Is the first IPO of domestic special medical food on the horizon? The dividends and anxieties of Shengtong Special Medical Food

In the field of special medical purpose formula foods (hereinafter referred to as "special medical foods") in China, the first listed company is expected to emerge.

Recently, Shengtong Special Medical (Qingdao) Nutrition Health Technology Co., Ltd. (referred to as "Shengtong Special Medical") submitted its prospectus to the Hong Kong Stock Exchange.

Shengtong Special Medical was spun off from the special medical food division of the milk powder company Shengyuan.

As the first Chinese milk powder company listed in the United States, Shengyuan's past market position should not be underestimated. It recognized the opportunity in infant special medical foods twenty years ago and became one of the earliest companies to layout in this field.

First-mover advantage has established a leading position.

In 2024, Shengtong Special Medical ranked fourth in the Chinese market with a 6.3% market share, becoming the only domestic brand among the top five.

At the beginning of 2025, the company’s two special medical foods for rare diseases in infants were approved, achieving a zero breakthrough for domestic brands.

However, with more and more registered formulas being approved, competition in the industry is becoming increasingly fierce.

In the still "niche" special medical food industry, how Shengtong Special Medical maintains its competitiveness may become a challenge.

Domestic Special Medical Leader

In 2016, the National Medical Products Administration approved the "Registration Management Measures for Special Medical Purpose Formula Foods," marking the beginning of the standardized development era for the special medical food industry.

Three years later, in 2019, the industry saw a surge in formula approvals, and Shengyuan International subsequently spun off its special medical food division, forming the current Shengtong Special Medical.

The entry threshold for special medical foods is relatively high, with registration and application cycles typically lasting 1-3 years, posing high requirements for companies in terms of funding, technology, and talent, creating certain entry barriers.

Backed by Shengyuan milk powder, Shengtong Special Medical's advantages are more evident in the special medical infant formula field.

Currently, it holds six infant special medical food registration certificates, the most among domestic brands.

This lays a solid foundation for product promotion in medical channels.

Special medical foods are managed under quasi-drug principles and must be consumed under the guidance of doctors or nutritionists, making market promotion in medical channels crucial.

Shengtong Special Medical sells through 338 distributors to over 700 hospitals, postpartum care centers, and other medical institutions.

In 2024, Shengtong Special Medical's revenue reached 834 million yuan, driven by rapid penetration in the special medical food market, with a compound annual growth rate of 30.3% over the past three years.

For special groups, although special formula powders are expensive, they remain a necessity, which determines the strong consumption stickiness of this category, characterized by higher purchase frequency and product added value.

The average selling price of Shengtong Special Medical's allergy prevention series products reaches 332 yuan per kilogram, with a gross profit margin of 72%, more than double that of its discontinued non-special medical milk powder.

In 2024, Shengtong Special Medical's net profit approached 200 million yuan, with an adjusted net profit margin of 23.9%, higher than that of China Feihe, known for its high-end milk powder.

The company still has 40% of its products that have not completed domestic registration.

These products are outsourced to Beams Power, the wholly-owned subsidiary of the controlling shareholder located in South Korea, and are ultimately sold in China as imported foods through cross-border e-commerce platforms The outsourced production capacity, which contributes nearly half of the revenue, has achieved a certain degree of light asset business and optimized capital return efficiency.

After excluding the impact of financial liabilities measured at fair value, the return on equity (ROE) of ShengTong Special Medical reached an astonishing 75%.

The profitability effect of niche tracks has attracted multiple large equity financings.

In January of this year, it set a record for the largest financing in the special medical food sector in recent years, securing over 400 million yuan in financing led by Hengxu Capital, Hillhouse Capital, and Innovation Works.

In April, before the filing, CICC capital re-entered, pushing the valuation to 2.6 billion yuan.

With a high ROE and the advancement of equity financing, ShengTong Special Medical has maintained a relatively low debt ratio.

The adjusted debt-to-asset ratio for 2024 is 1.6%; by the end of the first quarter of this year, there were only 1.17 million in lease liabilities and 30 million in bank loans on the books.

The Road is Long and Challenging

The first-mover advantage is helping ShengTong Special Medical enter the IPO track, but the complexity of the special medical food market poses many challenges ahead.

Currently, the vast majority of the special medical food market share is still occupied by foreign brands.

Nestlé holds the top position with a 57% market share, followed by Danone with 18.4%, together accounting for nearly 80% of the market.

Domestic brands mostly choose to avoid medical channels in first- and second-tier cities, focusing instead on third- and fourth-tier cities, maternal and infant stores, and cross-border e-commerce.

Compared to international brands, there is a certain gap in technology and R&D accumulation between the two sides.

The registered products of the vast majority of domestic dairy companies are still limited to lactose-free and allergy prevention areas, focusing on lactose-intolerant infants aged 0-12 months.

For example, over 90% of ShengTong Special Medical's revenue comes from allergy prevention products, which have a relatively lower technical threshold compared to areas like premature infants and metabolic disorders.

Song Liang, head of the industry expert group of the China Agricultural Reclamation Dairy Alliance, believes: "Compared to Feihe, Yili, and others, ShengTong Special Medical has not made significant leaps and advancements in the field of infant allergy prevention technology."

Once the supply side of registered formulas begins to increase, it may provide other dairy companies with opportunities for a shortcut.

"Whether it's Feihe, Yili, or Yipin, they will bring significant competitive pressure to the industry," said Song Liang.

Currently, Yili's market share in China's infant special medical food market has reached 3.3%, still 6.2 percentage points away from ShengTong Special Medical's share.

The gradually improving rules for special medical foods are imposing restrictions on the outsourced production model, requiring special medical food brands to have higher self-production standards.

In 2023, after obtaining the relevant production license for special medical foods, ShengTong Special Medical reclaimed the Qingdao production base that was originally shared with its parent company, and the company's capacity utilization rate significantly increased to 99.8% the following year.

The second workshop located at the Qingdao production base was also put into production in February of this year.

A new factory in Inner Mongolia is being built to produce hydrolyzed protein powder and fat powder, with plans to start production in the first quarter of 2026.

The expansion of capital expenditures based on self-built capacity has brought a brake to ShengTong Special Medical's long-standing high-efficiency operations.

In 2024, the company's inventory level increased by 40% year-on-year to 120 million yuan, with raw materials growing by 35% to 78 million yuan. The inventory turnover days have significantly increased from 54 days two years ago to 155 days

New Transformation

Special medical foods, represented by infant formula, indeed hold considerable appeal for dairy companies.

The infant formula market is becoming mature and stable, while the special formula market is still in its early development stage, with significant growth potential.

In 2024, the preterm birth rate in China is expected to be around 7%, and the average age of mothers is on the rise.

About 30% of infants exhibit allergic symptoms, with 6% suffering from food protein allergies; 15% of infants show signs of lactose intolerance.

However, special formula remains a niche market.

The overall market share in 2024 is projected to be 23.2 billion yuan, with the infant special medical food market reaching 13.5 billion yuan, accounting for nearly 60%.

The infant formula market continues to face pressure due to demographic changes such as declining birth rates and an aging population.

Dairy companies may increasingly view it as a transitional stepping stone towards functional foods.

Song Liang likens special medical formula to "the market high ground for functional dairy products." It not only hones the company's technology and innovation levels but also helps establish a professional image in functional nutrition.

Shengtong Special Medical is also not planning to stick solely to the infant special formula field and is shifting its focus towards non-infant special medical foods.

At the same time, it has begun to form a new sales team to promote non-infant special medical foods, aiming to commercialize 12 types of non-infant formula milk within five years.

Among non-infant special medical foods, the main focus is on "specific complete nutritional formula foods" designed to meet the full nutritional needs of specific diseases or patients.

The registration standards in this field are stricter; in addition to general application materials, additional clinical trial reports must be submitted.

"After registration, about 100 related documents must be submitted to complete hospital access," said Tang Zhengye, a partner at Liti Consulting in the life sciences and healthcare industry.

This will further extend the application cycle to 3-5 years.

Among the 16 products in the research and development stage at Shengtong Special Medical, 5 are specific complete nutritional formula foods targeting tumors, kidney diseases, liver diseases, etc., with a launch time concentrated after 2028.

Currently, there is only one registered specific complete nutritional formula food in the domestic market.

To some extent, this means that foreign and domestic brands are not far apart in terms of starting points.

In Tang Zhengye's view, foreign brands place great importance on compliance in channel layout. "Using the same products to capture the market, foreign products may not penetrate faster than domestic brands that achieve network layout through hundreds of agents."

"Another advantage may lie in pricing." Tang Zhengye stated: "Special medical products for phenylketonuria have already been clearly included in the Gansu medical insurance procurement catalog. In the future, the competition for medical insurance qualifications among domestic brands will become a major point of differentiation."

With the acceleration of formula approvals, competition in related fields will quickly intensify.

The funding support from public offerings for Shengtong Special Medical's product research and development and market expansion will be key to exploring new areas