized procurement for implant materials. These precedents serve as a warning for institutions like Yuyantang that provide high-frequency, high-value out-of-pocket medical services.

This is precisely the first risk mentioned in Yuyantang's IPO prospectus under 'Risks Related to Business and Industry': changes in regulatory systems governing Traditional Chinese Medicine (TCM) healthcare services, particularly shifts in TCM healthcare reform policies.

It is also worth noting that from the perspective of the Hong Kong Exchange’s attitude toward the TCM diagnosis and treatment services sector, market sentiment is not overly enthusiastic. The performance of Guangsheng Tang, the 'first TCM stock' listed in 2024, has been relatively weak, with its latest price-to-earnings (PE) ratio standing at only around 16 times as of April 14. Meanwhile, Tongrentang Healthcare, another player in the same sector, decided to abandon its IPO due to lukewarm market subscription, overvaluation, and earnings pressure, marking its fourth failed attempt at listing within two years.

▲ Gushengtang PE trend chart, source: Wind

Although Yuyantang differs significantly from these competitors in terms of earnings growth and business models, concerns such as stricter industry regulation and fierce market competition mean that whether the capital markets will embrace it, support a smooth IPO, and assign a higher valuation remains a considerable challenge.

Text by Xiao Li Fei Dao

Disclaimer

This article contains content related to listed companies, reflecting the author's personal analysis and judgment based on information disclosed by these companies in accordance with their legal obligations (including but not limited to interim announcements, annual reports, and official interactive platforms). The information or opinions presented in this article do not constitute any form of investment or other business advice. Market Value Observer assumes no responsibility for any actions taken as a result of adopting the content of this article.

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