Core Viewpoint - The company, Wenzhi Traditional Chinese Medicine, has experienced rapid revenue growth from 62.17 million RMB in 2022 to 236.41 million RMB in 2024, with a compound annual growth rate of 32% over three years. However, it has faced significant losses, accumulating nearly 400 million RMB in losses by 2024, indicating a stark contrast between revenue growth and profitability [1][2]. Financial Performance - Revenue increased from 62.17 million RMB in 2022 to 236.41 million RMB in 2024, with a projected revenue of 100.39 million RMB for the five months ending May 31, 2025 [2]. - The cost of sales rose from 27.19 million RMB in 2022 to 96.29 million RMB in 2024, leading to a gross profit increase from 34.98 million RMB to 140.12 million RMB during the same period [2]. - The company reported a pre-tax loss of 37.89 million RMB in 2024, a significant reduction from the previous year's loss of 183.54 million RMB, but still indicative of ongoing financial challenges [2]. Cash Flow and Debt Situation - As of May 2025, the company has accumulated losses of 437 million RMB, a staggering 17-fold increase compared to the same period last year, with net current liabilities reaching approximately 538 million RMB and cash reserves of only 11.5 million RMB, indicating high short-term debt repayment risks [3]. - The company faces pressure from a redemption agreement that requires it to redeem preferred shares and pay 8% interest if it fails to go public by January 2027, exacerbating its cash flow issues [5]. Cost Structure and Profitability - The company has a high cost structure, with sales expenses consistently exceeding research and development (R&D) expenditures. In 2024, R&D spending was only 10.48 million RMB, accounting for just 4.9% of revenue, while marketing expenses were over double that amount at 28.87 million RMB [4]. - The reliance on AI technology has not translated into substantial contributions to the core medical services, raising concerns about the sustainability of its business model [5]. Trust and Team Composition - The company is facing a trust crisis due to complaints regarding false advertising and exaggerated efficacy of its services, which could undermine its market position [5]. - The average age of the company's 93 full-time physicians is 32, raising concerns about the experience and capability of younger doctors in handling complex medical cases, particularly in oncology [6].

Core Viewpoint - Shenzhen Wenzhi Traditional Chinese Medicine Health Technology Co., Ltd. has submitted an updated prospectus to the Hong Kong Stock Exchange, marking a significant step towards becoming the "first AI stock in traditional Chinese medicine" [1] Financial Performance - The company reported revenues for the fiscal years 2022, 2023, and 2024, as well as for the five months ending May 31, 2024, and 2025, amounting to approximately 62.169 million, 189 million, 236 million, 89.848 million, and 100 million respectively [1] Business Overview - Founded in June 2018 and headquartered in Shenzhen, the company is an AI-enabled provider of traditional Chinese medicine services, focusing on online internet hospitals, offline TCM clinics, TCM lifestyle products, and the "Traditional Chinese Medicine Brain" subscription service [1] - The company has developed an AI-assisted diagnostic system called "Traditional Chinese Medicine Brain," which utilizes deep learning from over one million clinical cases to create a knowledge graph of over 3,000 diseases, aiming to enhance diagnostic efficiency and accuracy [1] Revenue Structure - The company operates three main business segments: TCM medical services, TCM lifestyle products, and the TCM Brain subscription service, with TCM medical services accounting for 90% of total revenue, making it the core revenue driver [1] Service Model - The company provides a one-stop service through its self-operated internet hospital, offering video consultations, intelligent diagnostics, and herbal medicine delivery [2] - 90% of the company's diagnostic revenue is generated from online channels, supported by 12 self-operated clinics and 4 regional herbal medicine preparation centers, creating a nationwide TCM service network [2] Market Expansion - In the consumer sector, the company is expanding into TCM lifestyle products through its e-commerce platform, catering to daily TCM health needs [2] - In the B2B market, the "Traditional Chinese Medicine Brain" subscription service is gradually opening up new growth opportunities by providing intelligent diagnostic capabilities to TCM medical institutions on a subscription basis [2]

Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected relative price increase of over 20% within the next six months [20]. Core Insights - The company reported a strong performance in its 2024 annual report, achieving revenue of 3.02 billion RMB (+30.1%) and a net profit attributable to shareholders of 307 million RMB (+21.6%), which aligns with expectations [2][8]. - The offline business continues to grow rapidly, with revenue reaching 2.74 billion RMB (+34.5%), driven by contributions from newly acquired institutions and growth in existing operations [4][3]. - The company has expanded its network significantly, operating 79 medical institutions by the end of 2024, an increase of 21 from the previous year, covering 20 cities [6]. Financial Performance - The company achieved a gross margin of 30.1%, maintaining year-on-year stability, while the net profit margin was 10.2% (-0.7 percentage points) [5]. - The adjusted net profit for the year was 400 million RMB (+31.4%), reflecting effective cost control with sales, management, and financial expense ratios at 12.2%, 6.1%, and 0.6%, respectively [5]. Business Expansion and Innovation - The company is actively investing in AI technology to enhance its traditional Chinese medicine services, aiming to improve diagnostic capabilities and customer service [7]. - The forecast for revenue growth is optimistic, with projections of 3.81 billion RMB, 4.84 billion RMB, and 6.09 billion RMB for 2025, 2026, and 2027, respectively [8]. Market Position - The company is positioned as a leading player in the traditional Chinese medicine service industry, benefiting from strong demand and supportive policies, with significant long-term growth potential [8].