Traditional Chinese medicine (TCM)
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A Beijing Tong Ren Tong Chinese Medicine shop at Admiralty. The small-cap stock has brought much joy to investors. Photo: David Wong

Centuries-old Chinese medicine tastes sweet and bitter after Hong Kong IPO

Medicine recall order brings nasty surprise as Tong Ren Tang executives celebrate stunning debut of spin-off on the Hong Kong stock market

The more than 300-year-old Chinese medicine brand Tong Ren Tang is facing a hit to its reputation, just a day after its flagship drug manufacturing and distribution unit made a stellar debut on the Hong Kong stock market.

The share price of Beijing Tong Ren Tang Chinese Medicine (TRTCM) more than doubled on Tuesday, evoking memories of the small-cap bull run during the internet bubble days.

But a nasty surprise for Tong Ren Tang, founded in 1669 during the Qing dynasty, came after the market close on Tuesday.

While many senior executives of Beijing-based TRTCM and Kim Eng Securities, the sole sponsor of its initial public share offering, were at a celebration dinner, the Hong Kong health authorities unexpectedly issued a statement ordering Tong Ren Tang Hong Kong Medicine Management (TRTHK) to recall a batch of branded Chinese medicine that was found to contain excessive mercury.

"Initial investigation revealed that the proprietary Chinese medicine was manufactured in the mainland and was imported by Tong Ren Tang to Hong Kong for sale. The [medicine] is indicated for health maintenance in adults, but its ingredients could not account for the presence of mercury," a spokesman for the Department of Health said in a statement posted on the government website on Tuesday evening.

Acute mercury poisoning can cause inflammation of the mouth, while prolonged exposure to mercury can damage the neurological system and kidneys, the health authority said.

The news spread fast on the internet and attracted some public opinion leaders to comment.

"What? An old Chinese name and brand for several hundred years! How can it be destroyed like this?" said Sisy Chen Wen-hsien, a leading political and business commentator in Taiwan, in a post on Sina Weibo, the mainland's most popular Twitter-like microblog.

Despite Tong Ren Tang's product recall and growing concerns among TRTCM's retail investors, the share price of TRTCM continued to rally on Wednesday, partly thanks to support from some major institutional investors.

The stock rose 21.7 per cent to close at HK$7.95, adding to the 115 per cent gain in the first day of trade on Tuesday.

The market ended 0.86 per cent firmer.

Spin doctors quickly moved to minimise the damage to Tong Ren Tang.

Nan Dong, a public relations executive at SPRG, which is representing TRTCM, said TRTHK and TRTCM are two different companies.

The assets of the newly listed TRTCM do not include the shops that TRTHK is running in Hong Kong and from which some Hong Kong consumers bought the Chinese medicine product that is now being recalled, Dong said.

She confirmed that TRTHK, whose major shareholder is Tong Ren Tang, and TRTCM, a unit of Tong Ren Tang, share the same historic Tong Ren Tang brand for use and operation in Hong Kong.

After its listing, TRTCM also wants to open more shops in Hong Kong by itself.

From a financial and investment perspective, there is a clear difference between TRTCM and TRTHK. But for ordinary consumers, there is hardly a difference as the brand is the same.

Many Hong Kong retail investors prefer buying small-cap stocks to large-caps, such as HSBC and Cheung Kong, whose share prices typically do not see big gains within a short period.

However, investment risks in small-caps are also higher. Some analysts have warned investors not to chase TRTCM following the stunning debut.

This article appeared in the South China Morning Post print edition as: Sweet and bitter