As a significant player in China's veterinary biological products sector, Tiankang Pharmaceutical Co., Ltd.'s pursuit of an IPO on the Beijing Stock Exchange has drawn widespread market and regulatory scrutiny due to a series of issues exposed during the inquiry process.
Despite the company's detailed response document disclosed on January 13th, which aimed to address the regulator's persistent questions, the data and explanations provided have failed to fully dispel market concerns. Issues such as declining performance, customer attrition, high accounts receivable, and the rationale behind the fundraising projects remain unresolved.
The primary and repeated point of inquiry from regulators is the continuous decline in Tiankang Pharmaceutical's performance during the reporting period, particularly its stark deviation from the overall industry trend. Financial data reveals that from 2022 to 2024, the company's net profit attributable to shareholders dropped from 204 million yuan to 153 million yuan, with the non-GAAP net profit falling by 18.36% and 11.20% year-on-year over the past two years, indicating clear weakness.
Entering 2025, the company's performance deterioration intensified. Revenue for the first three quarters was 682 million yuan, a decrease of 20.49% year-on-year, while net profit plummeted by 42.44% to 106 million yuan. In contrast, comparable peers in the same period, such as Ruipu Biology, Keqian Biology, and Pulike, saw an average revenue growth of 1.60% and an average net profit surge of 49.06%.
Notably, the already weak performance may also involve potential profit manipulation. In the first half of 2025, the company recognized a substantial non-recurring gain of 23.408 million yuan, the source of which is controversial. This income primarily stemmed from a revision to a "Technology Authorization Agreement" signed in 2011 with the licensor, Maoxing Biology, which lowered the royalty rate for the swine fever E2 vaccine technology from 10% to 5%, leading to a reversal of previously over-accrued expenses.
The company explained that the over-accrual was due to a previous misinterpretation and that actual settlements had always been at the 5% rate. However, the commercial rationale and timing of releasing profits by retroactively adjusting a contract clause from 14 years ago, especially during a critical IPO push, are debatable.
Overall, the company's counter-trend performance decline amidst an industry recovery is closely tied to its business model. Firstly, its reliance on government procurement is facing challenges. During the reporting period, Tiankang's government procurement revenue was 564 million yuan, 553 million yuan, 520 million yuan, and 268 million yuan respectively, accounting for 56.42%, 52.46%, 49.43%, and 52.96% of its main business revenue.
As the "Vaccinate First, Subsidize Later" policy is implemented nationwide, the market size for government-procured compulsory immunization vaccines is generally shrinking. The contraction of this revenue base has significantly dragged down the company's overall growth. Compared to peers who have already established advantages in direct market sales and distribution channels, Tiankang appears passive and slow in its transition as policy-driven benefits wane, fully revealing the aftereffects of path dependency.
Secondly, the company's product portfolio is singular, failing to effectively hedge against cyclical risks or capture opportunities in emerging markets. Its performance is heavily concentrated in the swine vaccine segment. In 2025, the primary growth driver in the veterinary vaccine market came from poultry vaccines, an area where Tiankang's product line is weak, with only a few products like the avian influenza trivalent inactivated vaccine.
Furthermore, the company has virtually no presence in the rapidly growing blue ocean market of pet healthcare. This imbalanced product structure deeply ties its performance to the cyclicality of the downstream pig farming industry. When the breeding industry undergoes adjustments and farming conglomerates face profit pressures, the need to reduce costs and improve efficiency quickly impacts upstream suppliers.
In the first half of 2025, the company's sales to its top three direct clients – Muyuan Food, New Hope, and Wens Foodstuff – fell by 72.19%, 35.10%, and 38.33% year-on-year respectively, directly reflecting this pressure. Concurrently, the average unit price of its main products for direct sales dropped from 17,400 yuan in 2022 to 6,500 yuan in the first half of 2025. Even with this volume-for-price strategy, the company could not stabilize purchase volumes from clients, potentially indicating insufficient product differentiation, weak customer loyalty, and low bargaining power within the supply chain.
Thirdly, rigid cost pressures are significantly amplified during a period of revenue contraction, eroding profit margins. With the operational commencement of production bases like the one in Suzhou, the company's depreciation and amortization expenses have surged. In the first half of 2025 alone, depreciation for the Suzhou base reached 34.99 million yuan. Against a backdrop of stagnant or declining revenue, these fixed costs have substantially diluted profit margins.
Although the company quantified the impact of falling gross margins and changes in period expense ratios on net profit in its response, and noted that a 9.76% net profit increase in H1 2025 was aided by lower expense ratios, reduced credit impairment losses, and increased non-operating income, the underlying weakness in its core business profitability remains unchanged when excluding the effects of non-recurring items and impairment provision adjustments.
Looking at the fundraising projects, Tiankang plans to raise 527 million yuan through this IPO for several capacity expansion initiatives. However, given its currently low capacity utilization rates, the necessity of this expansion and the reasonableness of its future benefits have become another focal point of the inquiry.
The prospectus and responses indicate that the existing capacity for its brucellosis vaccine is 150 million doses, with utilization rates during the reporting period at 36.02%, 43.72%, 44.44%, and 34.61% (H1 2025), remaining low overall. In the first half of 2025, utilization rates for key products like inactivated vaccines and live vaccines also declined further. It is noteworthy that the Suzhou production base, which commenced operations in 2025, was not included in the capacity calculations for the reporting period.
Despite significant existing idle capacity, the fundraising projects still propose substantial expansion; for instance, the Brucellosis Vaccine Expansion Project aims to increase annual capacity to 276.4 million doses upon completion. The company's justification rests primarily on two future expectations: first, the need for capacity upgrades and replacement, citing that existing production lines are based on older GMP standards with insufficient biosafety levels, necessitating new, high-standard lines for future products like highly pathogenic vaccines; and second, optimistic forecasts for market growth and new product launches, mentioning potential market expansion from the expected gradual implementation of compulsory brucellosis immunization for cattle and sheep in "fifteen southern provinces" and the anticipated market entry of five core new products (e.g., a swine pseudorabies subunit vaccine) by 2026, requiring preemptive capacity planning.
However, the scope, timeline, and actual enforcement of immunization policies are influenced by numerous factors beyond the company's control. Secondly, the commercial prospects for new products are also challenging. The path from successful R&D to obtaining production approvals, market promotion, and gaining customer acceptance for new veterinary vaccines is long and highly competitive. If the anticipated market growth and new product sales fail to materialize as expected, the significant investment in new capacity could lead to even larger depreciation and amortization expenses, dealing a "second blow" to performance.
Furthermore, the company cited actual capacity utilization rates of 62.45% and 63.49% for its brucellosis vaccine in 2023-2024, and a peak season utilization of 81.11%, to demonstrate capacity tightness. However, these figures differ markedly from the utilization data based on design capacity disclosed in the prospectus, casting doubt on the true state of the company's capacity utilization.
Overall, the core doubts surrounding Tiankang Pharmaceutical's IPO center on its performance divergence from the industry trend, sluggish business model transition, singular product structure, and the questionable rationale for its fundraising projects. Unless it can provide more convincing explanations and solutions for these concerns, its path to listing is likely to face significant challenges.