US Stock Market IPO Preview | Henghong Technology (HCPC.US): Revenue Growth Without Profit Increase, Can Multi-dimensional Narratives Support the IPO Valuation?

Chinese herbal medicine distributor Henghong Technology (HCPC.US) has significantly increased its fundraising scale, accelerating its push for a Nasdaq IPO.

Odaily has observed that since the company first submitted a public version of its F-1 prospectus to the SEC on March 27, 2025, applying to list on Nasdaq, Henghong Technology completed its fourth F-1/A amendment on September 2 of this year.

With multiple rounds of updates, the most apparent change lies in the fundraising plan. In the three public prospectuses disclosed in 2025, the company planned to issue 2 million ordinary shares at $4–$6 each, aiming to raise up to $12 million at the upper limit.

Entering 2026, the offering structure was significantly increased. The latest two versions of the prospectus show the price range adjusted to $6–$7, the number of shares offered expanded from 2 million to 5 million, potentially raising as much as $35 million at the highest price, and an additional 750,000 shares granted as over-allotment options.

From the background perspective, this expansion is directly related to Nasdaq’s new regulation requiring Chinese issuers to underwrite IPOs of no less than $25 million. The new proposal clearly exceeds this line, but the company’s valuation has also risen—based on the post-offering total share count of approximately 25 million, a price range of $6–$7 represents an IPO valuation of roughly $150–175 million.

When the valuation enters this range, the real question becomes: will the market be willing to fully subscribe at this price? Ultimately, the answer lies in Henghong Technology’s fundamentals.

Revenue From Chinese Patent Medicines Surpasses 80%, but Stuck in a “Revenue-Without-Profit” Dilemma

Since its founding in 2008, Henghong Technology has conducted pharmaceutical product distribution in China under the entity Hengcheng Health, primarily purchasing Chinese patent medicines and some chemical drugs from its related party, Guangdong Hengcheng Pharmaceutical Co., Ltd., for sale.

The company currently offers 34 product types, totaling 106 specifications, covering therapeutic areas such as respiratory, cardiovascular, and digestive fields. Among these, therapeutic Chinese patent medicines are Henghong Technology’s core products, mainly for colds, flu, and cough, including Ganmao Qingre Granules, Fengan Ganmao Granules, and Yinqiao Jiedu Granules. Tonic Chinese patent medicines include products for nourishing qi and blood, strengthening the spleen, such as Shengmai Granules (Qi and Yin-nourishing), Shouwu Bushen Granules (Kidney-tonifying), as well as Zhuangyao JianShen Pills.

While selling medicines, Henghong Technology also sells raw materials for Chinese patent medicines, and provides marketing promotion services to related party Shaanxi Hengcheng Pharmaceutical Co., Ltd. Notably, due to the company’s business strategy adjustments, the scale of its marketing promotion services has dropped to a low level.

Judging from the 2025 revenue structure, revenue from pharmaceutical sales accounted for as much as 97.4% of Henghong Technology’s total. Among this, Chinese patent medicine revenue made up 81.2%, with core products including Ganmao Qingre Granules, Fengan Ganmao Granules, and Yinqiao Jiedu Granules; chemical drug sales contributed 14%, mainly comprised of compound triamcinolone acetonide solution (trade name: Anlong), purchased from Guangdong Hengcheng for dermatological treatments; raw material sales of Chinese patent medicines accounted for 2.2%; and promotion and marketing services dropped to 2.6%.

In terms of sales channels, Henghong Technology’s network covers 22 provinces and autonomous regions in China, around 200 cities, and has established stable cooperation with local quality distributors and pharmacy chains. In each business area, the company selects two to three leading local distributors as primary distributors, who purchase from the company and resell to local retail terminals and pharmacies. Meanwhile, Henghong Technology has partnered with well-known pharmacy chains such as Yifeng Pharmacy, continuously optimizing national store delivery channels.

Notably, as new regulations for online drug sales have been implemented domestically, the company has proactively adjusted to regulatory changes, increased investment in online marketing, raised the proportion of online sales, and built business relationships with multiple online pharmacies and related platforms to keep expanding in the pharmaceutical e-commerce field.

From a performance perspective, Henghong Technology presented a typical “revenue increase without profit growth” in 2025. The company generated revenue of about 215 million RMB, an increase of 7.2% year-on-year; pharmaceutical sales grew 10.80% to 209 million RMB, becoming the main driving force for revenue growth.

However, there was noticeable internal polarization: Chinese patent medicine revenue grew 17.1% to 174.3 million RMB year-on-year, but chemical drug product revenue dropped by 13.7% to about 30 million RMB, and Chinese patent medicine raw material revenue also fell by 5.9%. This shows that while total revenue increased, the structure tilted further toward Chinese patent medicines, now making up 81.2%, high-margin chemical drug sales shrank, and promotion services have been almost marginalized.

While total revenue grew by 7.2%, Henghong Technology’s net profit slumped by 21.5% to 11.96 million RMB, mainly due to two reasons. Firstly, over 90% of purchases depend on related parties, causing procurement costs to rise, compounded by increased sales reliant on rebates, leading to higher volumes of Chinese patent medicines but eroded pricing and margins, resulting in a 17.37% decline in gross profit to 36.85 million RMB in 2025.

Secondly, a decrease in government subsidies further suppressed profit release. While gross profit declined, Henghong Technology substantially cut selling expenses, down 31.3% year-on-year to 19.28 million RMB, helping operating profit remain at 2024 levels, but as government subsidies fell from 5.02 million RMB to 1 million RMB, net profit declined further.

Can Multidimensional Narratives Translate to Real Earnings and Support Valuation?

Despite being mired in a “revenue increase without profit growth” trap in 2025, Henghong Technology’s breakout path remains clear—the company is standing at the intersection of inelastic demand for Chinese patent medicine distribution and channel structure transformation, potentially reversing its fortunes with structural dividends.

The prospectus cites data from Menet, showing that in 2023, the total sales of Chinese patent medicines at China’s three major retail terminals reached about 397.39 billion RMB, a year-on-year increase of 5.69%. Among this, demand for respiratory and cold/cough medicines is especially rigid during the winter-spring flu season.

From a channel perspective, the retail end is gradually absorbing a share of hospital-discharged drugs, with just 55 respiratory-type Chinese patent medicines recommended by provincial diagnosis and treatment protocols reaching combined retail pharmacy sales of over 41 billion RMB (including online) in 2024. Menet further predicts the total Chinese outpatient pharmacy market will hit 1.6 trillion RMB by 2029, offering great headroom for distributors focused on OTC products.

Henghong Technology’s core business aligns with this trend. The company is anchored on therapeutic products like Ganmao Qingre Granules, Fengan Ganmao Granules, and Yinqiao Jiedu Granules, plus supplementary products such as Shengmai Granules, Shouwu Bushen Granules, and Zhuangyao JianShen Pills, forming a sales network spanning 22 provinces and about 200 cities. Using a lean model of “2–3 leading distributors per region as first-tier distributors + direct supply to chain pharmacies like Yifeng,” the company is deeply embedded in the outpatient market.

With tightened regulation on online drug sales, continued penetration by pharmaceutical e-commerce and instant retail, Henghong Technology is poised to extend its offline distribution capabilities online, smoothing out seasonal volatility while reducing reliance on single channels.

Amidst strong demand for Chinese patent medicine distribution and evolving channel structures, Henghong Technology’s future strategy is not simply “selling more types of drugs,” but rather a synergistic push across three layers: product iteration, deepened channel development, and digital empowerment.

On the product side, the company continues to follow the “prevention–treatment–rehabilitation” main line, stabilizing its base with cold and cough granules in therapeutics, focusing on boosting the profitability of tonic products such as Zhuangyao JianShen Pills, Suoxian Bushen Oral Solution, Qizi Tianjing Oral Solution, as well as herbal wines like Shouwu Bushen Wine, Bajitian Supplementing Wine, Maoji Buxue Wine, and Huichun Supplementing Wine. This aims to transition from low-margin, high-volume wholesale to high-repeat, conditioning-type consumer sales. Simultaneously, through patent cooperation, M&A, or obtaining exclusive distribution rights for new products, the company can offset its dependence on Guangdong Hengcheng Pharmaceutical as its single supplier.

In terms of channels, the company is further cultivating the outpatient market on its foundation of a primary distributor network in 22 provinces, signing deeper strategic distribution agreements with chain pharmacies and collaborating with online platforms for e-commerce distribution. More importantly, the company plans to use digital user profiling and channel management systems to link end-user sales, rebate policies, and accounts receivable terms, directly addressing the “fast distribution but slow payment” pain point for lightweight distributors, and thus improving operations quality.

Looking further ahead, Henghong Technology’s strategy stretches to internationalization and strengthening the supply chain. The company plans to penetrate the European and overseas markets with standardized Chinese patent health food and tonic products, leveraging relationships with multinational pharmaceutical companies. It also plans to introduce high-quality innovative foreign drugs via exclusive distribution, patent licensing, or joint venture models, forming a “Chinese patent medicine export + imported drugs supplementation” dual approach. Furthermore, if the IPO fundraising is successful, part of the funds will go toward acquiring GMP-compliant pharma assets or strengthening upstream supply agreements, reducing related party transaction concentration at the source.

In summary, although the “revenue up, profit flat/down” performance in 2025 may put short-term pressure on Henghong Technology’s fundamentals, the company’s long-term value anchor isn’t in the volatility of past financials, but rather in the sector dividends from “rigid demand for Chinese patent medicines + outpatient digital transformation.”

What Henghong Technology truly needs to prove to the market is whether it can gradually translate its multi-dimensional stories—“the second curve in tonic herbal wines + chain/e-commerce channels + digital middle platform + overseas and upstream supply reinforcement”—into solid incremental results. Only the extent of strategic implementation is the fundamental variable determining future earnings elasticity, as well as the truest test of the company’s intrinsic value.