Repeat Purchase Rate Exceeds 80%, Average Transaction Value RMB 443: This TCM Clinic Targets IPO with Self-Pay Model

In late July 2026, Harbin Yuyantang Traditional Chinese Medicine Outpatient Group Co., Ltd. updated its Hong Kong stock exchange prospectus.

Lacking the halo of a century-old brand, with a founder who has no formal training in Traditional Chinese Medicine (TCM), and having even forgone medical insurance reimbursement—a lifeline for most peers—this TCM clinic chain has nevertheless grown its revenue from RMB 150 million to nearly RMB 400 million over the past three years, while maintaining a gross profit margin consistently above 60%.

Previously, Tongrentang Medical Care and Gushengtang had already listed on the Hong Kong Stock Exchange. Yuyantang, however, has taken a completely different path. This private TCM outpatient clinic group, deeply rooted in northern China, centers its core value proposition on customized herbal paste preparations (Gaofang). With nearly 60 self-operated stores and a customer repurchase rate exceeding 80%—ranking first in the industry—what exactly has it done right?

Founder Guo Yang is 42 years old. According to his public resume, he has not received systematic full-time medical education. In the TCM industry, which generally values apprenticeship and academic training, such a background appears somewhat unconventional.

What’s even more unconventional is Guo Yang’s entrepreneurial journey. The history of Yuyantang can be traced back to 2015, when Guo Yang first established the Harbin Huaxinpujian Institute of Traditional Chinese Medicine, focusing on herbal ointments and pharmaceutical research. It was not until three years later, in 2018, that the first Yuyantang TCM outpatient clinic officially opened in Harbin.

This approach of prioritizing research before medical practice stands in stark contrast to the traditional model of TCM clinics. Most peers typically start by opening a clinic, hiring physicians, and prescribing formulas, making adjustments on the go. Guo Yang, however, chose to first develop herbal paste formulations and build a prescription library, refining his products before considering clinical consultation scenarios. These herbal pastes are tailored to meet the long-term health management needs of middle-aged and elderly populations in northern China, addressing conditions such as cardiovascular and cerebrovascular diseases, diabetes, and spleen-stomach disorders, with standardized formulas corresponding to specific indications.

This approach endowed Yuyantang with a product-oriented DNA from the outset.

According to the prospectus, prescription dispensing has long accounted for more than 90% of Yuyantang’s revenue structure. It represented 97% in 2023 and remained at 93.9% in 2025. What is particularly noteworthy is that the share of in-house preparations rapidly increased from 1.7% in 2023 to 5.4% in 2025, further reaching 7% in the first five months of 2026.

Beyond herbal pastes, Yuyantang’s in-house pharmaceutical preparations are the key differentiator from ordinary TCM clinics. It has turned product lines such as Longyan Gukang Granules and Zhijiang Tongluo San into blockbuster hits, distinguishing itself from the conventional model of dispensing prescriptions and providing decoction services. This also explains why Guo Yang dared to forgo medical insurance coverage and pursue a purely out-of-pocket payment model.

The prospectus notes that the company adopts a market-oriented pricing model, independently determining its service fees and not participating in any government or commercial medical insurance reimbursement schemes. It is worth noting that Tongrentang Medical Care, previously listed on the Hong Kong Stock Exchange, derived more than half of its revenue from medical insurance settlements. In contrast, Yuyantang has taken a decidedly resolute path by relying exclusively on out-of-pocket payments.

Operating independently of medical insurance naturally results in higher customer acquisition costs; conversely, this filters for a customer base with stronger willingness to pay and higher stickiness. Yuyantang adopts a prepaid treatment model, where patients typically purchase medication supplies for two weeks to three months. Under this model, the repurchase rate exceeds 80%. These high-stickiness customers support high gross margins and have accumulated the financial foundation for future expansion.

Notably, prior to submitting its prospectus, Yuyantang had completed only one round of small-scale external Pre-IPO financing, with no participation from professional healthcare industry funds or top-tier financial investors. This indicates that its early-stage development did not rely on external capital infusion, demonstrating that its business model possesses stable self-sustaining revenue-generating capabilities.

Yuyantang’s financial data underpins its confidence in entering the capital markets.

Revenue increased from RMB 150 million in 2023 to RMB 215 million in 2024, and further jumped to RMB 399.7 million in 2025, more than doubling over the three-year period. Gross profit margin rose from 58.0% to 62.5%, and remained at 61.1% in the first five months of 2026. Adjusted net profit margin increased from 13.7% to 20.6%. Average revenue per user (ARPU) also grew from RMB 376 in 2024 to RMB 438 in 2025, reaching RMB 443 in the first five months of 2026.

Recent Revenue Performance of the Company, Charted Based on Prospectus Data

In the traditional Chinese medicine clinic industry, such profitability is uncommon.

According to Sullivan data, there are over 100,000 Traditional Chinese Medicine (TCM) healthcare service providers in China, with a highly fragmented market. Based on 2025 revenue from TCM outpatient departments and clinics, the top five private chain providers collectively accounted for only approximately 21% of total revenue. Yuyantang ranked fifth, with a market share of 2.3%.

This is a sector with numerous participants but an extremely weak winner-takes-all effect. Most traditional Chinese medicine (TCM) clinics are stuck in a quagmire of having revenue without profits, relying on medical insurance for customer acquisition and on cost compression for profitability.

Yuyantang broke free from this deadlock by adopting an asset-heavy model for its Traditional Chinese Medicine (TCM) services. All outlets are self-built and self-operated, with the company currently managing 59 licensed medical institutions under a unified management system. A standard clinic is staffed with six physicians and five medical professionals, covers a floor area of 400–800 square meters, and requires an initial investment of approximately RMB 1 million to 2 million.

While peers were busy opening up franchises and expanding with an asset-light model, Yuyantang chose to keep strict control over the quality of every spoonful of its herbal paste formulations. Because if there is any issue with the herbal paste, the brand will collapse.

Store Distribution, Source: Prospectus

Yuyantang started in Northeast China, entering Shandong and Hebei in 2024; it expanded into Tianjin in 2025 and Jiangsu in May 2026. The number of stores has grown steadily from 14 in 2023, to 31 in 2024, 47 in 2025, and currently stands at 59, reflecting a relatively prudent expansion pace.

Despite its overall steady development, Yuyantang also faces operational challenges that chain TCM clinics urgently need to overcome.

The Challenge of Scale and Profitability

Yuyantang adopts a prepaid treatment model. Patients typically purchase a two-week to three-month supply of medication in a single transaction, and returning patients are eligible for certain price discounts. Undelivered prepaid medications are recorded as contract liabilities, and patients retain the right to a full refund for unused medications without any time limit.

This means that a portion of the revenue recorded on the books has not yet been realized. Payments received from customers today may be subject to refund requests tomorrow due to various reasons, potentially turning these pre-secured cash flows into pressure from chargebacks.

Changes in Customer Advances in Recent Years, Charted Based on Prospectus Data

Prepaid models are widespread in traditional Chinese medicine (TCM) clinics, wellness centers, and even beauty salons. However, regulatory oversight of prepaid schemes in healthcare institutions has become increasingly stringent across various regions in recent years. As Yuyantang is still relatively small in scale, its ratio of contract liabilities has risen alongside revenue growth, reaching 37.5% in 2026. Although store expansion and streamlined online channels have boosted revenue and secured future performance in advance, there remains a certain risk of large-scale refunds.

This is not an issue unique to Yuyantang; it is a common "sweet trap" for all TCM clinics and beauty institutions seeking to pursue a chain-store model.

Persistently high labor costs and talent turnover are common challenges for chain TCM clinics.

A candid statement in the prospectus reads: “Physician compensation and raw materials constitute the two major components of the Group’s operating costs.” As of the Latest Practicable Date, Yuyantang employed 427 full-time medical personnel dispersed across its various clinics. Additionally, the company maintains a fixed team of 38 senior physicians (Directors/Deputy Directors) who rotate among all clinics to provide consultation services, thereby balancing physician staffing shortages at individual locations.

Corporate Medical Personnel Overview, Charted Based on Prospectus Data

The prospectus also disclosed that the annual physician turnover rates for 2023 to 2025 were 29.5%, 22.7%, and 26.1%, respectively. This constitutes the greatest challenge in the chain expansion of Traditional Chinese Medicine (TCM) practices.

Store decoration, service protocols, and even the preparation techniques for herbal paste prescriptions can be standardized; however, medical consultation ultimately relies on physicians taking pulse readings and prescribing treatments. The training cycle for competent TCM practitioners exceeds eight years, and renowned doctors often prefer independent practice or are easily poached by peers offering high salaries. Consequently, mass replication of high-quality TCM practitioners is extremely difficult.

As can also be seen from the prospectuses of Tongrentang Medical Care and Gushengtang, the key to industry competitiveness lies in the ability to attract experienced TCM practitioners. This constitutes a supply-side bottleneck for the entire industry, which cannot be resolved by any single enterprise alone.

Raw materials also present another challenge. Climate changes in the regions of origin and variations in the quality of medicinal herbs ultimately impact procurement prices; for instance, the prices of core ingredients such as Astragalus (Huangqi) and Pueraria root (Gegen) have experienced slight but continuous increases over the past few years. These are unavoidable variables for chain TCM clinics.

Finally, there is a heavy reliance on regional markets.

Yuyantang’s chain model has been validated in the northern market, where standardized store designs, unified staffing, and consistent herbal paste (Gaofang) craftsmanship have proven effective in the cold and dry Northeast. However, in the southern market, can the traditional wellness practice familiar to Northerners—simmering a jar of herbal paste at home for winter tonification—still succeed despite the regional differences between North and South?

Revenue by Region, Charted Based on Prospectus Data

The revenue structure also clearly shows that the three northeastern provinces have always been Yuyantang’s core base. Although the Shandong market has emerged as a strong contender, with its share rising from 2% in 2024 to 16.0% in the first five months of 2026, it remains essentially part of the northern market. As the company expands its service coverage to southern regions in the future, the key question is whether it can devise effective strategies to stabilize its revenue.

This is not a challenge unique to Yuyantang; it is a reality that all enterprises seeking to establish TCM chains must proactively adapt to the diverse needs arising from varying regional environments.

In its prospectus, Yuyantang also outlined its response strategies. In terms of regional expansion, the company plans to gradually penetrate North and East China from its core Northeast region, prioritizing development in Shandong, Hebei, Tianjin, and Henan, while simultaneously piloting operations in East Chinese cities such as Jiangsu, thereby progressively reducing its reliance on the single Northeast market.

Simultaneously, a portion of the raised funds will be allocated to the research and development of in-house pharmaceutical preparations and the upgrading of production capacity, with targeted R&D efforts directed at markets in newly entered provinces. Within the compliant framework of maintaining offline initial consultations and online follow-up visits, the online system will be optimized to extend the service cycle for patients with chronic diseases and increase the average annual frequency of follow-up consultations.

The most compelling aspect of Yuyantang’s future lies precisely here: can a regional leader in the niche market of herbal paste formulations truly be reinvented through modern business logic?