Saintong Special Medical's net profit surged in the first half of the year, but it was not driven by core business contributions, rather it was due to no further impairment required.
<h4>Key Points:</h4>
<ul>
<li>Focus on special medical food, one of the market leaders in mainland China</li>
<li>Revenue, gross margin, and average selling price all declined in the first half of the year</li>
</ul>
Bai Xinrui
The atmosphere in the Hong Kong IPO market remains hot, not only are biotechnology, chip, and artificial intelligence stocks rushing to go public, but even uniquely positioned companies are planning to list. Saintong Special Medical (Qingdao) Nutrition and Health Technology Co., Ltd., which specializes in formula food for special medical (referred to as special medical) purposes, has recently submitted its listing application.
In 2005, there were no independent brands in China's special medical food market, and the special medical food division of Shengyuan Group was established, which became the predecessor of Saintong Special Medical. In 2011, it became the first company in China approved to produce special medical food. Its product, Special Love for Propionic Acidemia, is the first and only special medical food in mainland China targeting infants with propionic acidemia or methylmalonic acidemia.
<h4>Multiple Funds Invested</h4>
The current major shareholder of the company is Meng Xiuqing, holding 48.68% of Saintong Special Medical's shares. Other shareholders include healthcare and consumer technology industry fund HLC (holding 9.61% of shares), Canadian healthcare industry fund GL Stone (holding 7.24% of shares), China International Capital Corporation (holding 4.95% of shares), and Hillhouse Capital (holding 3.81% of shares), among others.
Special medical food refers to dietary products that are specially processed and formulated to meet the unique nutritional needs of individuals whose normal diet, digestion, or metabolic functions are impaired due to illness. When standard diets cannot meet the nutritional needs of patients, special medical foods are typically used as their primary or supplementary source of nutrition, with products aimed at allergy prevention for infants or children being the main business of Saintong Special Medical.
In 2024, approximately 30% of infants in China are expected to have allergy symptoms, with about 6% suffering from food protein allergies. As parents become more concerned about infant allergies, the demand for special medical foods that can effectively address or prevent allergies in infants is increasing. The market size for allergy-related special medical foods for infants in China is expected to reach 10.5 billion yuan in 2024, accounting for 77.4% of the total market for infant special medical foods, and is projected to grow to 21.7 billion yuan by 2029, with a compound annual growth rate of 15.7% from 2024 to 2029.
The top three players in the mainland China's special medical food market are all foreign-funded enterprises, with market shares of 44.2%, 16.3%, and 8.4%, respectively. Saintong Special Medical is one of the leaders, with a market share of 6.3%, making it the fourth largest special medical food brand and the largest domestic special medical food enterprise. Among them, special medical food for infants and allergy-related special medical food for infants rank as the third largest in the industry, with market shares of 9.5% and 11.1%, respectively.
According to the listing documents, Saintong Special Medical's net profit for the interim period ending June 30 this year reached 88.54 million yuan, a year-on-year increase of 105%. However, this was not driven by its own business, but mainly because there was no need for further impairment of financial liabilities in the interim period this year, while the same period last year recorded an impairment of 57.4 million yuan
<h4>Revenue Decline</h4>
In fact, ShengTong Special Medical's revenue and gross profit for the first half of 2025 both recorded a decline, retreating by 5.3% and 7.2% year-on-year to CNY 397 million and CNY 277 million, respectively, with the gross profit margin also dropping by 1.4 percentage points to 69.8%. Total product sales also slightly fell by 0.2% to 1.3 billion grams, and the average selling price of products dropped below CNY 300, decreasing by 5.1% year-on-year to CNY 295, which is clearly not a good sign.
The group attributed the revenue decline mainly to adjustments in sales strategy, as the new generation of consumers shifted from offline shopping to online shopping. They believe that concentrating more resources on expanding e-commerce is beneficial for the group, hence reducing rebates to distributors, which led to a slight decline in sales. However, according to the operational situation in the first half of 2025, although rebates to distributors were reduced, the sales proportion of distributors actually increased by 57.6% to CNY 228 million, up 7.9 percentage points year-on-year.
Although the entry barriers in China's special medical food industry are relatively high, with fewer than 20 companies registered for infant special medical food products, domestic brands are actively leveraging policy incentives to rapidly expand the special medical food market. In particular, many infant formula milk powder companies are extending their business into the infant special medical food market, utilizing synergies from maternal and infant channels, as well as online marketing methods, to quickly promote their brands, which poses a significant threat to ShengTong Special Medical.
Fortunately, ShengTong Special Medical stated in its listing application documents that it will not be stingy with dividends, planning to distribute no less than 50% of profits as dividends after going public. Referring to the valuations of dairy stocks, including Mengniu Dairy (2319.HK), Feihe (6186.HK), and Yili Group (600887.SH), the expected price-to-earnings ratios for 2025 are 12.3 times, 13.2 times, and 16.3 times, respectively. Therefore, if ShengTong Special Medical's valuation exceeds 20 times upon listing, it would indicate an overvaluation, while a valuation below 10 times would become attractive

HKXCY

00388

Shengtong Special Medical (Qingdao) Nutrition and Health Technology Co., Ltd. saw a sharp increase in net profit in the first half of the year, but revenue, gross margin, and average selling price all declined. The company focuses on special medical foods and has submitted a listing application to the Hong Kong Stock Exchange. Shengtong Special Medical is the first company in China approved to produce special medical foods, with its main products targeting infant allergies. The company's major shareholder is Meng Xiuqing, who holds 48.68% of the shares. The Chinese infant special medical food market is expected to grow rapidly

Shengtong Medical, with declining revenue and gross profit, adjusts sales strategy to navigate Hong Kong Stock Exchange