Kanghui Shares (康惠股份) sold idle assets for 100 million yuan and forecast a 55 million yuan profit increase, while its computing-power business moves from signed contracts into operations.

Kanghui Co., Ltd. (603139.SH) issued three announcements after market close on November 4, covering an asset disposal, progress in its computing power business, and a pharmaceutical restructuring.

The company plans to sell a batch of idle computer equipment to Beijing Dingzhi Xinke for a total price of RMB 105.6 million including VAT, which it expects to contribute net profit of about RMB 55.06 million. Its wholly owned subsidiary, Beijing Kanghui Zhichuang, has completed all deliveries under its computing power service contract with Company D and has formally entered the operations phase. The company also plans to invest RMB 35 million to establish a wholly owned subsidiary, Shaanxi Kanghui Wanhuashan Pharmaceutical, to expand into drug research and development and health businesses.

On November 5, the stock closed up 3.96%, with a total market value of about RMB 3.155 billion. The three announcements reflect the transformation path the company has pursued since its change of control more than a year ago. The company is using asset disposals to book one-time gains and smooth its income statement, moving its computing power business from contract signing into revenue realization, and restructuring its existing pharmaceutical assets.

**A concentrated expression of the transformation path**

Asset disposal is the most direct source of profit uplift among the three announcements. The equipment to be sold has an original book value of RMB 44.16 million and a net book value of RMB 38.40 million. The total transaction price including VAT represents a premium of 143.39% over book value. The gain will be recorded as non-recurring gains and losses and will not affect adjusted net profit (net profit excluding non-recurring items).

In scale terms, the gain equals about 38 times the company's net profit attributable to shareholders for the first three quarters, which was RMB 1.4371 million. If the transaction closes within the year, it would nearly guarantee a positive full-year net profit attributable to shareholders. The payment terms are relatively favorable to cash flow. The buyer will collect the equipment in batches and pay the corresponding amount on the same day each batch is counted and signed for. The seller will release goods only after receiving full payment, a pay-before-delivery arrangement. All deliveries must be completed by November 30.

Business registration records show that the buyer, Beijing Dingzhi Xinke, was established on March 16, 2026, less than eight months before the agreement was signed. It has a registered capital of RMB 20 million, is 100% owned by Beijing Dingrui Zhichuang, and is ultimately controlled by natural person Xing Juntao.

As of the end of September 2026, the buyer had total assets of RMB 202 million, total liabilities of RMB 198 million, and an asset-liability ratio of about 98%, leaving net assets of only RMB 3.5376 million. From its establishment through the end of September, it recorded operating revenue of about RMB 931 million and net profit of RMB 3.5376 million, a net margin below 0.4%.

The equipment has a net book value ratio of about 87% and very low depreciation, so classifying it as "idle assets" for disposal suggests that the configuration of the company's computing power equipment may be changing. Some of the hardware purchased may not match expected use cases. After recovering funds through the disposal, the company may shift to equipment models better suited to its current orders.

For computing power leasing, which is capital-intensive, equipment utilization directly determines unit costs. The pace at which existing assets are disposed of and replaced is therefore an important indicator of operating efficiency.

The computing power progress disclosed the same day better reflects the real advance of the transformation. In July this year, Beijing Kanghui Zhichuang signed a five-year computing power service contract with Company D, with a total contract value including VAT in the range of RMB 415 million to RMB 679 million. The first three years form the initial cooperation period, and the last two years form a renewal period. Revenue will be recognized in installments based on performance progress.

The announcement confirms that all delivery work, including server deployment, networking, and stress testing and joint commissioning, has been completed, and the project has formally entered the operational service stage. The customer will pay service fees monthly. The order has moved from a paper contract into a phase of ongoing billing.

The third announcement points to a structural adjustment of the company's core pharmaceutical business. The company plans to invest RMB 35 million to establish Wanhuashan Pharmaceutical, whose business scope covers pharmaceutical research, development, and manufacturing, as well as sales of food, health foods, and cosmetics. Its registered address is on Caihong 2nd Road, Qindu District, Xianyang City, the same location as the listed company. Capital will be paid in installments in line with business progress.

Over the past 12 months, the company has made cumulative external investments of RMB 80.1 million, equal to 15.26% of its most recent audited net assets. Apart from the pharmaceutical investment, the other four were tech companies established in September and October this year. Among them, Beijing Guosuan Power, in which the company holds 51% with a capital contribution of RMB 5.1 million, shows that the company's capital is clearly tilting toward computing power.

Changes to the pharmaceutical assets are more pronounced on the divestiture side. The third-quarter report shows that the board has approved the transfer of the company's 51% stake in subsidiary Chunsheng Pharmaceutical. The transaction constitutes a related-party transaction and is currently pending approval from the National Equities Exchange and Quotations (NEEQ).

**The reality beneath the profit structure**

Placing the three announcements within the third-quarter financial framework gives a clearer picture of the company's current earnings structure.

In the first three quarters of 2026, the company recorded operating revenue of RMB 405 million, up 13.71% year on year. Net profit attributable to shareholders was RMB 1.4371 million, turning from loss to profit. Net profit excluding non-recurring items was -RMB 25.542 million, meaning the core business remains loss-making. In the same period last year, the net loss attributable to shareholders was RMB 133 million, and the full-year 2025 loss was RMB 333 million. The recovery in the income statement relies mainly on non-recurring gains.

In the third quarter alone, revenue reached RMB 200 million, up 83.82% year on year, driven mainly by computing power services and server sales. However, the quarter still posted a net loss attributable to shareholders of RMB 7.6554 million and an adjusted net loss of RMB 5.7791 million. Revenue growth has not yet translated into profit. This reflects the capital-intensive nature of the computing power business: hardware procurement and financing costs are recognized upfront, while revenue is released gradually over the service period, creating a clear timing gap.

Earnings quality remains weak. Non-recurring gains and losses totaled about RMB 26.9791 million in the first three quarters, which is the key support for the positive net profit attributable to shareholders. Asset disposal gains alone contributed RMB 42.9516 million. The planned disposal gain of RMB 55.06 million would further boost full-year non-recurring gains. However, any improvement in adjusted profit will still depend on the ramp-up of the computing power business and the stabilization of the core pharmaceutical operations.

The financial pressure from heavy-asset expansion is already visible. At the end of the third quarter, total assets were RMB 2.726 billion, up 50.21% from the start of the year, mainly due to fixed assets formed by server purchases. The asset-liability ratio was about 72.38%, a high level. Short-term borrowings, non-current liabilities due within one year, long-term borrowings, and lease liabilities totaled about RMB 870 million, up significantly from RMB 635 million at the start of the year.

Financial expenses in the first three quarters reached RMB 24.7333 million, equal to 17% of gross profit for the same period (about RMB 142 million) and roughly flat year on year. Combined with equipment depreciation, electricity costs, and operations and maintenance expenses, the actual profit margin of the computing power business is not high. It will need high equipment utilization and stable collections to dilute fixed costs.

**The boundary between the two core businesses**

Since the change of control, discussion of Kanghui has inevitably centered on "transformation" versus "backdoor listing," even though the company has repeatedly denied any backdoor-listing motive.

In March 2025, the former controlling shareholder, Kanghui Holding, transferred a 22% stake to Jiaxing Yuehe Zhichuang at RMB 24.7 per share, for a total of about RMB 543 million. It also committed to waive voting rights over a further 10% of its shares. The buyer was registered only on the day the agreement was signed. Tracing its ownership, its ultimate controllers are Li Hongming and Wang Xuefang, a married couple who also control Yi'an Tianxia, a NEEQ-listed company focused on computing power services and intelligent computing center operations.

At the time, the company said it had no plans to change its main business or inject assets. Even so, the computing power background of the incoming buyer kept speculation about a backdoor listing alive. As of the end of the third quarter, Yuehe Zhichuang held 20.64% of the company's shares, of which 12.32 million shares had been pledged, accounting for 56% of its holdings.

On the fundamentals, the core pharmaceutical business continues to shrink. As a veteran traditional Chinese medicine company holding more than a hundred national drug approval numbers, Kanghui has seen sales of its self-manufactured TCM products decline steadily since its listing. Its flagship product, Compound Shuanghua Tablets, saw annual sales fall from more than RMB 90 million in 2016 to less than RMB 50 million in 2023.

In the first three quarters, revenue growth was driven mainly by new businesses such as computing power. Organic growth in the traditional pharmaceutical segment has not yet shown a clear turning point. In the short term, the establishment of Wanhuashan Pharmaceutical looks more like an organizational restructuring. Whether it can improve product performance remains unclear, as no clear signal has emerged yet.

Meanwhile, since the new controlling shareholders took over, the company has indeed kept investing in computing power and has secured several large orders. At the same time, the industry's characteristics of high leverage, low margins, and slow profit realization mean the transformation is still far from complete.

*Originally published on TMTPost App under authorization. Text by Jian Wen Qian Guan; author: Cao Sanjin.*