500 million in cash, given to the actual controller?

On the evening of March 24, the publicly listed company Shapuaisi announced that it would delay responding to the inquiry letter from the Shanghai Stock Exchange. This former leader in “cataract miracle drugs” has once again sparked controversy due to a related acquisition case.

A week earlier, Shapuaisi disclosed a major related-party transaction, proposing to acquire 100% of Shanghai Qinli Industrial Co., Ltd., controlled by its controlling shareholder and concerted action partners, for 528 million yuan in cash, to indirectly hold its core asset “Shanghai Tianlun Hospital.” In this transaction, the target company’s net assets were only 20.97 million yuan, but its valuation increased by 24.17 times, reaching 6B yuan.

On the day of the announcement, the Shanghai Stock Exchange swiftly issued an inquiry letter. On March 25, the China Securities Small and Medium Investors Service Center (hereinafter “CSMI Center”) also issued a letter exercising shareholder recommendation rights. Due to issues such as high premium and the feasibility of performance commitments, this related-party transaction has become a market focus.

On May 16, 2024, at the 88th National Pharmaceutical Trade Fair, the “Shapuaisi” booth. Photo / Visual China

Questioning the basis of high premium

In Shapuaisi’s acquisition announcement, acquiring Shanghai Tianlun Hospital was viewed as a key move to advance the “medicine + healthcare” dual-driven strategy, deepen the silver economy, and quickly penetrate core markets.

The hospital is located in Hongkou District, Shanghai, with a target customer base highly concentrated within a 3-5 km radius of middle-aged and elderly residents. The target company’s net assets are 20.97 million yuan, but its valuation is as high as 528 million yuan, with an appreciation rate of 24 times.

Shapuaisi explained in the announcement that this valuation was based on the income approach, which considers not only tangible assets like fixed assets but also intangible assets such as customer resources and brand advantages. The announcement specifically pointed out that the rehabilitation ward is the most important revenue source for the target company, accounting for over 30% of revenue, and made specific forecasts: from 2026 to 2031, the number of beds will remain stable at 213, with a utilization rate expected to stay above 90% and gradually increase; during the same period, the average daily bed fee will grow from 615 yuan to 882.75 yuan, a cumulative increase of 43.54%.

Li Qiu Yi, a partner at Dacheng Law Firm and deputy secretary-general of Dacheng China Financial Committee, who has long focused on capital markets, told China News Weekly that the essence of income approach valuation is discounting future cash flows, which heavily depends on the reliability of profit forecasts for the target company. However, based on current disclosed information, there are obvious doubts about the core basis of these profit forecasts.

The CSMA Center, in the “Shareholder Proposal Letter,” directly pointed out three sets of conflicting data. First, the assessed number of beds (213) is seriously inconsistent with the hospital’s official disclosed approved beds (95). Second, the forecasted utilization rate far exceeds the national average for private hospitals (about 60.56%) and the actual level in Shanghai (about 78.8% in 2023). Third, the predicted annual growth rate of the average daily bed fee is as high as 7.5%, far exceeding the 0.84% annual growth rate of inpatient costs in general hospitals nationwide and significantly higher than comparable institutions in the same region.

“The core concern of the Shanghai Stock Exchange inquiry letter and the CSMA Center’s letter is focused on the review of profit forecasts for this transaction,” Li Qiu Yi said. “If the company cannot provide sufficient basis for key assumptions such as bed data, utilization rate, and fee growth, the foundation of income approach valuation will be shaken.”

China News Weekly called Shapuaisi’s secretariat office regarding these issues, but as of press time, no reply has been received.

In reality, Shanghai Qinli’s net assets shrank by more than 8B yuan from 2024 to 2025. However, Shapuaisi’s valuation report remains optimistic about its future performance, projecting revenue to steadily grow from 173 million yuan in 2026 to 238 million yuan in 2031, with a compound annual growth rate of 6.68%. In response, the Shanghai Stock Exchange’s inquiry letter requested Shapuaisi to clarify the specific basis and feasibility of its future revenue growth forecasts, and asked whether the transaction involved transferring benefits to related parties.

The CSMA Center also questioned the past performance of the target company, requiring Shapuaisi to explain the reasons for the significant growth in the target’s operating results over the past two years. Shanghai Qinli’s net profit surged from 2.0159 million yuan in 2023 to 27.1396 million yuan in 2025, with an average annual compound growth rate of 266.92%, far exceeding the average growth rate of 5.2% in the medical income of nationwide general hospitals.

Li Qiu Yi further analyzed that when the cash flow forecasts involved in income approach valuation are based on financial data that deviate seriously from industry and business logic, and when the counterparties are the actual controllers of listed companies or their controlled related entities, the risks of malicious valuation manipulation and substantive benefit transfer cannot be ignored. Such practices could severely harm the interests of listed company creditors and small and medium investors. Especially in transactions involving issuance of shares to purchase assets with accompanying financing, regulatory authorities should adopt more cautious and strict review measures.

“Shell buying” for cash-out?

For the controlling brothers Lin Hongli and Lin Hongyuan of Shapuaisi, acquiring Shanghai Tianlun Hospital is their third high-premium related-party transaction since taking control of the listed company.

According to the transaction announcement, Shapuaisi indirectly holds Shanghai Tianlun Hospital by acquiring 100% of Shanghai Qinli Industrial Co., Ltd., controlled by its controlling shareholder and concerted action partners, through the acquisition of 100% of Shanghai Yihe Medical Management Co., Ltd. and Shanghai Yanghe Industrial Co., Ltd. (hereinafter “Yanghe Industrial”). Yanghe Industrial not only acts as the core seller but also is the controlling shareholder of Shapuaisi.

In June 2015, Lin Chunguang founded Yanghe Industrial in Shanghai, mainly engaged in hospital investment management and related businesses. Just three months later, Lin Chunguang exited as a shareholder, pushing his two sons, Lin Hongli and Lin Hongyuan, to the forefront. Public information shows that at that time, 22-year-old Lin Hongli held 70% of the shares, while 14-year-old Lin Hongyuan held 30%.

At that time, Zhejiang private enterprise Shapuaisi was at its peak. This private enterprise, restructured from Zhejiang Pinghu Pharmaceutical Factory, completed name changes and share reforms, and successfully listed on the Shanghai Stock Exchange in 2014. According to media reports, relying on a cataract eye drop targeting the elderly market, Shapuaisi’s annual revenue surged past 900 million yuan after 2016, becoming a well-known industry brand.

However, doubts about the efficacy of this “miracle drug” for cataracts have never ceased. At the end of 2017, the former China Food and Drug Administration issued a document requiring the eye drop to undergo clinical efficacy trials and re-evaluation. This crisis of trust directly caused Shapuaisi’s performance to plummet from 2018 onward, with original actual controller Chen Dekang seeking to exit, and the Lin brothers looking for opportunities to take over.

Over the next nearly three years, the Lin brothers, through their controlled Yanghe Industrial and its subsidiaries, used a combination of “equity transfer, voting rights relinquishment, and private placement to consolidate” to gradually gain control of Shapuaisi. Chen Dekang, through these transactions, cashed out at least 1.1 billion yuan. This handover also laid the groundwork for the Lin family’s future asset operations via listed companies.

Almost simultaneously, Lin Chunguang completed the first hospital asset securitization in another listed company, Guangzheng Group. In early 2018, Lin Chunguang took a stake of 5%, becoming the second-largest shareholder. Soon after, he transferred his shares in New Vision Eye Hospital to Guangzheng Group in two transactions, cashing out over 1.3 billion yuan in total.

Born in 1970, Lin Chunguang’s medical empire covers ophthalmology, obstetrics and gynecology, infertility, and other non-urgent fields.

The newly acquired New Vision Eye Hospital soon faced another crisis. Its performance during the commitment period failed to meet targets, leading to legal disputes over several billion yuan in performance compensation with Guangzheng Eye Hospital, plunging the listed company into deep losses. Lin Chunguang himself had resigned from all positions at Guangzheng Eye Hospital before August 2020, when the performance risks fully surfaced.

Unlike his father’s sale of assets to external listed companies, the Lin brothers have continuously loaded family hospital assets into their controlling listed companies. Since 2020, they have promoted acquisitions under the banners of “collaboration” and “extended chain,” characterized by “high premiums + performance commitments,” but the outcomes have been less than ideal.

As early as September 2020, Shapuaisi announced a plan to acquire 100% of Taizhou Women and Children’s Hospital Co., Ltd. (hereinafter “Taizhou Hospital”) controlled by the Lin brothers at a premium of 278.88%, paying 502 million yuan in cash, with a three-year performance commitment. The Lin brothers also made additional commitments outside the “non-compete agreement,” promising that within 48 months after the transfer of Taizhou Hospital, if Shapuaisi intends to acquire hospital assets controlled by the Lin brothers, they will transfer their equity interests at market valuation; otherwise, they will sell to third parties.

In January 2023, the company announced another acquisition, with a premium of 299.51%, paying 66.5 million yuan to acquire 100% of Qingdao Shikang Eye Hospital Co., Ltd., related to Lin Changjian, the Lin brothers’ cousin, also with performance commitments.

Both transactions were completed quickly, but none of the performance commitments were fulfilled. After 48 months, only Chongqing Guobin Maternity Hospital was transferred; Shanghai Tianlun Hospital, Chongqing Minghao Hospital, and others remained under the Lin brothers’ control. In September 2024, the Lin brothers announced a 36-month extension of the commitments. The acquisition of Shanghai Qinli was the “performance” action after this extension.

The Lin family’s “shell-buying” ambitions are not limited to Shapuaisi. As early as 2018, Lin Chunguang also planned to take control of another listed company, Anzhong Group, but the plan was ultimately terminated due to regulatory inquiries.

In 2024, the Lin brothers, leading Shapuaisi, jointly established Shanghai Xin Hong Medicine Co., Ltd., and acquired control by winning a judicial auction of about 456 million yuan for a 26.49% stake in Bio Valley, a Beijing Stock Exchange-listed company. This acquisition was over 40% above the previous auction price, and currently shows a paper loss.

It is noteworthy that Shapuaisi’s projected losses for 2025 are between 213 million and 319 million yuan, mainly due to large impairment provisions for goodwill from previous acquisitions of Taizhou Hospital and Qingdao Shikang. This marks the second consecutive year of losses for Shapuaisi.

Potential stepwise penalties

According to the inquiry letter issued by the Shanghai Stock Exchange, Shapuaisi needs to supplement disclosures on the reasonableness of transaction valuation, the feasibility of performance commitments, sources of funds and payment ability, as well as the ownership and operational qualifications of the target assets. The original response deadline was five trading days.

In this acquisition, the counterparties committed that the net profit of the target company from 2026 to 2028 would not be less than 32.4 million to 42.65 million yuan, with a total net profit of no less than 112.35 million yuan. However, considering Shapuaisi’s past acquisition records, the feasibility of this commitment is doubtful.

After the commitment period, the performance of Taizhou Hospital declined sharply, with net profits of only 26.96 million yuan, 8.19 million yuan, and 4.06 million yuan in 2023, 2024, and the first half of 2025, respectively. Qingdao Shikang’s net profit in the first half of 2025 was only 152,120 yuan. Both hospitals experienced performance declines after being acquired, creating goodwill impairment risks.

“Once future performance fails to meet targets, the company will face the risk of goodwill impairment impacting recurring profits and losses. If financial fraud or malicious valuation manipulation occurs, relevant responsible persons could face tiered penalties ranging from administrative regulation to criminal accountability,” Li Qiu Yi analyzed.

Li Qiu Yi observed that since the release of the “Several Opinions of the State Council on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Capital Market” (the new “Guo Jiu Tiao”) in 2024, regulatory focus has shifted from “formal compliance” to “substantive fairness.” In other words, even if the transaction appears complete procedurally, if there is substantive benefit transfer, it may still be deemed illegal. Currently, five high-risk areas are under close scrutiny: concealing related-party relationships and transactions, unfair pricing of related-party transactions, decision-making procedural flaws, mixing of corporate and personal assets, and illegal fund lending.

It is also noteworthy that the payment schedule for the equity transfer price is more aggressive this time. The total of 528 million yuan is planned to be paid in three installments: 30% within 20 working days after the agreement takes effect; 40% within 10 days after the change of registration; and the remaining 30% in three installments during the performance commitment period, each equal to 10% of the net profit at that time. This means that even before meeting performance targets, the actual controller could receive up to 70% of the total, or 1.52M yuan, in cash shortly after the transaction.

On the other hand, Shapuaisi’s own financial situation is tight. The transaction price of 528 million yuan will be paid with a combination of self-funds and bank loans. However, according to its third-quarter report for 2025, its monetary funds were only about 223 million yuan, far short of the required payment, necessitating borrowing. Given its ongoing losses and cash flow constraints, the company’s large cash outflow to the actual controller raises further suspicion of benefit transfer.

“Whether this triggers penalties ultimately depends on whether Shapuaisi’s response can dispel regulatory and market doubts,” Li Qiu Yi said. “This acquisition reflects the long-standing issues in the A-share market of overestimated related-party transactions and accounting practices that do not match reality. Only by establishing an effective regulatory loop can we curb the hidden motives of benefit transfer and protect the legitimate rights and interests of listed companies, small and medium shareholders, and creditors.”

Regarding the inquiry on how to prevent performance “facing changes,” debt repayment, and operational risks, Shapuaisi stated in its March 24 announcement that the company and intermediaries need further verification and improvement of the response content, and will delay the reply by no more than five trading days.

Published on April 6, 2026, in the 1230th issue of China News Weekly

Magazine Title: From “Miracle Drug” to “Shell Purchase,” the Mysterious Merger of Shapuaisi

Reporter: Li Mingzi

(limingzi@chinanews.com.cn)

Editor: Min Jie