Analysis of Goodwill Impairment Risk and Stability of Single-Store Profit Model for Rpet Pet

The goodwill issue of Rpet Pet indeed constitutes one of its biggest financial risks. According to the prospectus data [1], as of June 30, 2025, the company’s goodwill book balance reached

, which has multiple risk implications:

• Excessively high asset proportion
  : Goodwill accounts for 34.6% of total assets and 68.4% of non-current assets [2]
• Equivalent to revenue
  : The goodwill amount is 1.02 times the full-year revenue of 2024
• Remained at a high level
  : Goodwill was RMB 1.617 billion, RMB 1.844 billion, and RMB 1.776 billion from 2022 to 2024 respectively [2]

Rpet Pet adopts an external expansion model of “buying and buying”, which directly leads to the accumulation of huge goodwill [1]:

• Excessively high acquisition proportion
  : Among the 548 hospitals,
  428 were acquired
  , accounting for 78%, with only 120 self-built hospitals [2]
• Features of VDP model
  : Pioneered the Veterinary Development Partner (VDP) model, usually acquiring about 60% equity in acquisitions while the original team retains about 40% shares [1]
• Logic of merger and acquisition premium
  : Goodwill is essentially the part of the acquisition price that exceeds the fair value of the net assets of the acquired target, reflecting optimistic expectations for future synergies

According to industry analysis and the company’s prospectus disclosure, the goodwill impairment risk is mainly reflected in the following aspects [2]:

Risk Type	Specific Manifestation	Impact Level
Integration Failure Risk	Pet hospitals are highly dependent on doctors’ personal brands, and the integration difficulty after acquisition is far beyond expectations	High
Underperformance of Performance Commitments	Some acquired hospitals may fail to meet expected profit targets	Medium-High
Intensified Industry Competition	The pet medical market is highly fragmented, and integration efficiency is affected by the competitive environment	Medium
One-time Impairment Impact	Once goodwill is confirmed to be impaired, it will have a significant adverse impact on the company’s performance	High

The company has clearly warned in the prospectus: “We have recognized significant goodwill, and if goodwill is determined to be impaired, it will have an adverse impact on our business, financial condition and operating results” [1].

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Rpet Pet shows the characteristics of

in terms of single-store profitability:

• Gross profit margin continues to improve
  : Increased from 22.4% in 2022 to 24.8% in H1 2025 [1]
• First profit realization
  : Net profit was about RMB 15.5 million in H1 2025, making it the only profitable enterprise among national large-scale chain pet medical groups [1]
• Steady revenue growth
  : Revenue from 2022 to 2024 was RMB 1.455 billion, RMB 1.585 billion, and RMB 1.758 billion respectively [2]

• Economies of scale initially emerging
  : Through centralized procurement, the procurement cost of drugs and consumables is 15%-20% lower than that of regional single hospitals [3]
• High sales expense ratio
  : Sales and marketing expenses account for about 8% of revenue (RMB 116 million, RMB 130 million, and RMB 138 million from 2022 to 2024 respectively) [2]

1. Excessively high proportion of acquired stores
   • 78% of stores are acquired, making integration and management difficult [2]
   • There may be differences in service standards and profitability between acquired stores and self-built stores
   • Under the Veterinary Development Partner model, the original team retains 40% shares, which may affect the efficiency of unified management

2. High dependence on doctors
   • The pet hospital industry is highly dependent on doctors’ personal brands and reputations [2]
   • The loss of core doctors may directly affect single-store performance
   • Intense talent competition and persistent pressure on labor costs

3. Intensified market competition
   • The pet medical market is highly fragmented with low industry concentration
   • Continuous investment in marketing resources is needed to compete for market share
   • Price competition may further compress profit margins

Indicator	2022	2023	2024	H1 2025
Net Loss from Continuing Operations	RMB 61.9 million	RMB 249.7 million	RMB 7 million	Profit of RMB15.5 million
Gross Profit Margin	22.4%	21.0%	22.2%	24.8%
Accumulated Loss Over Three Years	-	-	RMB370 million	-

Despite the challenges, Rpet Pet also shows some positive signals [1][3]:

• Stable leading position
  : Accounting for 4.8% of the Chinese pet medical industry market share in terms of 2024 revenue, ranking second in the industry
• Optimized regional layout
  : Focus on the Beijing-Tianjin-Hebei region, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area, and Chengdu-Chongqing urban agglomeration
• Brand effect accumulation
  : 548 hospitals cover about 70 cities in 28 provinces, with continuous improvement in brand awareness
• Clear use of IPO funds
  : Planned to be used for expanding the hospital network, enhancing pet health management service capabilities, and developing information technology infrastructure

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• If the RMB1.792 billion goodwill is impaired, it will have a significant impact on the company’s net assets and net profit
• Need to continuously monitor the performance of acquired hospitals and integration progress

• First profit in H1 2025, but with severe historical losses
• Uncertainty exists in the integration effect of the 78% acquired stores
• Dependence on doctors and market competition remain ongoing challenges

• The company faces dual pressures of RMB2.822 billion redemption liabilities and RMB1.792 billion goodwill [2]
• IPO listing is an important way to alleviate capital pressure

1. Goodwill impairment test results in future semi-annual reports
2. Trends in average single-store revenue and gross profit margin
3. Stability of core doctor team
4. Integration progress of acquired stores and same-store growth

• Adequate capital support after successful listing
• Increased proportion of self-built hospitals to optimize store structure
• Further release of economies of scale to improve procurement and operational efficiency

• One-time goodwill impairment may lead to a shift from profit to loss
• Integration failure may affect brand reputation and customer trust
• Intensified industry competition may compress profit margins

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The goodwill impairment risk and stability of single-store profitability of Rpet Pet constitute its core investment risks. The huge goodwill of RMB1.792 billion is like a “Sword of Damocles”; once impaired, it will have a major impact on its financial statements [2]. Although the company achieved its first profit in H1 2025 and the gross profit margin shows an improving trend, the high acquisition proportion of 78% casts doubt on the stability of the single-store profit model [1].

From a positive perspective, as the second largest enterprise in the industry, the company has brand, channel and scale advantages. If it can successfully list and effectively integrate acquired stores, and increase the proportion of self-built hospitals, it is expected to transform from “scale expansion” to “efficiency improvement”. However, investors need to closely track the results of goodwill impairment tests, single-store operation data and integration progress, and carefully evaluate investment risks.

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[1] The Paper - “Rpet Pet’s Hong Kong IPO: Over 70% of pet hospitals are acquired, expansion leads to huge goodwill” (https://m.thepaper.cn/newsDetail_forward_32301033)

[2] Eastmoney.com - “3-year loss of RMB370 million, nearly RMB1.8 billion goodwill hanging over, Rpet Pet seeks Hong Kong IPO with ‘shackles’” (https://finance.eastmoney.com/a/202601043607919572.html)

[3] DoNews - “Above barriers, below risks: Rpet’s capitalization gamble” (https://www.donews.com/article/detail/8260/95005.html)