On October 17th, the WeChat public account of the China Population and Development Research Center announced that a new round of sampling surveys on population and family development status has entered the organization and implementation stage, which will comprehensively analyze the reasons for not wanting to have children and not daring to have children. The issue of fertility has obviously become a matter of great concern to the whole society.

Despite the decline in fertility intentions, the anxiety of new parents about child-rearing has not diminished at all. How to make their children smart and healthy, and win at the starting line, is not only a concern for parents, but also a mentality that some health product manufacturers have targeted.

If you are from the post-80s or post-90s generation, you have probably seen advertisements on TV such as "XX milk powder, with a unique DHA formula" and "New XX milk powder, DHA content increased by 80%, making babies healthy and smart." The concept that "supplementing DHA equals making children smarter" has been widely spread unconsciously.

Recently, Newmans Health Food Holdings Limited (hereinafter referred to as "Newmans"), a company mainly engaged in the marketing, sales, and distribution of DHA from algae oil, has submitted a prospectus to the Hong Kong Stock Exchange, planning to go public on the main board. This is already its fifth time submitting a listing application.

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Revenue decline affected by Japan's nuclear wastewater discharge into the sea

Newmans mainly sells health products under its exclusive brands "Newmans" and "Newmans" (English "Nemans"). The products sold can be roughly divided into five main categories: algae oil DHA, probiotics, vitamins, multi-nutrient products, and algae calcium products.

From 2021 to 2023 and the first half of 2024 (the "reporting period"), Newmans achieved operating income of 338 million yuan, 367 million yuan, 427 million yuan, and 146 million yuan, respectively; net profits were 120 million yuan, 87.522 million yuan, 159 million yuan, and 45.281 million yuan, respectively.

Among them, algae oil DHA is the absolute main product, with sales accounting for approximately 91.9%, 92.7%, 94.7%, and 96.2% of total revenue during the reporting period.

DHA, or docosahexaenoic acid, is an omega-3 fatty acid that is crucial for the health of the brain, heart, and eyes, and is widely used in infant formula, pregnancy and lactation products, food and beverages, dietary supplements, and animal feed. Algae oil, also known as seaweed oil, is mainly extracted from marine microalgae such as Schizochytrium.Newman's algae oil DHA products are primarily sourced from DSM Group, a well-known international supplier, and Newman sets the recommended retail price for its algae oil products at over 4.0 yuan per DHA capsule.

Newman's gross margin levels are relatively high, with rates of 73.0%, 74.4%, 75.2%, and 71.9% respectively during the reporting period. Among them, the gross margin for algae oil DHA products reached as high as 74.9%, 76.0%, 76.0%, and 73.3% in each period.

Affected by the emission of radioactive wastewater by Japan in the second half of 2023, consumers have significant doubts about purchasing marine biological products, leading to a large amount of stockpiling before Japan's official discharge in 2023, which boosted the performance of that year.

However, in the first half of 2024, Newman's sales volume plummeted, with a year-on-year decrease of 23.94% in operating income and a 41.39% decrease in net profit in the first half of 2024.

On the other hand, according to Frost & Sullivan, the economic downturn has affected consumer confidence and consumption habits, thus the nutritional health product industry, along with other non-essential consumer goods industries, is directly affected by the economic slowdown, as consumers tend to reserve their purchasing power for essential consumer goods.

Original Import Chinese Brands

Despite its efforts to create an "original import" identity, Newman is a genuine Chinese brand.

The prospectus shows that in 2023, domestic brands using imported algae oil DHA raw materials accounted for 28.5% of the total retail value of China's algae oil DHA products, among which Newman accounted for about 20.5%. In terms of retail value of algae oil DHA products made from imported raw materials, it is the largest domestic brand.

However, Newman's claim that its products are "originally imported" is not false. According to the place of production, Newman's algae oil DHA products can be divided into New Zealand products, American products, and Chinese products.

Among them, the New Zealand DHA products are processed by Shanghai Kangying Biotechnology Co., Ltd. ("Shanghai Kangying") through New Zealand processing companies, where the algae oil DHA is compressed into soft capsules and the soft capsules containing algae oil DHA are dried. The process of encapsulating the soft capsules in plastic bottles is carried out at the New Zealand processing plant.U.S. DHA products are supplied by the Confidence Group. The Confidence Group arranges for a third-party processing company located in the United States to encapsulate algal oil DHA into soft capsules and dry them, while the process of packaging the soft capsules into plastic bottles is carried out at the production facilities of the Confidence Group.

Domestic products are procured by NuMans through DSM Shanghai, sourcing algal oil DHA provided by the DSM Group. These raw materials are shipped to contract manufacturers to be processed into finished algal oil DHA products.

The reason for adopting such a cumbersome method is, on one hand, the company can maintain operations with extremely low fixed assets—during the reporting period, NuMans' non-current assets were only 9.045 million yuan, 39.979 million yuan, 30.776 million yuan, and 31.054 million yuan, respectively.

On the other hand, it can capitalize on some people's mentality that "imported is better." NuMans stated in its prospectus that, according to Frost & Sullivan, products using imported raw materials are popular among consumers in China's maternal and infant nutrition industry. Algal oil DHA finished products that use main raw materials supplied by overseas suppliers and are processed overseas are considered high-quality by Chinese consumers, enjoying greater consumer confidence and higher demand in China. It has also been proven that consumers prefer NuMans' imported products.

During the reporting period, the company's New Zealand DHA products and U.S. DHA products accounted for 89.6%, 90.1%, 93.2%, and 94.9% of total revenue, respectively. Chinese DHA products accounted for less than 3%.

Since 2013, Shanghai Kangying has been a supplier to the company and has been the largest supplier during the reporting period. The amount of products purchased from Shanghai Kangying in each period was approximately 47.559 million yuan, 76.220 million yuan, 67.802 million yuan, and 20.161 million yuan, respectively, accounting for about 56.8%, 42.6%, 49.6%, and 48.5% of the total annual procurement amount.

The Confidence Group has also been among the top five suppliers to the company during the reporting period, with 10.704 million yuan, 25.219 million yuan, 14.438 million yuan, and 10.254 million yuan, respectively, accounting for 12.8%, 14.1%, 10.5%, and 24.7% of the total procurement amount for the respective periods.

During the reporting period, the total procurement amount from the top five suppliers accounted for approximately 90.7%, 92.7%, 94.3%, and 92.4% of the company's total procurement amount.

NuMans itself does not engage in production but directly uses private labeling. However, to monitor product quality, it requires suppliers to use algal oil raw materials supplied by the DSM Group.

According to Frost & Sullivan, the DSM Group is considered a leader in China's algal oil DHA market, producing over 40% of the raw materials and finished products in China's algal oil DHA market in 2023 (calculated by output and value).During the reporting period, Newmans was authorized to print the DSM Group's trademark on the packaging of algae oil DHA to indicate that its algae oil DHA products are made from algae oil DHA supplied by the DSM Group. Newmans stated in its prospectus: "A key element of our group's algae oil DHA product brand is that all algae oil DHA raw materials come from the DSM Group." The degree of dependence on the DSM Group is evident. However, DSM itself also has a finished product business for algae oil DHA and has opened flagship stores on platforms such as JD.com. DSM's own brand, life's DHA, has opened an "life's DHA overseas flagship store" on JD.com, which sells children's type kelp oil DHA capsules, 100mg 90 capsules/bottle priced at 309 yuan, and approximately 259 yuan/bottle after Double 11 discounts. Meanwhile, the "Newmans (Nemans) overseas JD self-operated flagship store" sells the same specification of infant & children's type 100mg 90 capsules/bottle priced at 409 yuan/bottle, and approximately 359 yuan/bottle after Double 11 discounts. Both of the above are displayed as originally imported from the United States. Another "Newmans official flagship store" on the JD platform, which displays as originally imported from New Zealand, has an even higher price of 479 yuan/bottle for the same specification of 100mg 90 capsules/bottle, with a selling price of approximately 449 yuan/bottle after Double 11 discounts. Therefore, while Newmans heavily relies on the DSM Group for raw material supply, it is also in direct competition with its main supplier. The protracted "genuine" dispute is a common question under posts about Newmans: "Newmans," "Newmans," "Nemans," "Neuromins," which one is true and which one is false, or which one is the "original" and which one is the "counterfeit." It is not easy to clarify this issue. The dispute between "Newmans" and "Newmans" mainly occurs between two companies, Newmans, which is the party of this IPO, and Newmans Nutrition Technology (Beijing) Co., Ltd. ("Newmans Nutrition") and its affiliated companies, which are the "Newmans" party."Nu Mansi" claims in its publicity that "Nu Mansi Nutrition Technology (Beijing) Co., Ltd., as a well-known nutritional product operator and the originator of the DHA brand Neuromins," and "In the Year of the Rabbit 2023, Nu Mansi Company leverages the overseas collaboration advantages of its parent company, Nu Nuo Health Group, to carry out important strategic planning for products and officially introduces the US original import version of Neuromins DHA products" (from the article "US version of Neuromins DHA hits the market, an article to understand the truth of the Nu Mansi brand," reposted on July 29, 2023, by the Weibo account certified as "Nu Mansi Official Weibo").

Nu Mansi often adds the phrase "original Nu Mansi" after the brand name, giving people the impression that the two brands are actually one.

To understand the answer to the above question, we need to start with the history of several brands.

Martek Biosciences Corporation (hereinafter referred to as "Matek"), as a microbial biotechnology platform company, has developed its flagship product life'sDHA®, a sustainable vegetarian source of algae DHA, and is also a globally renowned DHA raw material company.

In the consumer field, Matek registered the Neuromins® brand, which is a type of nutritional supplement containing life'sDHA® ingredients. Due to the global popularity of DHA, Neuromins® and its transliterated names ("Nu Mansi," "Nu Mansi," etc.) have gradually gained global recognition. According to media reports at the time, many counterfeit brands also emerged domestically.

In 2006, Nu Mansi's subsidiary, Nu Mansi Hong Kong, was established, and in 2007, Nu Mansi launched its DHA products and began registering multiple trademarks such as "Golden Nu Mansi," "Nu Mansi," "Nu Mansi," etc. Currently, it holds several "Nu Mansi" trademarks in categories 28, 12, and 35, but several "Nu Mansi" trademarks in categories 5, 30, and 29 are shown as invalid.

An article by Asia PR Newswire on October 28, 2010, listed Shanghai Ru Jian International Trade Co., Ltd. (currently a subsidiary of Nu Mansi) as a partner of Matek. Therefore, the Nu Mansi DHA products launched in 2007 should be produced using imported Matek raw materials, but it is highly likely that they are not the original Neuromins®.

On December 20, 2010, Matek signed a merger agreement with the Dutch DSM Group, and DSM and the buyer acquired all issued shares of Matek's common stock, making DSM Group the new partner for Nu Mansi.

Nu Mansi Nutrition was established in 2015 and is the holder of the trademarks for "Neuromins" in categories 1, 5, 32, and 35. Currently, the only valid trademark containing the phrase "Nu Mansi" is "Original Nu Mansi" in category 5 for pharmaceuticals, with the rest being trademarks for food and convenience foods.

According to Nu Mansi Nutrition's publicity, the company's founder, Cai Zhen, cooperated with the DSM Group in 2016 to relaunch the Neuromins brand. However, there is no more authoritative information available at present, and the customer service of "Neuromins JD Self-operated Flagship Store" stated that the raw material manufacturer of its DHA products is DSM.It seems that no one is the "original," yet it also seems that everyone is the original. This Rashomon-like situation has been accompanied by endless litigation.

Information from Qichacha shows that the legal battle between the two parties has been ongoing since 2017, with unresolved matters still pending. Newman Nutrition is still able to produce and sell algae oil DHA candy products under the "Newman Nutrition" brand.

The prospectus indicates that, as of the last practicable date, Newmans is involved in ongoing legal proceedings with several third parties (including Company X and Company Y) regarding their alleged trademark infringement. Company X has also filed a counterclaim, alleging trade defamation and trademark infringement.