A century-old brand, splitting with one hand and acquiring with the other

Ask AI · Why Didn’t Tongrentang’s Change Boost Performance?

Want to Reclaim Profits.

《Investor Network》 Cai Jun

Tongrentang, a century-old time-honored brand (600085.SH, hereinafter “the Company”), is stuck between making a move and standing still.

Recently, the Company’s core products were removed from the online listing platform. Earlier, a branded-for-sale product the Company had been marketing via OEM/white-label arrangements ran into controversy. Events have followed one after another, building on the major moves the Company launched in 2025, including organizational reform and capital operations. As of now, the Company (including) has 3 listed companies, including Tongrentang Technology (01666.HK) and Tongrentang Sinopharm (03613.HK), with a combined market value of about RMB 50 billion.

In fact, the crisis the Company is experiencing now shares the same pain points as the one in 2018: the cracks in the brand monetization logic. Therefore, reform should not be a passive path to repair, but the rebuilding of an entire system.

Another Crisis Strikes

In March, a notice from Shanxi Province to remove listings exposed the “unspoken rules” behind Tongrentang’s Angong Niuhuang Pills. Because the product had had no transactions in the long term within the procurement and bidding system for public hospitals, it was categorized as being in an “inactive area,” and was directly removed from the online listing platform. Under the rules, within two years, the product cannot enter local public hospitals.

In essence, the local “cleanup” action precisely punctured the Company’s most core profit scheme: endorsement through being listed in hospitals for procurement, and high-price sales outside hospitals. Data from Myneidata shows that over 80% of the sales of Tongrentang’s Angong Niuhuang Pills come from physical drugstores, while the contribution from in-hospital channels is negligible. On the one hand, the Company puts the product into the public hospital procurement catalog but does not actually supply it. On the other hand, it uses reimbursement-related qualifications to raise the product’s price, keeping the per-pill selling price at a high level of RMB 699–860.

This “listed but not supplied” arbitrage model’s core logic is to use brand endorsement to arbitrage across different channels. Therefore, removing the listing directly cuts off the Company’s arbitrage path.

Actually, this is not the Company’s first time getting caught up in trouble recently.

At the end of 2005, the Shanghai Consumer Protection Committee, after inspection samples, found that Tongrentang Sichuan Healthy Pharmaceutical’s phospholipid-based fish oil had a measured phospholipid content of 0, which severely deviated from the 43% stated on its packaging labels. The product’s cost was only RMB 3–4 per bottle, while the selling price was as high as RMB 60 per bottle. After the incident was exposed, the market learned that the product was not directly produced by the Company, but was a white-label product distributed by one of its subsidiaries. In response, the Company ordered relevant personnel at the involved enterprises to resign.

These two incidents before and after are not random explosions; rather, they are the path dependency of the Company’s “channel arbitrage + white-label expansion” being targeted and besieged. In short, this playbook not only loses its survival soil, but also rebounds against the Company’s brand image.

From 2021 to 2024, the traditional Chinese medicine industry entered a boom period. On the one hand, government support for traditional Chinese medicine under reimbursement policies increased, bringing rapid industry expansion. On the other hand, there was a trend of traditional Chinese medicine tonics becoming “giftified,” with products such as Angong Niuhuang Pills and Pianzhixian gaining popularity and seeing continuously rising prices.

This wave of momentum arrived like a timely rain. In 2018, the Company triggered an incident of “recalling expired honey.” After that, performance declined and the former chairman was investigated. Therefore, the Company seized the windfall momentum then: leveraging its brand advantage to raise prices for core products and quickly expanding via white-label arrangements, covering multiple categories such as healthcare products and beauty cosmetics.

From 2021 to 2023, both the Company’s revenue and net profit achieved double-digit growth. In other words, not long after escaping the crisis, the Company is now facing a new round of crisis.

Reforms to Reclaim Profits

Unlike the previous cycle, this crisis at Tongrentang has been a tug-of-war around profits.

In 2024, the Company’s gross margin exceeded 45%, but its net profit margin was below 10%. With years of double-digit growth in performance, one fact still cannot be hidden: whether it is channel arbitrage or white-label expansion, most of the Company’s profits are intercepted by distributors and OEM/contract manufacturers. Not only that—once product quality control goes wrong, the damage is still to the Company’s own brand.

The Company knows this very well. In other words, the delegated expansion carried out to get out of the previous crisis is no longer appropriate under today’s regulatory trends in the traditional Chinese medicine industry. In response, in 2025 the Company carried out multiple rounds of reforms, and the core logic is to reclaim profits.

During the reporting period, the Company completed a major reshuffling of management. Changes included the chairman, general manager, and finance officer; some directors were also reassigned to positions at subsidiaries. Meanwhile, the channel system underwent changes: a new medical and pharmaceutical development branch was established, integrating medical products such as those for cerebrovascular diseases, pediatrics, and respiratory conditions. It unified responsibility for in-hospital channel promotion, evidence-based medical studies construction, and compliant listing on procurement platforms—directly targeting the stubborn problems of “listed but not supplied” and “supplied but not workable.”

On the front of capital operations, the Company also acted on both sides. Early on, it acquired Tianjin Tongrentang to settle disputes over brand trademarks. Its healthcare and eldercare subsidiaries sought a split listing and repeatedly submitted applications to the Hong Kong Stock Exchange. In February of this year, the Company—by acquiring Jiashitang for RMB 1.46B—acquired a leading Beijing medical distribution company. The deal was seen as filling the final gap in distribution, addressing pain points from previously relying on third-party distribution, where channel costs were high.

In essence, this top-down, end-to-end set of moves is designed to run the full chain—“production—direct distribution to distribution channels—terminal execution”—so as to cut off those high intermediate fees and keep profits within the Company. At the same time, splitting into separate listings is building a capital matrix to activate assets and shift from “earning through brand arbitrage” to “earning through industrial chain efficiency.”

Brand Monetization

Now, although Tongrentang’s reforms have been sweeping, results have yet to show.

In the first three quarters of 2025, the Company’s operating revenue and net profit attributable to shareholders were RMB 13.31B and RMB 1.18B, respectively, down 3.7% and 12.78% year over year. Based on this, the Company’s net profit margin is 8.85%.

If the performance decline is the inertia of the earlier boom fading, then the Company is now stuck in a predicament with no easy way out.

On the one hand, the healthcare and eldercare subsidiary has repeatedly failed to achieve an IPO in Hong Kong. The market believes its core problem is that the speed of prior expansion did not bring high-quality profitability: the proportion of goodwill to net assets is over 30%, while revenue growth is less than 5%.

On the other hand, the removal of Angong Niuhuang Pills from online listings and the phospholipid fish oil controversy will cause the Company to review the effectiveness of its reforms. In short, what difference does the crisis facing the Company in this round have from the previous round?

To answer this question, we need to go back to the core logic of the two rounds of crises. In fact, the two crises the Company has gone through overlap to a certain degree: they are both about monetizing the credit of a century-old brand, and they both involve an excessive pursuit of expanding scale. Therefore, to get out of the crisis, it is necessary to reconstruct the management system.

From this perspective, the management reshuffle launched by the Company since 2025, the split listing plans, and acquisitions to complete the supply chain may not be merely passive repair of past path dependency. As for the traditional Chinese medicine industry, rather than saying the “boom” has passed, it is better to say it is rebuilding its own logic. As reimbursement cost controls are comprehensively deepened, dynamic regulatory scrutiny on drug listings is being tightened, and false advertising is being precisely targeted, brand overextension should not become an industry norm.

In March this year, Zhengfu Pharmaceutical triggered a public-opinion storm due to extremely low white-label entry barriers and excessive brand authorization. White-label products include Zhengfu’s Xiaojin bottle Wuqing tablets, Yimucao honey bee propolis antibacterial gel, and mugwort navel patches, among others.

At bottom, the Company managed to catch the industry wave by successfully riding “channel arbitrage + white-label expansion,” and then exited the previous crisis. However, the essence of the crisis is that brand trust has loosened, and the prior core pain points have not been fully resolved. Therefore, the reforms initiated by this round of crisis should not be a passive repair path, but a complete reconstruction of an entire system. (Produced by Think Finance)