“Yamao” is also getting into the ophthalmology business? With a premium of over 10 times and a connected/related-party M&A deal involving 600 million yuan, the Shanghai Stock Exchange has issued a regulatory inquiry letter; Tongce Medical responded that there is no transfer of benefits.

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Reporter | Xu Libo    Editor | Huang Sheng

An associated merger with a premium rate exceeding 10 times has brought the leading oral healthcare chain Tongce Medical (600763.SH) into the spotlight. Recently, Tongce Medical disclosed plans to acquire four optical and vision companies controlled by the company’s actual controller, Lü Jianming, for 600 million yuan in cash, with the core target, Hangzhou Cunjie Eyewear Co., Ltd. (hereinafter “Hangzhou Cunjie Eyewear”), being valued at a premium rate of up to 1,282.14%, drawing significant attention from the capital market and regulators.

Subsequently, the Shanghai Stock Exchange sent a regulatory letter to Tongce Medical, requesting the company to explain the reasons for the high valuation premium, and whether there is any benefit transfer to controlling shareholders and their related parties.

On the evening of April 1, Tongce Medical responded that Hangzhou Cunjie Eyewear operates under a light-asset model, has performed well in recent years, and distributes profits annually. Its net assets on the base date are not high, which led to the high valuation increase in this assessment. The other three companies’ acquisition prices were based on asset-based valuation methods, objectively reflecting their actual values, with no benefit transfer to related parties.

Tongce Medical is often called the “Dental Sage,” a comprehensive modern dental healthcare group integrating clinical diagnosis, scientific research innovation, and medical education. As of June 30, 2025, the company operates 89 medical institutions and employs 4,452 medical professionals.

In recent years, due to factors such as centralized procurement of dental implants and cooling market demand in oral healthcare, Tongce Medical’s performance has faced significant pressure. From 2022 to 2024, the company achieved revenues of 2.72B yuan, 2.85B yuan, and 2.87B yuan, respectively, with minimal growth. The third quarter of 2025 showed that the company’s cumulative revenue for the first three quarters of last year was 2.29 billion yuan, a year-on-year increase of 2.56%; net profit attributable to the parent was 514 million yuan, up 3.16%.

In fact, Tongce Medical did not suddenly venture into the ophthalmology market. In 2017, based on its judgment of the development prospects of ophthalmic healthcare, the company invested as a strategic investor in Zhejiang Tongce Ophthalmology Hospital Investment Management Co., Ltd. Tongce Medical emphasizes that the acquisition of 100% equity in Hangzhou Cunjie Eyewear and three other optical companies is the implementation and achievement of its ophthalmology strategic layout initiated in 2017.

According to a previous disclosure of the equity acquisition and related-party transaction announcement, the four target companies mainly operate in the retail eyewear and vision services sector, connecting with traditional ophthalmology diagnosis and treatment businesses. Financial data shows clear differentiation among the targets: Hangzhou Cunjie Eyewear, as the core asset, mainly produces orthokeratology lenses, defocus glasses, frames, contact lenses, and ophthalmic supplies; in 2025, it achieved revenue of 153 million yuan and net profit of 55.58 million yuan, with relatively stable profitability; while Ningbo Guangji Vision and Xinchang Guangji Eyewear are smaller, with revenues of only 455.2k yuan and 1.01 million yuan respectively in 2025, both at a loss, with net profits of -72k yuan and -77.5k yuan; Hangzhou Guangji has not yet begun actual operations.

High valuation premium is one of the focal points of this transaction. The regulatory letter from the Shanghai Stock Exchange questioned that Hangzhou Cunjie Eyewear’s net assets were 50.87 million yuan, but its valuation based on the income approach was 703 million yuan, with a premium rate of 1,282.14%. Based on the transaction price of 600 million yuan, the overall premium rate is still 1,066.30%. The regulatory letter requested the company to analyze the reasons for the high valuation premium.

In response, Tongce Medical stated that Hangzhou Cunjie Eyewear operates under a light-asset model, has performed well in recent years, and distributes profits annually—455.2k yuan, 72k yuan, 615.6 million yuan, and 77.5k yuan from 2021 to 2024, respectively. Its net assets on the base date are not high, leading to the high valuation increase. The company expects that in recent years, sales of various types of glasses have continued to rise, with main business revenues projected to reach 165 million yuan, 177 million yuan, and 185 million yuan from 2026 to 2028.

Regarding the necessity and main considerations of this acquisition, Tongce Medical explained that: on one hand, vision and optical services, as the core of ophthalmic healthcare, serve as a supplement to dental services, enhancing overall resilience against cyclical fluctuations; on the other hand, the high compatibility of vision and dental services allows setting up vision zones within existing dental hospital networks, enabling space and team resource sharing, significantly improving the utilization efficiency of existing properties and personnel.

Besides the core profitable asset, Hangzhou Cunjie Eyewear, the 60 million yuan acquisition plan also includes three other companies: Ningbo Guangji Vision Technology Co., Ltd. (“Ningbo Company”), Xinchang Guangji Eyewear Co., Ltd. (“Xinchang Company”), and Hangzhou Guangji Vision & Optical Technology Co., Ltd. (“Hangzhou Guangji Company”).

As mentioned earlier, aside from Hangzhou Cunjie Eyewear, the other three companies are not yet mature in business or financially strong. Why include loss-making or non-operational assets? Tongce Medical explained in its reply to the SSE that this is mainly for regional strategic positioning and to fundamentally resolve intra-industry competition issues.

The company stated that Ningbo Company and Xinchang Company are both controlled by the same actual controller as the listed company, mainly engaged in vision and optical services, with potential competition with the company’s planned vision services. Incorporating them into the listed company system is an effective way to eliminate intra-industry competition, aligning with regulatory guidance and corporate governance requirements. Although Hangzhou Guangji has not yet operated, its scope of business includes vision and optical services, which could pose potential competition, and this acquisition aims to eliminate future competitive risks.

From a regional layout and strategic positioning perspective, Ningbo Company is located in Haishu District, Ningbo, within the same building as Ningbo ENT Hospital, offering natural regional synergy; Xinchang Company is within the same building as Xinchang Guangji Ophthalmology Hospital, providing regional support.

Regarding valuation, the announcement shows that both Ningbo Company and Xinchang Company were evaluated using the asset-based approach, with Ningbo Company’s valuation 41.74% lower than its net assets, while Xinchang Company’s valuation equals its net assets. Hangzhou Guangji Company has not yet operated, with a registered capital of zero, so its valuation is zero.

In response to the regulatory question “whether there is benefit transfer to controlling shareholders and related parties,” Tongce Medical replied that the acquisition of Hangzhou Cunjie Eyewear does not involve benefit transfer to controlling shareholders or related parties, nor does it harm the legitimate rights and interests of the company or minority shareholders. On the contrary, this acquisition will further strengthen the company’s layout in the vision and optical services sector, converting cash holdings into stable cash-flow-generating operating assets. The valuation of the other three companies was based on asset-based assessments, objectively reflecting their actual values, with no benefit transfer involved.