压货防控与返利补偿

Our revenue attributable to distributorship accounted for 2.3%, 2.1%, 2.5%, 1.8% and 1.7% of our total revenue in 2023, 2024, 2025 and the five months ended May 31, 2025 and 2026, respectively.

In 2023, 2024, 2025 and the five months ended May 31, 2026, we terminated our business relationships with one, nil, nil and three distributor, respectively, primarily due to the optimization of the distribution network.

We believe our sales volumes reflect genuine market demand, thereby minimizing the risk of channel stuffing within our distribution network.

During the Track Record Period, a substantial majority of our products were sold through distributors.

We had 2,538, 2,791, 2,773, 1,430 and 1,532 active domestic distributors, and 907, 903, 934, 469 and 497 active overseas distributors in 2023, 2024 and 2025 and the three months ended March 31, 2025 and 2026, respectively.

In 2023, 2024 and 2025 and the three months ended March 31, 2025 and 2026, which generated our global network included 3,445, 3,694, 3,707, 1,899 and 2,029 distributors, respectively, revenue of RMB1,151.8 million, RMB1,179.8 million, RMB1,345.0 million, RMB314.0 million and RMB371.6 million, respectively, accounting for 87.8%, 84.3%, 83.1%, 88.5% and 88.0% of our total revenue for the respective periods.

During the Track Record Period, our customers were our distributors who purchase drug products from us, allocate within designated regions or resell to end-customers.

Notably, our distributors increased from 30 in 2024 to 40 in 2025 and further to 41 for the six months ended June 30, 2026, exemplifying our strengthened sales network.

Our trade receivables decreased from RMB48.0 million as of December 31, 2023 to RMB27.5 million as of December 31, 2024, primarily due to the one-off price difference compensation to our distributors for unsold inventory following the inclusion of ZEGFROVY^®^ and golidocitinib in the NRDL in 2024 (effective since January 1, 2025).

Our product returns from offline distributors amounted to RMB105.0 million, RMB100.9 million and RMB147.3 million in 2023, 2024 and 2025, accounting for 31.0%, 29.1%, and 26.9% in the same period in terms of total sales by offline distributors, respectively, calculated by dividing product returns by the sum of revenue generated from offline distributors and such product returns.

For adult winter down-filled apparel, the aggregate cap across the three windows is 30% (previously 35% in 2023), and for other products, the aggregate cap is 20% (previously 25% in 2023), in each annual sales cycle running from April 1 of the current year through March 31 of the following year.

During the Track Record Period, all of our product returns from our offline distributors were primarily attributable to the contractual return arrangements implemented under our return policies with offline distributors.

Through our well-structured distributor management system that combines clear incentives with performance-based consequences, we actively encourage distribution partners to diversify their product portfolios by investing in new launches and non-flagship offerings rather than relying solely on bestsellers.

These integrated solutions enable us to maintain strict price control to protect brand value while optimising inventory turnover through systematic stock management, thereby ensuring the overall health of our distribution ecosystem.

We typically require advance payment from distribution partners before we arrange delivery to minimise financial risks.

In addition to direct sales, we sell products through a network of distributors to customers in Japan and Korea.

We control channel stuffing risks through our internal management policies for distributors, including keeping track of the information of end customers and regularly monitoring shipments of distributors.

We carry out evaluation on our distributors annually, assessing a range of criteria including sales performance, inventory, technical support, key customer assistance, payment and compliance status, among others.

Franchised stores | 8,320,591 | 95.0 | 31,150,071 | 98.0 | 50,425,059 | 99.2

Under our franchise model, the franchisees have little incentive to maintain an unreasonably high level of inventory because: (i) franchisees typically make advance payment before the products are delivered to them; (ii) we do not have a minimum purchase requirement; (iii) we generally do not accept product return absent quality issues; and (iv) franchisees can place orders for store supplies frequently and conveniently to fulfill the daily operational needs given our prompt delivery of orders.

Additionally, we utilize our digital systems to actively track and manage the inventory level of the stores. Therefore, the risk of channel stuffing by our franchisees is low.

Our Directors are of the view that the risk of excessive inventory accumulation by our wholesale customers and the risk of channel stuffing of the products sold by us to our wholesale customers are low because (i) grains and oil and food products are perishable in nature and have short shelf lives; (ii) we only grant our wholesale customers credit terms up to three months; (iii) our wholesale customers can only return the products with quality issues, and we did not experience any material sales return or product exchanges from our wholesale customers during the Track Record Period.

The number of our wholesale customers decreased during FY2023 and slightly increased for 9M2024 despite that the number of our wholesale customers in 9M2024 was still less than those in FY2021 and FY2022. Such changes were mainly driven by wholesale distributor consolidation in the PRC market in 2023 and 2024.

As advised by the Industry Consultant, during the Track Record Period, market turnover rate of regional distributors in the PRC was generally 20% to 40%.

The inventory turnover days of the Respondent Distributors were 258.1 days, 293.8 days, 375.0 days and 537.0 days during each year/period of the Track Record Period, respectively.

The inventory turnover days of Respondent Distributors further increased from 375.0 days in 2022 to 537.0 days in the six months ended June 30, 2023, primarily due to a higher ending inventory balance as of June 30, 2023 because distributors increased purchase amount out of optimism in light of (1) the market sentiment from the expected recovery over the pandemic, and (2) the resumption of our normal business operations and marketing activities such as Journey Home after the alleviation of the pandemic.

Therefore, our Directors are of the view that our distributors’ unsold inventory level for products purchased from us was reasonable during the Track Record Period.

As of the Latest Practicable Date, we had five distributors, all of which are Independent Third Parties.

We generally do not have minimum purchase requirements, deposit and sales and performance targets to our distributors.

We believe that our sales are driven by the actual consumer demand and therefore we are subject to minimal risk of channel stuffing in our distribution network, primarily because (i) we generally grant a short credit period to distributors; (ii) we only allow returns of products sold to distributors in certain circumstances; and (iii) we do not set minimum purchase requirements for distributors.

As of December 31, 2020, 2021 and 2022 and January 31, 2023, unsold inventory held by our distribution partners amounted to RMB62.6 million, RMB153.6 million, RMB165.9 million and RMB154.5 million, respectively.

We have taken various steps to monitor the inventory level of our distributors.

During the Track Record Period, we did not identify any material discrepancies in sales records across our internal accounting system and our QR code system.