On January 10th, a Hong Kong company by the name of Newman Science (stock code: 02530.HK) made its official debut on the stock marketHowever, the day unfolded dramatically, as the stock opened significantly lower and suffered a staggering drop of over 27%. Although there was a slight recovery afterwards, the shares remained below the issue price, prompting concerns among investors and market analysts alike.

Newman Science specializes in the marketing, sales, and distribution of finished nutritional products in ChinaIts range is marketed under proprietary brands like "Newman Science" and "Newmans," and can be categorized into five main types: algal oil DHA, probiotics, vitamins, multivitamins, and algal calcium productsThe target demographics for these nutritional supplements primarily consist of pregnant women, postpartum women, and children from infancy through childhood, with the algal oil DHA product being the best seller among them.

Despite the alarming decline in share price following its stock market entry, a deeper analysis reveals that Newman Science isn't as weak as the market reaction might suggest.

According to the company’s prospectus, the revenues from fiscal years 2021 to 2023 indicate a steady growth trend

Specifically, their revenues were around 338 million RMB, 367 million RMB, and 427 million RMB respectively, with net profits of roughly 120 million RMB, 87.52 million RMB, and 159 million RMB in the corresponding periods.

Although the scale of the company’s operations might seem modest, the consistently high gross margins above 70% reflect a commendably robust performanceHowever, as the company entered the first half of 2024, it reported a concerning 23.94% decline in revenue to 146 million RMB, accompanied by a staggering 41.39% fall in net profit to 45.28 million RMB.

The declining net profit in the first half of 2024 can be attributed to two primary factors as stated in the company's prospectus: first, the revenue from algal oil DHA saw a downturn; second, a lackluster market environment for maternal and infant algal oil DHA products in China led to increased promotional expenses during the period.

It’s crucial to highlight that Newman Science is grappling with several challenges.

A particularly alarming issue is the heavy reliance on its algal oil DHA products, which accounted for over 96% of its revenue in the first half of 2024. This significant dependency raises concerns about the stability of its future performance.