Kangmei Pharmaceutical sells subsidiaries for 1 yuan: The subsidiary failed multiple drug inspections last year, with a debt of 175 million yuan, and is insolvent.

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Kangmei Pharmaceutical’s “sale” for 1 yuan: its subsidiary failed multiple drug inspections last year, with liabilities of 175 million yuan; it is insolvent and no longer able to cover debts; the case traces back to the company’s bankruptcy reorganization history, and it still hasn’t escaped the shadow of financial fraud

April 6 news from the Red Star Capital Bureau: Recently, Kangmei Pharmaceutical (600518.SH) announced that it plans to transfer 100% of the equity and related assets of its wholly owned subsidiary Shanghai Dade Tang Pharmaceutical Co., Ltd. (referred to as “Dade Tang Pharmaceutical”) to Shanghai Kangmei Pharmaceutical Co., Ltd. (referred to as “Shanghai Kangmei”) at a price of 1 yuan.

When it comes to the background of Dade Tang Pharmaceutical’s equity, one cannot avoid mentioning the story of Kangmei Pharmaceutical’s biggest financial fraud case in A-share history. During Kangmei Pharmaceutical’s bankruptcy reorganization in 2021, the company took over Dade Tang Pharmaceutical from Shanghai Kangmei with a consideration of 1 yuan. After that, the company worked to revitalize its business. However, in 2025, Dade Tang Pharmaceutical’s net loss exceeded 29 million yuan, increasing its loss year over year by 304.68%, and it was also found multiple times by the Shanghai Drug Administration for noncompliant drug quality.

In the first three quarters of 2025, Kangmei Pharmaceutical achieved operating revenue of 3.96 billion yuan, and net profit attributable to the parent company of 13.08 million yuan, up 2.22% and 160.84% year over year respectively. But for this former “No. 1 listed company in Chinese medicinal herbs,” returning to its peak will still take time.

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The subsidiary’s operating loss last year left it insolvent

Multiple failures in drug sampling inspections were “named”

According to disclosures in Kangmei Pharmaceutical’s financial reports, the Chinese medicine segment is the company’s core business segment and contributes most of its operating revenue, with its Chinese patent pieces business occupying an important position. Dade Tang Pharmaceutical’s business nature is also Chinese patent pieces. According to available information, Dade Tang Pharmaceutical was established in 2004, its legal representative is Dong Gang, and its registered capital is 100 million yuan.

In December 2021, while Kangmei Pharmaceutical was in the bankruptcy reorganization stage, the company established Puning Kangtian Trading Co., Ltd. (referred to as “Kangtian Trading”) as a trust platform company to carry out the placement of underlying trust assets. As a trust asset used to repay bankruptcy reorganization creditors, the assets held by Shanghai Kangmei were transferred to Kangtian Trading and were no longer controlled by Kangmei Pharmaceutical. Meanwhile, Shanghai Kangmei transferred its 100% equity interest in Dade Tang Pharmaceutical to Kangmei Pharmaceutical at a price of 1 yuan. Since then, Dade Tang Pharmaceutical has become a wholly owned subsidiary of Kangmei Pharmaceutical.

Screenshot from Kangmei Pharmaceutical’s announcement

Afterward, Shanghai Kangmei no longer has any other relationships with Kangmei Pharmaceutical in terms of property rights, business, assets, creditor-debtor relationships, or personnel, and it is not an affiliated party of Kangmei Pharmaceutical.

The Red Star Capital Bureau noted that after Kangmei Pharmaceutical took control, Dade Tang Pharmaceutical’s development once showed a favorable trend. Kangmei Pharmaceutical mentioned in its 2024 annual report that, after systematic evaluation by professional institutions, in the 2024 TBB Shanghai manufacturing industry brand value ranking, Dade Tang Pharmaceutical’s brand value reached 19.9644 million yuan, up 4.2258 million yuan compared with the brand appraisal value for 2023.

However, based on its performance, Dade Tang Pharmaceutical’s operating revenue in 2025 was 21.6725 million yuan, down 60.53% year over year; its net profit resulted in a loss of 29.4187 million yuan, with the loss expanding by 304.68% year over year. In addition to operating losses, Dade Tang Pharmaceutical is insolvent. By the end of 2025, its total assets were 64.0886 million yuan, its total liabilities were as high as 174.9679 million yuan, and its net assets were -110.8793 million yuan.

In addition, in 2025, Dade Tang Pharmaceutical was also found multiple times by the Shanghai Drug Administration for noncompliant drug quality. In four rounds of drug quality sampling inspections organized by the Shanghai Drug Administration with relevant units, Dade Tang Pharmaceutical was “named” in three of the rounds. The noncompliant drugs included Chinese medicinal pieces such as dandelion, sliced dried ginger (huangjiang), and semen caryophylli (he ai mi), among others.

Screenshot from Shanghai Drug Administration’s announcement

It is understood that the asset being transferred this time includes not only all the equity of Dade Tang Pharmaceutical, but also Kangmei Pharmaceutical’s accounts receivable from its subsidiaries and a batch of smart pharmacy decoction and煎煮 equipment.

Kangmei Pharmaceutical stated that this equity transfer is intended to optimize the internal allocation of resources and is in line with the company’s development strategy and long-term interests. After the completion of this transfer, the company will no longer hold any equity in Dade Tang Pharmaceutical, and Dade Tang Pharmaceutical will no longer be included in the company’s consolidated financial statements.

Net profit surged 161% in the first three quarters of 2025

It will still take time to come out of the shadow of financial fraud

At the end of 2018, Kangmei Pharmaceutical was put on file for investigation by the CSRC due to alleged financial fraud, shocking the market for a time. After investigation, between 2016 and 2018, Kangmei Pharmaceutical had cumulatively inflated monetary funds by 88.6 billion yuan, cumulatively inflated operating revenue by 3.96B yuan, and cumulatively inflated operating profit by 4.1 billion yuan, setting the largest fraud record in A-share market history.

After that, Kangmei Pharmaceutical’s stock price plummeted and once stood on the edge of delisting. In November 2021, the Guangzhou Intermediate People’s Court ruled that Kangmei Pharmaceutical must compensate more than 55k investors 29.13B yuan, becoming the first securities collective lawsuit case in the country. Meanwhile, the company’s former actual controller, Ma Xingtian, was sentenced in a multiple-violation case—including crimes of manipulating the securities market, and crimes of illegal disclosure and failure to disclose important information, as well as unit bribery—to a fixed-term imprisonment of 12 years, and fined 1.2 million yuan; Kangmei Pharmaceutical was also fined 5 million yuan for the unit bribery crime.

At the end of 2021, under the leadership of Guangdong Shennongshi Enterprise Management Partnership (Limited Partnership) (referred to as “Guangdong Shennongshi”) under the Guangzhou Pharmaceutical Group, Kangmei Pharmaceutical completed its bankruptcy reorganization work. Guangdong Shennongshi also became the controlling shareholder of Kangmei Pharmaceutical by contributing capital. By the end of the first half of 2025, Guangdong Shennongshi held 25.31% of the company’s shares.

After the Guangzhou Pharmaceutical Group took over, Kangmei Pharmaceutical underwent sweeping reforms from its organizational structure to human resources and then to strategic planning, and its operating situation also gradually improved. In 2023, Kangmei Pharmaceutical returned to profitability. However, the reasons for the improved performance included non-recurring gains and losses. In July 2024, Kangmei Pharmaceutical successfully “removed the risk warning.”

From 2023 to the first three quarters of 2025, Kangmei Pharmaceutical’s revenues were 55k yuan, 2.46B yuan, and 4.87B yuan, respectively, with year-over-year growth of 16.60%, 6.47%, and 2.22% respectively. Net profit attributable to the parent company was 103 million yuan, 9 million yuan, and 13 million yuan respectively, showing large fluctuations; among them, net profit in the first three quarters of 2025 increased by 160.84% year over year. Its net profit excluding non-recurring items remained negative, at -753 million yuan, -533 million yuan, and -38 million yuan respectively.

In 2024, Kangmei Pharmaceutical’s Chinese medicine segment revenue reached 5.19B yuan, up 17.94% year over year, with a gross margin of 14.18%, down 0.37 percentage points year over year.

As of the market close on April 3, Kangmei Pharmaceutical reported 1.75 yuan per share, down 4.37%, with a total market value of 24.2 billion yuan. Prior to the exposure of the financial fraud incident, the company’s total market value once reached over 2.75B yuan at the end of May 2018. Compared with its peak, its current market value has shrunk by more than 100 billion yuan.

Whether in terms of performance or investor confidence, for the former “No. 1 listed company in Chinese medicinal herbs” to return to its peak will still take time.

(This article does not constitute any investment advice. Any risks arising from actions taken based on it shall be borne by the individual.)

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Responsible editor: Yang Hongbu