New stock outlook | Genuine Holdings: Health business supports 80% gross profit margin, beauty sector dragged down by three years of failure.

Relying solely on "deer products" to conquer the world, Zhengpin Holdings is attempting to open the door to the Hong Kong stock market. According to the disclosure by the Hong Kong Stock Exchange on March 9th, this "small but beautiful" enterprise with a market share of only 1.6% in the Hong Kong health supplements market has once again submitted its listing application. From a financial perspective, Zhengpin Holdings has just experienced a "sharp turn": its revenue has surged from 43.19 million Hong Kong dollars in 2023 to 130 million Hong Kong dollars in 2025, showing strong recovery and expansion momentum. However, the impressive revenue growth has not brought equal profits in return. In the six months ending on September 30, 2025, its net profit was only 944,000 Hong Kong dollars, which is far from the tens of millions of profits in previous fiscal years. With this second submission, Zhengpin Holdings not only needs to tell the capital market its leadership story in niche markets such as "joint pain," but also faces the soul-searching question of profit sustainability. Hidden concerns and structural challenges behind high growth According to the prospectus, the company mainly engages in the development, sales, marketing, and distribution of health and beauty supplements and products in Hong Kong. The company outsources the production of products to suppliers (including manufacturers) and mainly distributes its products through Watsons' retail outlets in Hong Kong under the company's own brand and third-party brands. According to data from Frost & Sullivan, based on the retail value of health and beauty supplements and products, the company's market share among all international and local health and beauty supplements and product suppliers in Hong Kong was approximately 1.6% in 2024. The company demonstrated strong revenue growth capabilities from 2023 to 2025 fiscal years, however, a deeper analysis of its financial data reveals that the company is facing increasingly severe structural challenges in terms of profit quality, channel dependence, and cost control. In the second half of 2025, the company's performance experienced a sharp decline, adding significant uncertainty to its second attempt to list on the Hong Kong Stock Exchange. In terms of revenue scale, Zhengpin Holdings is undoubtedly in a period of rapid expansion. The company's revenue surged from 43.193 million Hong Kong dollars in the 2023 fiscal year to 110 million Hong Kong dollars in the 2024 fiscal year, and further climbed to 130 million Hong Kong dollars in the 2025 fiscal year, with a compound annual growth rate of 73.6% over two years. This growth trajectory indicates that the company has seized the opportunity for recovery in the post-pandemic era, especially achieving significant breakthroughs in niche markets such as deer-related supplements and products for joint pain. However, a warning financial signal is that the rapid growth in revenue has not translated into an equivalent increase in profits, and has even shown a serious deviation. In the three complete fiscal years from 2023 to 2025, the company's annual net profits were 11.313 million Hong Kong dollars, 35.483 million Hong Kong dollars, and 36.257 million Hong Kong dollars respectively. While the absolute value of profits appears to be increasing, when calculating the net profit margin, they were 26.2%, 32.2%, and 27.8% respectively, showing a downward trend in the 2025 fiscal year. More significantly, in the six months ending on September 30, 2025, the company achieved revenue of 52.442 million Hong Kong dollars, while net profit was only 944,000 Hong Kong dollars, with a net profit margin plummeting to 1.8%. Compared to the same period in the 2025 fiscal year (estimated revenue of approximately 77.48 million Hong Kong dollars, calculated as the full-year revenue of 130 million Hong Kong dollars minus the data for the six months of 2025), not only did the revenue drastically decrease by approximately 32% from the previous period, but the profit also fell sharply from an estimated 25.11 million Hong Kong dollars to less than a million Hong Kong dollars. This drastic fluctuation not only exposes the potential seasonal risks in the company's business, but also reflects the vulnerability of its profit model at a deeper level. Further analysis of the income statement reveals that the sharp decline in profits is the result of a combination of declining gross profit margins and rigid operating expenses. Firstly, the gross profit margin shows a clear downward trend. Calculations show that the company's gross profit margin decreased from 81.6% in the 2023 fiscal year to 78.6% in the 2024 fiscal year, further dropping to 75% in the 2025 fiscal year, and by the first half of the 2026 fiscal year, the gross margin had fallen to 76.6%. Although 76.6% is still considered a high level in the health supplement industry, the continuous downward trend is worrying. The prospectus mentions that the company mainly relies on outsourced production, and if the cost of raw materials increases, outsourcing processing fees rise, or if market competition intensifies, causing pressure on product pricing, it may further erode the gross profit margin. Secondly, operating expenses demonstrate significant rigidity and do not proportionally decrease with declining revenue. In the first half of the 2026 fiscal year, the company's sales and distribution expenses amounted to 18.859 million Hong Kong dollars, representing a proportion of revenue that skyrocketed from approximately 23% (estimated) in the same period of the previous fiscal year to 36%. Administrative and other operating expenses totaled 7.708 million Hong Kong dollars, increasing to 14.7% of revenue. In the situation of significant contraction in revenue, these fixed or semi-fixed expenditures (such as retail channel marketing expenses, management salaries, etc.) cannot be adjusted quickly, leading to a drastic compression effect on profits. This reveals the negative effect of the company's operating leverage - when growth slows down, high operating costs become a heavy burden on profits. In addition, information outside of the company's balance sheet is also worth paying attention to. Although financial costs decreased from 132.7 million Hong Kong dollars in the same period of the 2025 fiscal year to 89.9 million Hong Kong dollars, showing some effectiveness in debt management, the real financial risk lies in its operating model. The prospectus specifies that the company mainly distributes its products through Watsons in Hong Kong. This deep reliance on a single main channel is a double-edged sword: during periods of growth, leveraging top-tier chain channels can achieve rapid distribution; however, in times of market fluctuations or channel policy adjustments, the company's bargaining power and operational stability will face severe tests. On one hand, the company has successfully seized the opportunity in niche markets over the past three years, achieving a significant increase in revenue scale and establishing a leadership position in the deer health supplement category with nearly 30% market share. On the other hand, the latest financial data reveals doubts about the sustainability of its growth model: continuous decline in gross profit margin, erosion of profits by operating expenses, drastic fluctuations in net profits, and deep reliance on a single channel. Resilience of core business remains The lost second curve: continued failure of beauty supplements A deep analysis of the gross margin detail data divided by product category can reveal a richer operational truth than the consolidated income statement. The Hong Kong-based health and beauty supplements brand operator known for its "deer products" is currently experiencing structural differentiation - its core health supplement business is showing remarkable profit resilience, while the once promising beauty supplement sector is undergoing continuous deterioration in gross profit margins. From a data perspective, health supplements and products have always been the absolute pillar of Zhengpin Holdings, accounting for approximately 80% of its revenue contribution in each period. The performance of this sector's gross profit margin directly determines the company's overall profit foundation. Surprisingly, against the backdrop of the company's overall gross margin declining from 81.6% in 2023 to 75.0%, the health supplement business demonstrated strong rebound capabilities in the first half of the 2026 fiscal year (ending on September 30, 2025). The data shows that the gross margin of this sector rebounded from 77.8% in the 2025 fiscal year to 80.2%, even surpassing the 79.7% level in the 2024 fiscal year. In particular, the gross margin of the company's own brand health products rebounded from 79.1% in the 2025 fiscal year to 80.7%, essentially regaining lost ground. In stark contrast to the resilience of health products is the continued deterioration of the beauty supplement and product segment. This sector, once seen as the company's second growth curve, has, as revealed by data, been undergoing a three-year decline in gross profit margins. From the 2023 fiscal year to the first half of the 2026 fiscal year, the gross profit margins of beauty supplements were 81.0%, 73.5%, 65.9%, 63.9% (for the six months of 2025), and 61.9% (for the six months of 2026). Over three years, the gross margin of this sector has cumulatively decreased by nearly 20 percentage points, moving from a high-margin business comparable to health products to a serious "bleeding point" that significantly hampers overall profitability. A closer analysis of its internal structure reveals further complexity: Firstly, a decline in the competitiveness of own brands. The gross margin of the company's own brand in the beauty sector decreased from 81.0% in the 2023 fiscal year to 69.1% in the 2025 fiscal year. Although it rebounded to 78.6% in the first half of the 2026 fiscal year, this rebound was accompanied by a significant contraction in revenue scale (from an estimated 105 million Hong Kong dollars in the 2025 fiscal year to 5.744 million Hong Kong dollars). The sustainability of this "volume reduction, price increase" model is highly worrisome. Secondly, significant volatility in third-party brands. The gross profit margin of third-party brands in the beauty segment showed extremely unhealthy fluctuations - from 44.0% to 60.0%, and then to 30.5%. Such large fluctuations usually indicate that the company has not yet found a stable and effective third-party brand operation model, or lacks sustainability and bargaining power in agency cooperation and pricing strategies. In conclusion, from a data perspective, this sector has neither formed a stable profit model nor shown obvious synergies with health products. On the contrary, the continuous decline in its gross profit margin is diluting the overall quality of the company's profitability. The past "health + beauty" dual-drive strategy of Zhengpin Holdings has actually become ineffective. The company's future growth logic needs to be deeply restructured: faced with the structural dilemma of the beauty sector, the company needs to make strategic choices. Should it increase investment, reshape brand competitiveness, or strategically retract and refocus resources on the core health business?