As a Hong Kong-listed traditional Chinese medicine enterprise, Shandong Hanfang Pharmaceutical Co., Ltd. exhibits pronounced characteristics of a family-controlled business in its listing prospectus. The document reveals that the company is currently 100% controlled by brothers Qin Wenji and Qin Yinji. Management includes several family members, and a company controlled by the chairman's nephew previously served as a related party, receiving substantial promotion fees over a long period. Significant cash dividends were also distributed prior to the IPO. This information outlines the company's operational and governance structure, raising market concerns regarding the independence of its decision-making, the fairness of its related-party transactions, and the sustainability of its long-term development.
The hallmark of family control is evident throughout Hanfang Pharmaceutical's ownership structure and management team. The prospectus explicitly discloses that, as of the latest practicable date, Chairman Qin Wenji directly holds 90% of the company's shares, while his brother and General Manager Qin Yinji holds the remaining 10%. Through a concerted action agreement, the brothers collectively constitute the controlling shareholders, wielding absolute control over board decisions, operational policies, and major investments. Even after the IPO and considering dilution from new share issuance, the Qin brothers will continue to hold absolute voting control, ensuring the family's core dominance over the enterprise.
Family members play significant roles in the company's management. Beyond the Qin brothers holding the positions of Chairman and General Manager, Qin Wenji's daughter, Qin Chengxue, and her husband, Ye Weibin, also hold key positions. The prospectus notes that Qin Chengxue serves as an executive director, overseeing the company's research and development. In addition to her role at the company, she has held a concurrent position as a professor and doctoral supervisor at the Shandong University School of Pharmacy since May 2025. Ye Weibin joined Hanfang Pharmaceutical in November 2025, responsible for supervising corporate governance and company secretarial affairs. Prior to this, from August 2015 to May 2025, he served as a Senior Advisor at KPMG Australia, providing advisory services related to tax and business matters for numerous clients.
This highly concentrated family control also carries inherent risks. In the risk factors section of its prospectus, Hanfang Pharmaceutical cautions that such share concentration could potentially hinder, delay, or prevent a change in the company's control. This might deprive other shareholders of the opportunity to receive a premium for their H-shares in a sale and could depress the share price. Such events might occur even if opposed by other shareholders. Furthermore, the interests of the controlling shareholders may diverge from those of other shareholders. The company states it cannot guarantee that the controlling shareholders will not exercise their significant influence to enter into transactions or make decisions that conflict with the best interests of other shareholders.
Notably, Hanfang Pharmaceutical has not implemented non-compete agreements for its core employees, relying solely on confidentiality agreements to regulate their conduct. The prospectus acknowledges that if key employees join competitors or establish competing businesses, it could lead to the loss of valuable technical know-how, proprietary formula-related trade secrets, and key professional networks. This aspect, within the context of significant family involvement in management, has drawn additional market scrutiny regarding the protection of the company's core assets.
Transactions with family-related parties in business operations have become a focal point for market attention. The prospectus discloses that Shandong Jiyuan Information Technology Co., Ltd. was a connected person and related party during the track record period. This company was ultimately controlled by a nephew of the controlling shareholder family and long served as a third-party promotion service provider for Hanfang, undertaking tasks such as market analysis and sales guidance, for which it received substantial promotion fees.
As a pharmaceutical company heavily reliant on a distribution model, Hanfang's sales performance is closely tied to its network of promotion agents. The prospectus shows that during the track record period, the company had 1,078, 992, and 930 distributors, respectively, who primarily supply its Compound Phellodendron Liquid topical solution to medical institutions and retail pharmacies nationwide. Sales generated through these distributors accounted for 95.3%, 92.3%, and 93.2% of total revenue during these periods. Concurrently, the top five customers were all distributors, contributing 56.1%, 55.9%, and 55.0% of total revenue in their respective periods.
As one of the core promotion service providers, the quality of Shandong Jiyuan's services and its fee structure directly impact the company's operational costs and market expansion efficiency. Established on November 20, 2018, Shandong Jiyuan became a promotion service provider for Hanfang in 2019. Its services included formulating marketing strategies, conducting market research, organizing academic conference promotions, visiting pharmacies and clinics, and maintaining customer relationships. Since Shandong Jiyuan was ultimately controlled by Wang Meng, the nephew of the controlling shareholders Qin Wenji and Qin Yinji, it was classified as a connected person and related party under listing rules. According to the prospectus, Shandong Jiyuan received a total of 179 million yuan in promotion service fees from Hanfang during the track record period alone.
Transactions between related parties, if lacking sufficient market-based comparables, carry risks of improper benefit transfer. While the prospectus states that the promotion service fees paid to Shandong Jiyuan were determined with reference to expected costs, service complexity, volume, duration, and prevailing market conditions, and were negotiated on normal commercial terms no less favorable than those available from independent third parties, it does not provide detailed disclosure on the specific pricing basis for these fees or a comparison with rates charged by other independent promotion agents. This omission has raised market questions about the fairness of these related-party transactions.
A point of confusion is that while Hanfang affirmed Shandong Jiyuan's services contributed to the sustainable growth of its flagship product, the company promptly terminated all transactions with Shandong Jiyuan immediately after Wang Meng sold his equity stake in 2025, thereby severing the related-party relationship. The prospectus discloses that following Wang Meng's exit, all transactions with Shandong Jiyuan were terminated, and no further transactions are anticipated.
In the lead-up to its Hong Kong IPO, Hanfang Pharmaceutical distributed considerable cash dividends during the track record period. The prospectus shows the company declared dividends of 50 million yuan in 2024 and 150 million yuan for the first nine months of 2025. The full 50 million yuan dividend for 2024 was paid, and 133 million yuan of the 150 million yuan dividend for Jan-Sept 2025 was paid, resulting in total dividend payments of 183 million yuan over this period. Given the 100% ownership by the Qin brothers, these pre-IPO cash dividends were effectively received entirely by the family members, further highlighting the利益分配 characteristics of a family-controlled enterprise.
Financially, the scale of these dividend distributions appears relatively aligned with the company's profitability during the same periods. The company reported net profits of 199 million yuan in 2024 and 145 million yuan for Jan-Sept 2025, accumulating a total net profit of 344 million yuan. The cumulative dividends paid represented 53.20% of this cumulative net profit. However, from a cash flow perspective, the密集的 dividend distributions have placed some pressure on the company's liquidity. As of September 30, 2025, the company's net current assets stood at 70.119 million yuan, a significant decrease from 301 million yuan at the end of 2023.
Market observers note that for companies planning to list, pre-IPO cash dividends typically need to balance shareholder returns with the need for long-term development capital. Hanfang's core business remains heavily dependent on its flagship product, the Compound Phellodendron Liquid, which contributed 99.7% of total revenue as of September 30, 2025. The company is at a critical stage of product diversification and R&D investment. The prospectus indicates R&D expenditures were 56.945 million yuan, 59.615 million yuan, and 41.553 million yuan during the track record periods, with future IPO proceeds partly earmarked for the R&D and commercialization of candidate products. At this developmental stage, whether large cash dividend payouts could impact the sufficiency of R&D investment and the pace of new product expansion has become a key focus of market attention.