600M Yuan Acquisition of Major Shareholder's Assets, Tongce Medical Faces Inquiry

China Business News reporter Su Hao and Lu Zhikun, Beijing report

On March 24, an announcement once again pushed “Tooth King” Tongce Medical (600763.SH) back into the spotlight.

According to the announcement, the company plans to acquire 100% equity interests in four companies—Hangzhou Cunjie Eyewear Co., Ltd. (hereinafter “Hangzhou Cunjie”), Ningbo Guangji Optometry & Ophthalmic Technology Co., Ltd. (hereinafter “Ningbo Guangji”), Hangzhou Guangji Optometry & Ophthalmic Technology Co., Ltd. (hereinafter “Hangzhou Guangji”), and Xinchang Guangji Eyewear Co., Ltd. (hereinafter “Xinchang Guangji”)—with RMB 600 million of its own funds.

This transaction, which appears to be ordinary on the surface, has drawn broad market attention due to its related-party nature, the “bundled” model of “quality assets + loss-making assets,” an appraisal appreciation rate exceeding 12x, and the regulator’s work letter dispatched by the exchange at a fast pace.

In relation to the specific details of this acquisition, on March 30, a reporter from China Business News sent a letter and made a phone call to Tongce Medical for an interview. A staff member from the company’s securities department said that they are currently working on preparing the reply to the regulatory work letter, and that the interview would be explained only after the company submits its official response.

On April 2, Tongce Medical released an announcement regarding its reply to the work letter issued by the Shanghai Stock Exchange. It stated that the acquired target assets have significant high-quality financial characteristics, and will have a direct and positive impact on the company’s financial statements. Meanwhile, as the core ophthalmic medical business, the optometry and ophthalmology business—acting as a supplement to dental medical services—enhances the company’s overall ability to withstand cyclical fluctuations. In addition, the optimization of the target asset business structure and excellent cash flow performance will help the listed company improve overall asset turnover and cash collection capabilities, further strengthening its financial soundness.

“Bundled sale” draws attention

The announcement shows that the counterparty for Tongce Medical’s transaction is Zhejiang Tongce Ophthalmology Hospital Investment Management Co., Ltd. (hereinafter “Tongce Ophthalmology Investment”). This company is controlled by Lü Jianming, the actual controller of Tongce Medical, and therefore this constitutes a related-party transaction. The announcement clearly states that the transaction does not constitute a major asset restructuring, and still requires approval by the shareholders’ meeting.

Specifically, the operating conditions of the four target companies show an extremely “polarized” pattern, with the core profit-making asset being Hangzhou Cunjie. The company was established in 2017. It is an optometry product retail and service enterprise. Relying on the Hangzhou Cunjie Ophthalmology Hospital, it is the core asset under Tongce Ophthalmology Investment.

Financial data shows that in 2025, Hangzhou Cunjie achieved operating revenue of RMB 153 million, net profit of RMB 55.58 million, and a net profit margin as high as 36%, having formed a stable profit model.

However, it is precisely this company with strong profitability whose appraisal appreciation rate is as high as 1,282.14%. As of the appraisal benchmark date of December 31, 2025, Hangzhou Cunjie’s net assets were RMB 50.87 million, while the income-approach appraisal value reached RMB 703 million. Based on the transaction price of RMB 600 million for this deal, the overall premium rate still stands at 1,066.30%.

For this high premium, the valuation agency Zhejiang Zhonglian Asset Appraisal Co., Ltd. explained in its reply to the Shanghai Stock Exchange’s work letter that Hangzhou Cunjie belongs to a light-asset operation model, and in recent years its operating performance has been good. The company distributes profits every year, and the net asset scale at the benchmark date is not high, which leads to a higher appraisal appreciation rate. From historical dividend data, from 2021 to 2024, the company distributed 100% of the net profit for each year. Over the four years in total, dividends exceeded RMB 200 million.

If measured by the price-to-earnings ratio, Hangzhou Cunjie’s static P/E ratio is about 12.65x (based on the RMB 600 million consideration and the 2025 net profit). The valuation agency compared this valuation with acquisition cases involving Ophtalmic Vision in recent years, and concluded that it falls within a reasonable industry range—the comparable transaction appreciation rate range was 193.71% to 1,608.96%, with an average of 700.47%.

Along with the core asset, there are also three loss-making or not-yet-operating companies bundled for sale: Ningbo Guangji was established in 2022, and in 2025 its revenue was only RMB 455,200 and net profit was -RMB 72,000; Xinchang Guangji was established in 2024, and in 2025 its revenue was RMB 1.0118 million and net profit was -RMB 77,500; Hangzhou Guangji was established in 2019, and as of the date of the announcement it had not actually carried out any business. These three assets are transferred for zero consideration or nominal consideration, and they are included in the total transaction consideration of RMB 600 million.

To ease concerns about the high-premium acquisition, the transaction counterparty also made performance commitments at the same time: the core target, Hangzhou Cunjie, will have cumulative net profit of not less than RMB 180 million from 2026 to 2028; and cumulative net profit of not less than RMB 300 million from 2026 to 2030. At the same time, a dual cash compensation mechanism of “three-year settlement + five-year final settlement” was set up, with a compensation cap of RMB 600 million, equal to 100% of the equity transfer payment.

It is worth noting that the counterparty only set performance commitments for the core asset, Hangzhou Cunjie, but did not set any performance-gambling clauses for the other three “baggage” assets. This also means that the subsequent operational risks of those assets will be fully borne by the listed company.

In fact, this packaging approach of “mature assets + nurtured assets” is not uncommon in capital operations. By packaging high-quality assets together with loss-making assets for sale, a listed company can obtain growth points on one hand, and on the other hand provide a way for the actual controller to solve the exit issue for non-quality assets. However, the market questions whether this model is precisely a manifestation of the actual controller maximizing personal benefits—exiting the core assets at a high price, while successfully stripping off the non-quality assets held under personal control.

In response, Tongce Medical said: “There is no circumstance in this transaction involving the transfer of benefits to the controlling shareholder or its related parties, and there is also no circumstance that harms the legitimate rights and interests of the listed company and its minority shareholders.”

Growth hits a bottleneck

To understand the logic behind this related-party transaction of Tongce Medical, it is necessary to examine the business difficulties the company is currently facing.

Tongce Medical was once called the “Tooth King.” With its unique expansion model of “regional center hospitals + chain clinics,” the company expanded nationwide to nearly 30 dental hospitals, and its Hangzhou Dental Hospital became one of the largest dental specialty hospitals globally. From 2017 to 2021, the company’s stock price surged by more than 20x, and its market cap once exceeded RMB 135 billion, making it one of the most influential leading companies in the healthcare services sector.

However, good times did not last. In 2022, Tongce Medical’s performance reached a turning point. In that year, it delivered the first set of annual results since listing showing declines in both revenue and net profit: in the same period, revenue was RMB 2.719 billion, down 2.23% year on year; and net profit attributable to shareholders was RMB 548 million, down 21.99% year on year.

In 2024, the company’s revenue was RMB 2.874 billion, up only 0.96%; net profit was RMB 501 million, up 0.20%. Although it halted the downward trend, growth was nearly stalled. In the first three quarters of 2025, although the company’s performance gradually recovered—revenue was RMB 2.29 billion, up 2.56% year on year, and net profit was RMB 514 million, up 3.16% year on year—its growth rate remained significantly lower than the industry average.

From the perspective of business structure, there are mainly two core reasons for the performance fluctuations: first, the implementation of centralized procurement of dental implants compressed the profit space of high-margin businesses; although the company maintained its business scale through a “take volume to offset price” approach, its overall gross profit margin continued to decline. Second, elective consumption businesses such as orthodontics have declined for three consecutive years due to weak consumer demand; in 2024, orthodontic revenue decreased by 5.05% year on year.

Against this backdrop, Tongce Medical urgently needs to find a second growth curve.

According to information, Tongce Medical began planning its foray into ophthalmology as early as 2017. In that year, the company indirectly entered the ophthalmology sector by participating in Zhejiang Tongce Ophthalmology Hospital Investment Management Co., Ltd. In May 2017, Zhejiang Tongce Holding Group signed the “Cooperation Agreement” with Zhejiang University and the Second Affiliated Hospital of Zhejiang University School of Medicine. With Tongce Holding Group as the investor, the company planned to build Zhejiang Guangji Ophthalmology Hospital. The cooperation period was 20 years (from May 2017 to May 2037). During the cooperation period, the ophthalmology hospital would be managed by Zhejiang Second Hospital through a management and operation arrangement.

In 2021, Tongce Medical’s official website explicitly listed ophthalmology as a strategic business segment, proposing to rely on Zhejiang University Eye Hospital (the Eye Center of the Second Affiliated Hospital of Zhejiang University) to build a domestic-leading and internationally first-class optometry and ophthalmology center. In 2023, the company further increased its shareholding in ophthalmology investments and clarified that the ophthalmology business is intended to open a second growth curve beyond dentistry.

The four optometry and ophthalmology companies involved in this acquisition are precisely the mature assets cultivated by the actual controller over many years, intended to be injected into the listed company so that performance can be quickly reflected in the financial statements. The company’s announcement states that consolidating the target assets will directly enhance the listed company’s profitability and earnings per share, and strengthen the certainty and sustainability of earnings growth.

Tongce Medical claims that optometry and ophthalmology, and dental medical services, are highly aligned in business attributes, enabling space reuse and complementary customer life cycles. Specifically, the company plans to establish optometry and ophthalmology zones within its existing network of dental hospital outlets, to achieve staggered space utilization and team integration, thereby significantly improving the efficiency in the use of existing facilities and human resources.

However, whether these few optometry and ophthalmology companies from this acquisition can truly support the cross-industry transformation from “Silver Teeth” to “Golden Eyes” still remains a question mark.

A vast amount of information and precise analysis—available in the Sina Finance app