ZYBT

Business Context and Reporting Period

Company: Zhengye Biotechnology Holding Ltd (Zhengye Cayman)

Reporting Period: Fiscal year ended December 31, 2025 (Annual Report on Form 20-F)

Business Overview: Zhengye is a Cayman Islands holding company that conducts operations through its principal subsidiary, Jilin Zhengye Biological Products Co., Ltd., in China. The company focuses on the research, development, manufacturing, and sales of veterinary vaccines, with a primary emphasis on livestock (swine, poultry, cattle, sheep). Products are sold domestically across 29 Chinese provinces and exported to Vietnam, Pakistan, and Egypt.

Corporate Structure Update: Effective March 24, 2026 (subsequent to the fiscal year-end), the Company adopted a dual-class share structure. Ordinary shares were reclassified into Class A Ordinary Shares (1 vote) and Class B Ordinary Shares (20 votes). As of the report date, 47,391,376 ordinary shares were outstanding.

Key Financial Metrics (Fiscal Year 2025)

Note: USD translations are based on an exchange rate of RMB 6.9931 to US$1.00 as of December 31, 2025.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased by 37.6% (RMB 70.0 million) from 2024 to 2025. This was primarily driven by a downturn in the hog market, characterized by low and volatile prices, which reduced demand for swine vaccines (the company's core product, accounting for 77.5% of 2025 revenue).
• Margin Compression: Gross margin collapsed from 49.0% in 2024 to 20.5% in 2025. Management attributed this to lower sales prices combined with unchanged fixed costs.
• Profitability Shift: The company swung from a net income of RMB 13.5 million in 2024 to a net loss of RMB 83.0 million in 2025. Operating expenses increased to RMB 94.4 million in 2025 from RMB 74.9 million in 2024, driven by higher R&D spending (RMB 18.0 million) and general/administrative costs.
• Customer Concentration: Revenue from the largest customer (Muyuan Foods Co., Ltd.) dropped significantly from 44.6% of total revenue in 2024 to 13.7% in 2025, reflecting a strategic shift to reduce dependency on a single client.
• Liquidity Improvement: Despite the net loss, cash and restricted cash increased to RMB 50.3 million (from RMB 18.6 million in 2024), bolstered by RMB 43.1 million in proceeds from the January 2025 IPO and net cash provided by operating activities of RMB 13.3 million.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Going Concern: Financial statements are prepared on a going concern basis. Management believes current cash balances and forecasted cash flows are sufficient to meet obligations for the next 12 months.
• Growth Strategy: The company plans to expand into the household animal (pet) vaccine market and pursue mergers and acquisitions in the pet sector in 2026. It also aims to expand its international distribution network into Africa, Central Asia, and West Asia.
• Dividends: The company does not intend to pay dividends in the foreseeable future, intending to retain earnings for business expansion.

Key Risks & Contingencies:

• Internal Controls: Management identified a material weakness in internal control over financial reporting due to a lack of accounting staff with appropriate U.S. GAAP knowledge. Remediation efforts are underway but not fully complete.
• Regulatory Risks (China): Significant risks exist regarding PRC regulatory oversight, including cybersecurity reviews, data security laws, and the potential for the Chinese government to disallow the company's holding structure. There is also uncertainty regarding the interpretation of the "de facto management body" rule for PRC tax residency.
• Listing Risks: Nasdaq has proposed a new $5 million minimum market value continued listing requirement. If approved and the company's market value falls below this threshold for 30 consecutive days, it could face immediate suspension and delisting without a cure period.
• Customer Concentration: While reduced in 2025, the company remains exposed to the financial health and purchasing decisions of its major livestock customers.

Investor Verification Checklist

• Revenue Sustainability: Verify if the decline in swine vaccine demand is a temporary market cycle or a structural shift affecting long-term growth.
• Internal Control Remediation: Confirm the timeline and effectiveness of the plan to remediate the material weakness in internal controls over financial reporting.
• Listing Compliance: Monitor the status of Nasdaq's proposed $5 million market value rule and the company's current market capitalization relative to this threshold.
• Regulatory Filings: Verify the status of the company's filings with the China Securities Regulatory Commission (CSRC) regarding its overseas listing and ongoing compliance with PRC data security laws.
• Customer Diversification: Assess the stability of the new customer base following the strategic reduction of reliance on Muyuan Foods Co., Ltd.