Traditional Chinese medicine distributor HengHong Technology (HCPC.US) has significantly raised its fundraising target as it accelerates its push toward a Nasdaq IPO. Since first submitting a public F-1 prospectus to the SEC on March 27, 2025, seeking a Nasdaq listing, the company completed its fourth F-1/A amendment on September 2 of this year. Along with multiple rounds of updates, the most noticeable change lies in the fundraising plan. In the three public prospectuses disclosed in 2025, the company consistently planned to offer 2 million ordinary shares at $4–6 per share, implying a maximum raise of $12 million at the top end. Entering 2026, the offering structure was significantly elevated. The latest two prospectuses show that the price range was raised to $6–7 per share, the number of shares offered expanded from 2 million to 5 million, and the maximum raise at the top price reaches $35 million, with an additional 750,000 shares of over-allotment option. Against this backdrop, the expansion is directly related to Nasdaq's new rule requiring China-related issuers to underwrite IPOs of no less than $25 million. The new plan clearly surpasses that threshold, but the company's valuation has risen accordingly—based on approximately 25 million total shares outstanding post-offering, the $6–7 pricing implies an IPO valuation of roughly $150 million to $175 million. Once the valuation reaches this range, the real question is: will the market be willing to subscribe in full at this price? The answer ultimately must be found in HengHong Technology's fundamentals.

Traditional Chinese Medicine Revenue Exceeds 80%, Trapped in a "Rising Revenue Without Rising Profit" Mire

Since its founding in 2008, HengHong Technology has conducted pharmaceutical product distribution business in China through its operating entity HengCheng Health. The company primarily purchases traditional Chinese medicines and some chemical drugs from related party Guangdong HengCheng Pharmaceutical Co., Ltd. for resale. The company currently sells 34 product varieties and 106 specifications, covering therapeutic areas such as respiratory, cardiovascular and cerebrovascular, and digestive. Among these, therapeutic traditional Chinese medicines are HengHong Technology's core products, mainly cold, flu, and cough medications, including Ganmao Qingre Granules, Fenghan Ganmao Granules, and Yinqiao Jiedu Granules. Tonic traditional Chinese medicines mainly include Yiqi Yangxue Anshen and spleen-strengthening granules, Shengmai Granules (benefiting qi, nourishing yin, and promoting fluid production), Shouwu Bushen Granules (tonifying kidney and replenishing essence), and Zhuangyao Jianshen Pills. While selling pharmaceuticals, HengHong Technology also sells traditional Chinese medicine raw materials and provides market promotion services to related party Shaanxi HengCheng Pharmaceutical Co., Ltd. It is worth noting that due to adjustments in the company's business strategy, the scale of its market promotion services has dropped to a relatively low level. Looking at the 2025 revenue structure, HengHong Technology's revenue from pharmaceutical sales accounted for as much as 97.4%. Among this, traditional Chinese medicine revenue accounted for 81.2%, with key products including Ganmao Qingre Granules, Fenghan Ganmao Granules, and Yinqiao Jiedu Granules; chemical drug sales revenue accounted for 14%, mainly compound triamcinolone acetonide solution (trade name: Anlong) purchased from Guangdong HengCheng for dermatological treatment; traditional Chinese medicine raw material sales revenue accounted for 2.2%; and promotion and marketing service revenue dropped to 2.6%. At the sales channel level, HengHong Technology's sales network covers 22 provinces and autonomous regions in China, approximately 200 cities, and has established stable cooperative relationships with quality distributors and chain pharmacies across various regions. In each business region, HengHong Technology selects 2 to 3 leading local distributors as first-tier distributors, who purchase from the company and resell to local retail terminals and pharmacies. Meanwhile, HengHong Technology has established partnerships with well-known large chain pharmacies such as Yifeng Pharmacy and continues to optimize its nationwide store delivery channels. It is worth noting that with the implementation of new regulations on online drug sales in China, the company is actively adapting to regulatory changes by increasing online marketing investment and raising the proportion of online sales. It has established business relationships with multiple online pharmacies and related platforms, continuously expanding into the pharmaceutical e-commerce sector. From a performance perspective, HengHong Technology presented a typical case of "rising revenue without rising profit" in 2025. The company's full-year revenue in 2025 was approximately 215 million yuan, up 7.2% year-on-year; pharmaceutical sales revenue grew 10.80% to 209 million yuan, becoming the core driver of the company's revenue growth. However, significant divergence occurred within pharmaceutical sales: traditional Chinese medicine revenue grew 17.1% year-on-year to 174.3 million yuan, while chemical drug product revenue declined 13.7% to approximately 30 million yuan, and traditional Chinese medicine raw material revenue also fell 5.9%. It can be seen that although HengHong Technology's total revenue grew, its structure tilted more toward traditional Chinese medicines, with their share rising to 81.2%, while high-margin chemical drugs contracted and promotion services were nearly marginalized. While total revenue grew 7.2%, HengHong Technology's net profit plunged 21.5% to 11.96 million yuan. This was mainly due to two reasons. First, over 90% of procurement on the cost side depended on related parties, purchasing costs rose, combined with rebates exchanged for volume, which meant that traditional Chinese medicine volume increased but price and profit were eroded. This caused HengHong Technology's gross profit in 2025 to decline 17.37% to 36.85 million yuan. Second, the decline in government subsidies further suppressed profit release. Alongside the gross profit decline, HengHong Technology significantly compressed selling expenses, which fell 31.3% year-on-year to 19.28 million yuan, maintaining operating profit at a level comparable to 2024 by cutting market investment. However, as government subsidies dropped from 5.02 million to 1 million yuan, net profit was further dragged down.

Can the Multi-Dimensional Narrative Deliver Performance Growth? That Is the Key to Valuation

Although HengHong Technology fell into a "rising revenue without rising profit" performance mire in 2025, its path to breakthrough remains clear—the company stands at the intersection of rigid demand in the traditional Chinese medicine distribution sector and channel structure transformation, and is expected to leverage structural dividends to turn the situation around. The prospectus cites data from Menet: in 2023, total sales of traditional Chinese medicines across China's three major terminals reached approximately 397.39 billion yuan, up 5.69% year-on-year; among these, respiratory and cold-cough medications showed particularly rigid demand during the winter-spring flu season. From the channel landscape, the retail end is gradually absorbing some of the share flowing out from hospitals. For respiratory traditional Chinese medicines recommended in only 55 provincial-level diagnosis and treatment plans, combined sales in retail pharmacies (including online) exceeded 41 billion yuan in 2024. Menet further predicts that by 2029, China's out-of-hospital pharmaceutical market will reach 1.6 trillion yuan, providing broad incremental space for distributors focused on OTC products. HengHong Technology's core business happens to align with this trend. The company currently builds on therapeutic products such as Ganmao Qingre Granules, Fenghan Ganmao Granules, and Yinqiao Jiedu Granules, supplemented by tonic products including Shengmai Granules, Shouwu Bushen Granules, and Zhuangyao Jianshen Pills, and has established a sales network covering 22 provinces and approximately 200 cities. Through an asset-light model of "2–3 leading distributors per region as first-tier distributors plus direct supply to chains such as Yifeng Pharmacy," the company is deeply embedded in the out-of-hospital market. With the refinement of online drug sales regulation, new formats such as pharmaceutical e-commerce and instant retail continue to penetrate, and HengHong Technology is expected to extend its offline distribution capabilities online, further smoothing seasonal fluctuations and reducing dependence on a single channel. Facing the industrial dividends of rigid demand in the traditional Chinese medicine distribution sector and channel structure transformation, HengHong Technology's future layout is not simply about "selling a few more types of drugs," but about advancing three layers of logic in coordination: product iteration, channel deepening, and digital empowerment. On the product side, the company continues to focus on the main line of "prevention—treatment—rehabilitation." The therapeutic category relies on cold and cough granules to stabilize its core business, while the tonic category focuses on Zhuangyao Jianshen Pills, Suoxian Bushen Oral Liquid, Qizi Tianjing Oral Liquid, and medicated wine series such as Shouwu Bushen Wine, Bajitian Bu Wine, Maoji Buxue Wine, and Huichun Bu Wine, gradually shifting the profit model from low-margin wholesale volume to high-repurchase conditioning-oriented consumption; at the same time, it supplements new products through patent cooperation, mergers and acquisitions, or obtaining exclusive distribution rights to ease reliance on a single supplier, related party Guangdong HengCheng Pharmaceutical. On the channel side, the company continues to deepen its out-of-hospital presence based on its existing first-tier distributor system across 22 provinces, signing deeper strategic distribution agreements with chain pharmacies and cooperating with online platforms for e-commerce distribution. More critically, the company plans to use digital user profiling and channel management systems to link terminal sales momentum, rebate policies, and accounts receivable payment cycles, directly addressing the pain point of asset-light distributors—"fast distribution but slow cash collection"—and improving operational quality. Looking further ahead, HengHong Technology's layout also extends to internationalization and supply chain reinforcement. The company plans to use traditional Chinese medicine health food standard products and tonics as entry points, leveraging existing relationships with multinational pharmaceutical companies to test the European and overseas markets; at the same time, it aims to introduce high-quality innovative foreign drugs through exclusive distribution, patent licensing, or joint venture models, forming a two-way combination of "traditional Chinese medicine going global and imported drugs supplementing." In addition, if the IPO fundraising is successfully completed, part of the proceeds will be used to acquire GMP-compliant pharmaceutical assets or strengthen upstream supply agreements, fundamentally reducing the concentration of related-party transactions. Overall, although the 2025 "rising revenue without rising profit" performance has put short-term pressure on HengHong Technology's fundamentals, the company's long-term value anchor does not lie in the fluctuations of past financial statements, but in the industrial dividends of "rigid demand for traditional Chinese medicines plus out-of-hospital online migration." What HengHong Technology truly needs to face market scrutiny on is whether it can gradually translate its multi-dimensional new narrative—"tonic medicated wine as a second curve plus chain/e-commerce channels plus digital middle platform plus overseas and upstream supply chain reinforcement"—into solid performance growth. Only the quality of strategic execution is the core variable determining its future performance elasticity and the most authentic touchstone for measuring the company's intrinsic value.