Zhongji Health Tomato Paste De-Stocking but Gross Margin Negative: Pressure Remains After Resumption

On June 29, Zhongji Health resumed trading after removing the delisting risk warning, changing its stock abbreviation from '*ST Zhongji' to 'Zhongji Health'. On the first day of resumption, as of press time, the stock was trading at 3.29 yuan per share, up 2.17% from the closing price of 3.22 yuan on June 25.

Zhongji Health, based in Wujiaqu, Xinjiang, mainly produces tomato products, including bulk tomato paste, small-pack tomato products, and lycopene soft capsules. The bulk tomato paste segment accounts for the majority of revenue, used primarily as a basic ingredient in food processing and catering supply chains, sold mainly to B-end customers.

In 2024, Zhongji Health was flagged with '*ST' for hitting financial delisting risk warning thresholds: total profit, net profit, and non-recurring net profit were all negative, revenue after deductions was below 300 million yuan, and net assets attributable to shareholders were negative.

By 2025, Zhongji Health crossed the two financial thresholds needed to remove the delisting warning: owners' equity turned positive to 26.1223 million yuan at year-end; revenue after deductions reached 488 million yuan, above the 300 million yuan threshold. However, the company's core profitability was still unrecovered: 2025 net profit attributable to shareholders was still a loss of 46.2318 million yuan, and non-recurring net profit was a loss of 293 million yuan.

De-Stocking Drives Sales: Bulk Tomato Paste Accounts for Over 90% of Revenue

The revenue crossing the line was supported by the company's de-stocking efforts: production contraction, inventory decline, and increased sales. The annual report shows that in 2025, bulk tomato paste revenue was 448 million yuan, accounting for 91.12% of total revenue; sales volume was 132,100 tons, up 249.47% year-on-year. Correspondingly, the company's production volume of bulk tomato paste that year was only 7,500 tons, down 95.61%, and inventory dropped to 91,000 tons, down 57.80%.

Selling More Still Loses: Negative Gross Margin Key Contradiction

The problem is that this is not a profitable increase in sales. Corrected data shows that the gross margin for bulk tomato paste in 2025 was -20.41%, and the overall gross margin was -15.66%. In other words, the main business, accounting for over 90% of revenue, is already in a negative gross margin state.

Reasons for Selling at a Loss: Price Decline and Shelf-Life Pressure

The company's explanation in its annual report and response to inquiry letters points to two core pressures: price and shelf life.

On price, the company noted that in 2025, China's average export price for tomato paste over 5kg fell to US$675 per ton, down 32.5% from US$1,000 per ton in 2024, hitting a multi-year low. Domestic bulk tomato paste prices also remained weak, with high industry inventory and some enterprises selling at low prices, further exacerbating the price decline. According to the company's annual report, the average selling price of bulk tomato paste was 7,857.91 yuan per ton in 2023, falling to 5,866.22 yuan in 2024, and further to 3,395.43 yuan in 2025. The company stated that the decline in product selling prices was greater than the decline in costs, creating a situation of 'the more you sell, the more you lose'.

On shelf life, the company disclosed that bulk tomato paste has a shelf life of 720 days (two years). Unsold products would become worthless. The company said that in actual market sales of tomato products, prices tend to decline non-linearly as shelf life decreases, with prices falling particularly sharply near expiry. With international orders declining sharply, the domestic market approaching saturation, and increasing shelf-life pressure, the company had to increase sales volumes, but selling prices continued to fall, leading to a situation where selling prices were lower than production costs.

From an operational perspective, selling at a loss is not ideal but may be the more pragmatic trade-off: not selling would continue to tie up funds and could lead to further price declines, impairment, or even expiry risk; selling alleviates cash flow and inventory pressure but still weighs on profits.

Removing Warning Does Not Eliminate Risks: High Debt Ratio and Pre-Reorganization

Zhongji Health's debt-to-asset ratio was still 97.79% in 2025, and the company and its wholly-owned subsidiary Red Tomato have entered pre-reorganization proceedings. The company disclosed that in July 2025, creditor Zhongxingcai Guanghua Certified Public Accountants (Special General Partnership) applied to the court for reorganization and pre-reorganization of the company on the grounds that the company was unable to pay due debts and clearly lacked solvency but had restructuring value. On the same day, Xinjiang Hengyuan Water Services Co., Ltd. also applied for reorganization and pre-reorganization of Red Tomato on similar grounds.

Currently, the company said it is working with the interim administrator under court supervision to advance matters such as creditor review, auditing, and evaluation. However, pre-reorganization does not mean the court will formally accept the reorganization application. If the court accepts reorganization, the stock trading may be flagged with an additional delisting risk warning; if reorganization fails and the company is declared bankrupt, the stock will face delisting risk.

In the first quarter of 2026, Zhongji Health reported revenue of 54.8219 million yuan, down 30.33% year-on-year; net profit attributable to shareholders was a loss of 19.6295 million yuan, compared to a loss of 7.2557 million yuan in the same period last year; non-recurring net profit was a loss of 20.5002 million yuan. By the end of the first quarter, owners' equity attributable to shareholders fell to 6.4928 million yuan, down 75.14% from 26.1223 million yuan at end-2025.

For Zhongji Health, resumption is only a temporary escape from the '*ST' label. The core issue remains: when 90% of revenue comes from bulk tomato paste with negative gross margin, what can the company rely on to achieve profitability improvement after de-stocking?