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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on October 15, 2019

Registration No. 333-234022


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 1
to

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Aesthetic Medical International Holdings Group Limited
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

1122 Nanshan Boulevard
Nanshan District, Shenzhen
Guangdong Province, China 518052
Telephone: +86 (755) 2559 8065

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



Puglisi & Associates
850 Library Ave., Suite 204
Newark, DE 19711
Telephone: (302) 738-6680

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Ke Geng, Esq.
O'Melveny & Myers LLP
Yin Tai Center, 37th Floor
No. 2 Jianguomenwai Ave
Chao Yang District
Beijing, China 100022
Telephone: +86 (10) 6563 4200
  Ke Zhu, Esq.
Li Han, Esq.
O'Melveny & Myers LLP
31/F, AIA Central
1 Connaught Road, Central
Hong Kong
Telephone: +852 3512 2300
  Michael Benjamin, Esq.
Ian Schuman, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
Telephone: +1 (212) 906 1311
  Benjamin Su, Esq.
Latham & Watkins LLP
18th Floor, One Exchange Square
8 Connaught Place
Central, Hong Kong
Telephone: +852 2912 2728

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

           Emerging growth company ý

           If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

CALCULATION OF REGISTRATION FEE

               
 
Title of each class of securities
to be registered

  Amount of
shares to be
registered(1)(3)

  Proposed maximum
offering price
per share(1)

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee

 

Ordinary Shares, par value US$0.001 per share(2)(3)

  8,625,000   US$4.34   US$37,432,500   US$4,536.82(4)

 

(1)
Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

(2)
Includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the ordinary shares are first bona fide offered to the public, and also includes ordinary shares that may be purchased by the underwriters upon the exercise of the underwriters' option to purchase additional shares. These ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
American depositary shares issuable upon deposit of ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-234191). Each American depositary share represents three ordinary shares.

(4)
Previously paid.

           The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion
Preliminary prospectus dated October 15, 2019

2,500,000 American Depositary Shares

LOGO

Aesthetic Medical International Holdings Group Limited

Representing 7,500,000 Ordinary Shares

        This is the initial public offering of American depositary shares, or ADSs, of Aesthetic Medical International Holdings Group Limited.

        We are offering 2,500,000 ADSs. Each ADS represents three of our ordinary shares, par value US$0.001 per share.

        Prior to this offering, there has been no public market for the ADSs or our ordinary shares.

        We expect the initial public offering price to be between US$11.00 and US$13.00 per ADS. We have applied to list the ADSs on the Nasdaq Global Market under the symbol "AIH."

        We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

        Following the completion of this offering, we will be a "controlled company" as defined under the Nasdaq Stock Market Rules because Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will control more than 50% of the voting power for the election of directors of our company.

        Investing in the ADSs involves risks that are described in the "Risk Factors" section beginning on page 15 of this prospectus.



PRICE US$            PER ADS



        Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

       
 
 
  Per ADS
  Total
 

Public offering price

  US$               US$            
 

Underwriting discounts and commissions(1)

  US$               US$            
 

Proceeds, before expenses, to us

  US$               US$            

 

(1)
See "Underwriting" for a detailed description of the compensation payable to the underwriters.

        The underwriters have an option to purchase up to an aggregate of 375,000 additional ADSs from us at the initial public offering price less the underwriting discounts and commissions within 30 days after the date of this prospectus.

        The underwriters expect to deliver the ADSs against payment in New York, New York to the purchasers on or about                , 2019.

Cantor   Haitong International   Prime Number Capital

 

Maxim Group LLC   Zinvest Global   Tiger Brokers   Valuable Capital

The date of this prospectus is                , 2019


Table of Contents

GRAPHIC


Table of Contents

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    15  

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

    57  

USE OF PROCEEDS

    59  

DIVIDEND POLICY

    61  

CAPITALIZATION

    62  

DILUTION

    64  

ENFORCEABILITY OF CIVIL LIABILITIES

    67  

OUR HISTORY AND CORPORATE STRUCTURE

    69  

SELECTED CONSOLIDATED FINANCIAL DATA

    75  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    78  

INDUSTRY

    104  

BUSINESS

    108  

REGULATION

    130  

MANAGEMENT

    160  

PRINCIPAL SHAREHOLDERS

    170  

RELATED PARTY TRANSACTIONS

    174  

DESCRIPTION OF SHARE CAPITAL

    176  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    189  

SHARES ELIGIBLE FOR FUTURE SALE

    200  

TAXATION

    202  

UNDERWRITING

    210  

LEGAL MATTERS

    220  

EXPERTS

    220  

EXPENSES RELATING TO THIS OFFERING

    221  

WHERE YOU CAN FIND MORE INFORMATION

    221  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

        You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer and sale is not permitted. The information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since such date.

        Neither we nor the underwriters have taken any action that would permit a public offering of the ADSs outside the United States or permit the possession or distribution of this prospectus or any related free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any related free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.

        Through and including                        , 2019 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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Prospectus Summary

        This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our ADSs, and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially "Risk Factors," "Selected Consolidated Financial Data," and the financial statements and the related notes appearing elsewhere in this prospectus, before deciding to buy the ADSs. This prospectus contains certain estimates and information from the industry report commissioned by us and prepared by Frost & Sullivan. Unless the context requires otherwise, references in this prospectus to "our company," "we," "us" and "our" refer to Aesthetic Medical International Holdings Group Limited and its consolidated subsidiaries.

Our Mission

        Our mission is to bring beauty, health and confidence to everyone by delivering safe, high quality aesthetic medical services. We plan to achieve the mission by maintaining and strengthening our leading market position and brand in the aesthetic medical treatment market in China and by growing our presence globally.

Our Business

        We are a leading provider of aesthetic medical services in China. Leveraging over 20 years of clinical experience, we provide one-stop aesthetic service offerings, including (i) surgical aesthetic treatments, such as eye surgery, rhinoplasty, breast augmentation and liposuction, (ii) non-surgical aesthetic treatments, which comprise minimally invasive treatments and energy-based treatments such as laser, ultrasound and ultraviolet light treatments, and (iii) other aesthetic services such as cosmetic dentistry, as well as general medical services. According to Frost & Sullivan, we are the third-largest private aesthetic medical services provider in China in terms of revenue in 2018. The total aesthetic medical services market in China, which includes both public and private services providers, grew at a compound annual growth rate, or CAGR, of 23.6%, from RMB52.1 billion in 2014 to RMB121.7 billion in 2018 and is expected to grow to RMB360.1 billion in 2023, representing a CAGR of 24.2% from 2018 to 2023, according to Frost & Sullivan. The market size for private aesthetic medical services providers in China grew at a CAGR of 25.5% from RMB40.0 billion in 2014 to RMB99.2 billion in 2018 and is expected to grow to RMB316.6 billion in 2023, representing a CAGR of 26.1% from 2018 to 2023. In 2017, China was the second largest market for aesthetic medical services based on revenue, with the global market for aesthetic medical services totaling US$125.8 million, according to Frost & Sullivan. As one of the market leaders in China, we believe we are well-positioned to benefit from the favorable tailwinds, including the growing social acceptance of aesthetic medical services.

        We generate our revenue primarily from providing aesthetic treatments. In the six months ended June 30, 2019, we generated 40.1%, 51.2% and 8.7% of our revenue from providing surgical aesthetic treatments, non-surgical aesthetic treatments, and general healthcare and other aesthetic services, respectively, as compared with 41.2%, 49.1% and 9.7% for the year ended December 31, 2018. The majority of our revenue came from out-of-pocket payments by our customers, who pay in advance for treatments.

        We have grown our network significantly since we commenced operations in 1997. As of the date of this prospectus, we have a strategically established network comprising 21 medical treatment centers (including 19 wholly or majority owned centers). Our treatment centers spread across 15 cities in mainland China, Hong Kong and Singapore. As we continue to expand our network, one of our core business strategies is to develop our "flagship" medical institutions, which are typically large-scale

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full-service treatment centers that contribute a significant proportion of our revenue and are staffed with our most experienced doctors. We believe that developing flagship medical institutions will not only improve brand awareness in the surrounding area, but also enable us to provide high-end as well as specialized or complex medical services to customers referred from smaller-scale treatment centers within our network. We currently have three flagship medical institutions—Pengcheng Hospital, Shenzhen Pengai and Chongqing Pengai. Our scalable business model is built on our highly standardized operating procedures across a centralized network, which we believe has allowed us to quickly and successfully expand our network. We intend to continue to expand our network into new cities throughout China and selected global markets through organic growth as well as strategic acquisitions.

        The map below illustrates geographical coverage of our network of treatment centers as of the date of this prospectus.

GRAPHIC

        Since our inception, we have been committed to delivering high quality services to our customers. As of June 30, 2019, we had 567 medical staff, including 203 doctors. Our doctors have rich experience in providing both surgical and non-surgical aesthetic medical services, with an average industry experience of approximately ten years. We believe our team of highly qualified and experienced medical professionals, as well as our stringent safety control, have underpinned our strong reputation as we continue to attract and retain customers and receive industry recognition for our high quality services. We have received a number of high-profile awards, including "The most prestigious aesthetic medical services beauty brand in 2016" by the Tencent Network and "The aesthetic medical services brand of technological innovation in 2016" by Hong Kong WenWeiPo newspapers.

        Our active customer base, defined as customers who have received at least one procedure from us in the relevant year, has increased from 108,291 in 2016 to 128,892 in 2017 and further to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Repeat customers, defined as active customers who had previously received at least one procedure from us, accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively.

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        Our revenue grew from RMB584.9 million in 2016 to RMB697.4 million in 2017, and further to RMB761.3 million (US$110.9 million) in 2018, and from RMB356.3 million in the six months ended June 30, 2018 to RMB393.1 million (US$57.3 million) in the six months ended June 30, 2019. We reported a profit of RMB50.5 million for 2016, a loss of RMB72.4 million and RMB252.5 million (US$36.8 million) for 2017 and 2018, respectively, and a profit of RMB16.9 million and RMB80.2 million (US$11.7 million) for the six months ended June 30, 2018 and 2019, respectively. Our adjusted EBITDA for the year/period amounted to RMB96.1 million, RMB112.1 million and RMB113.1 million (US$16.5 million) for 2016, 2017 and 2018, respectively, and increased from RMB49.9 million for the six months ended June 30, 2018 to RMB101.6 million (US$14.8 million) for the six months ended June 30, 2019. See "Prospectus Summary—Consolidated statement of comprehensive income data" for information related to non-IFRS financial measures.

Our Industry

        The aesthetic medical services market is forecasted to experience robust growth over the next five years, both globally and in China. As one of the fastest growing aesthetic medical services markets in the world, the aesthetic medical services market in China ranked second globally in terms of both total volume of aesthetic medical procedures and total revenue from aesthetic medical procedures in 2017. The China aesthetic medical services market is highly under-penetrated. According to Frost & Sullivan, every 1,000 people in China had undergone an average of 11.7 medical aesthetic treatments in 2017, whereas the penetration per thousand people rates in South Korea, the U.S., Brazil, and Japan were 80.4, 50.1, 43.6, and 27.0, respectively, in 2017. The significantly lower penetration rate in China, compared to other countries with more developed medical aesthetic markets, shows tremendous growth potential in the near future as the industry continues to develop and as social acceptance of medical aesthetic procedures permeates.

        According to Frost & Sullivan, the total volume of aesthetic medical procedures in China, including both surgical and non-surgical procedures, is expected to grow at a CAGR of 25.7% from 20.2 million in 2018 to reach 63.5 million by 2023.

        We believe we are well-positioned to benefit from the following factors which have historically contributed to and are expected to continue to drive the growth of China's aesthetic medical services market:

    Increasing demand for aesthetic medical services;

    Increasing spend on minimally invasive treatments by younger customers and increasingly early use of anti-aging treatments and products by middle-aged and elder customers;

    Increasing disposable income;

    Maturing medical technologies utilized in surgical procedures with comparatively lower risks; and

    Increasing investment and expanding awareness and access in the aesthetic medical services industry.

Competitive Strengths

        We believe the following competitive strengths have contributed to our success and differentiated us from our competitors:

    A long track record and leading market position in the high-growth aesthetic medical services market in China with a strategic nationwide network and international footprint;

    Offering aesthetic driven solutions combining high quality medical care with image consultant services;

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    Rigorous clinical standards, high-quality services and a well-established brand driving high customer satisfaction;

    Scalable business model, with highly standardized operating procedures across a centralized network;

    Rich experience in successfully identifying, acquiring and integrating treatment centers; and

    A dedicated management team deeply rooted in the healthcare industry with international experience and a proven track record.

Our Strategies

        We intend to grow our business by implementing the following key strategies:

    Continue to drive organic growth through expanding the customer base, increasing repeat visits and enhancing brand awareness;

    Grow the number of aesthetic medical treatment centers organically and through acquisitions;

    Strategically expand into selected global markets; and

    Continue to develop and introduce innovative aesthetic medical service techniques.

Challenges

        Our ability to achieve our mission and execute on our strategies is subject to risks and uncertainties, including the following:

    We depend significantly on the strength of our brand and reputation, and any damage to our brand or reputation could materially and adversely impact our business and results of operations;

    We conduct our business in a heavily regulated industry and incur ongoing compliance costs as well as face penalties for non-compliance;

    We are subject to customer complaints, claims and legal proceedings in the regular course of our operations from time to time, which could result in significant costs and materially and adversely affect our brand image, reputation and results of operations;

    If we are unable to recruit and retain an appropriate number of treatment center managers, doctors, nurses, image consultants and other supporting staff, our service quality and business strategy may suffer;

    We may fail to maintain the quality of the pharmaceuticals, medical equipment, medical supplies, injection materials, skincare products, implants and consumables we use. If these products do not meet the required standards, we could be exposed to liabilities and our business operations and reputation could suffer; and

    The significant amount of advertising and marketing expenses we spend on enhancing our brand awareness may not be effective and may adversely affect our results of operations.

        See "Risk factors" and other information included in this prospectus for a discussion of these and other risks and uncertainties.

Corporate Information

        Our principal executive offices are located at 1122 Nanshan Boulevard, Nanshan District, Shenzhen, Guangdong Province, China. Our telephone number at that address is +86 (755) 2559 8065.

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Our registered office in the Cayman Islands is at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205 Cayman Islands.

        Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website address is http://www.pengai.com.cn. Our website and the information contained on our website do not constitute a part of this prospectus. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Ave., Suite 204, Newark, DE 19711.

Our History and Corporate Structure

        We commenced operations in 1997 through Shenzhen Pengcheng Clinic, which became Pengcheng Hospital in 2003. Since then, we have expanded our business operations through acquisitions and organic growth. In particular, we established our second flagship hospital, Shenzhen Pengai Hospital, in 2005.

        In May 2011, our company was incorporated in the Cayman Islands under the name of Pengai Hospital Management Corporation as our offshore holding company. Following certain name changes, our company changed its name to Aesthetic Medical International Holdings Group Limited in July 2018.

        Peng Oi Investment (Hong Kong) Holdings Limited (formerly known as Peng Cheng Investment (Hong Kong) Holdings Limited) was incorporated in Hong Kong in July 2004. In July 2011, we acquired the entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited from Dr. Zhou Pengwu and Ms. Ding Wenting.

        Dragon Jade Holdings Limited was incorporated in the BVI in January 2014. Later in 2014, we transferred to Dragon Jade Holdings Limited our entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited in exchange for Dragon Jade Holdings Limited issuing and allotting one fully paid share of US$1.00 to our company. Upon completion of the share swap, Dragon Jade Holdings Limited became a direct wholly-owned subsidiary of our company.

        Peng Yida Business Consulting (Shenzhen) Co., Ltd. is a direct wholly-owned subsidiary of Peng Oi Investment (Hong Kong) Holdings Limited, which was established in the PRC in December 2010.

        Shenzhen Pengai Hospital Investment Management Co., Ltd. (formerly known as Shenzhen Pengcheng Hospital Investment Co., Ltd.), or Shenzhen Pengai Investment, is a direct wholly-owned subsidiary of Peng Yida Business Consulting (Shenzhen) Co., Ltd., which was established in the PRC in December 2004. Shenzhen Pengai Investment is the holding company of our operating subsidiaries in the PRC.

        We acquired the entire equity interest in Newa Medical Aesthetics Limited in October 2015 to further extend our footprint to Hong Kong.

        We incorporated Stargaze Wealth Limited in the BVI in April 2017 and Aesthetic Medical International Holdings (Singapore) Pte. Ltd. formerly known as China Aesthetic Healthcare Holdings (Singapore) Pte. Ltd. in Singapore in May 2017 to invest in our Singapore medical center. As of the date of this prospectus, we owned 44.4% of equity interest in Singapore Mendis.

        In February 2019, we entered into an agreement for an investment in LZP Holding, Inc., or LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers. Under the terms of the agreement, we will invest US$5 million for a 20% equity stake in LZP consisting of US$4 million in cash for LZP's shares and a further US$1 million in promissory notes secured against LZP's shares, repayable either in shares or in cash. In addition, we have an option to acquire a further 20% equity stake under the same terms, subject to the

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completion of a re-financing of LZP. As of the date of this prospectus, the closing of the transaction is subject to certain conditions including the refinancing of certain of LZP's indebtedness.

        As of the date of this prospectus, we have a strategically established network, comprising 21 medical treatment centers, including 19 wholly or majority owned centers. Our treatment centers spread across 15 cities in mainland China, and we also have presence in Hong Kong and Singapore. All of our treatment centers are wholly or majority owned with the exception of Baotou Pengai Yueji Aesthetic Medical Clinic Co., Ltd. or Baotou Pengai, and Mendis Aesthetics Pte. Ltd. or Singapore Mendis.

        The following diagram illustrates our corporate structure immediately upon completion of this offering, assuming no exercise of the over-allotment option granted to the underwriters.

GRAPHIC


Notes:

(1)
As of the date of this prospectus, Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical Hospital Co., Ltd., Shanghai Pengai Aesthetic Medical Clinic Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital, Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd, collectively "Relevant Subsidiaries," or each a "Relevant Subsidiary," was held by Dr. Zhou Pengwu, our chairman and chief executive officer, as to 24.0%, 30%, 30.0%, 9.0%, 10.0%, 22.0%, 21.0% and 25%, respectively. We refer to these equity interests held

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    by Dr. Zhou Pengwu as the "Target Equity Interests", which constitute all of Dr. Zhou Pengwu's shareholdings in the Relevant Subsidiaries.

(2)
As of the date of this prospectus, except for the Target Equity Interests (as defined above) representing all of Dr. Zhou Pengwu's equity interests in the Relevant Subsidiaries which we consolidate through Contractual Arrangements as further described below, the remaining equity interest in our PRC operating subsidiaries was held by independent third parties and certain of our employees.

(3)
Haikou Pengai Aesthetic Medical Hospital Co., Ltd. was established before the effective date of the Foreign Investment Catalogue 2015 and thus, it is not subject to the 70% foreign shareholding restrictions.

        Pursuant to the Foreign Investment Catalog 2015 which became effective in April 2015, foreign investors in PRC medical institutions can only conduct investment activities through joint ventures. Since the effective date of the Foreign Investment Catalog 2015, the foreign shareholding in these entities is limited to 70.0% as stipulated in the JV Interim Measures. See "Regulation." We historically held more than 70.0% equity interest in certain of the Relevant Subsidiaries that are medical institutions which we acquired or established after the effective date of the Foreign Investment Catalog 2015. Due to such restriction, we had decreased our shareholding to no more than 70.0% in such PRC subsidiaries by transferring excessive equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer and Dr. Zhou's shareholding in Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd, Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital, Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. and Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. which he subsequently acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu, Shenzhen Pengai Investment, the Relevant Subsidiaries and Ms. Ding Wenting in 2018 and 2019 with respect to the Target Equity Interests. These Contractual Arrangements enable us to (i) exercise control over the Target Equity Interests in the Relevant Subsidiaries; (ii) receive economic benefits from the Target Equity Interests in Relevant Subsidiaries; and (iii) have an exclusive option to purchase all or part of the Target Equity Interests when and to the extent permitted by PRC laws. See "Our history and corporate structure—Contractual arrangements with respect to Target Equity Interest."

        Our revenue generated from the Relevant Subsidiaries aggregately accounted for approximately 19.0% and 26.1% of our total revenue in 2017 and 2018, respectively. We do not rely on the Contractual Arrangements to exercise control over the Relevant Subsidiaries as we hold 70.0% equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and consolidate the Target Equity Interests in each of the Relevant Subsidiaries held by Dr. Zhou Pengwu through the Contractual Arrangements. However, with respect to our control over the Target Equity Interests, the Contractual Arrangements may not be as effective as direct ownership. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. See "Risk Factors—Risks relating to our corporate structure—The Contractual Arrangements may not be as effective in providing control as direct ownership and the Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements."

Recent Developments

        As part of our efforts in establishing satellite clinics in third- and fourth-tier cities in China, we established our first satellite clinic in Ninghai, Zhejiang province in April 2019, which commenced its operation in July 2019. For more information regarding our satellite clinics, see "Business—Our Strategies—Grow the number of aesthetic medical treatment centers organically and through acquisitions."

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        In August 2019, we entered into a strategic cooperation agreement with So-Young, a leading online platform in China for medical aesthetic services and a major sales and marketing channel of ours, pursuant to which So-Young helps us promote our brand to the users on its platform, while we offer certain discounts to the users they introduce to us.

        In August 2019, we entered into a strategic cooperation agreement with Yujia Entertainment, or Yujia, a live streamer agent company, pursuant to which we agreed to offer discounts when providing our aesthetic services to the live streamers signed by Yujia, and Yujia agreed to have their live streamers promote our brand and services to their viewers.

Implications of Being an Emerging Growth Company

        As a company with less than US$1.07 billion in revenue during our most recently completed fiscal year as of the initial filing date of the registration statement of which this prospectus forms a part, we are an "emerging growth company," as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of an emerging growth company's internal control over financial reporting. The JOBS ACT permits an emerging growth company not to comply with any new or revised accounting standards issued by the Financial Accounting Standards Board until those standards apply to private companies. However, we are exempt from complying with new or revised financial accounting standards issued by Financial Accounting Standards Board because we prepare our financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board, or IFRS.

Implications of Being a Controlled Company

        Following the completion of this offering, we will be a "controlled company" as defined under the Nasdaq Listing Rules because our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will control more than 50% of the voting power for the election of directors of our Company. As a result, we will be permitted to elect not to comply with certain corporate governance requirements. See "Risk Factors—Risks relating to the ADSs and this offering—Our shareholders may not have the same protections generally available to stockholders of other U.S.-listed companies because we will be a "controlled company" within the meaning of the Nasdaq Listing Rules".

Conventions that Apply to this Prospectus

        Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

    "ADSs" are to our American depositary shares, each of which represents three of our ordinary shares;

    "We," "us," "our company," "the Company" and "our" are to Aesthetic Medical International Holdings Limited, its subsidiaries and its consolidated affiliated entities;

    "ADV" are to Peak Asia Investment Holdings V Limited and/or its affiliates as the case may be;

    "IDG" are to IDG Technology Venture Investment IV, L.P., IDG-ACCEL China Growth Fund III L.P., IDG-ACCEL China III Investors L.P. (or collectively, IDG Funds) and/or their respective affiliates as the case may be;

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    "China" or the "PRC" are to the People's Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

    "RMB" and "renminbi" are to the legal currency of China;

    "shares" or "ordinary shares" are to our ordinary shares, par value US$0.001 per share; and

    "US$," "U.S. dollars," "$," and "dollars" are to the legal currency of the United States.

        Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.

        Unless otherwise indicated or the context otherwise requires, operating data contained in this prospectus, including number of doctors and medical support staff, number of treatments, average spending, among others, encompass only data from our consolidated group.

        Our reporting currency is the renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from renminbi to U.S. dollars were made at RMB6.8650 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 28, 2019. We make no representation that the renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or renminbi, as the case may be, at any particular rate or at all. On October 4, 2019, the noon buying rate in New York for cable transfers payable in renminbi was RMB7.1473 to US$1.00.

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The Offering

Offering price

  We currently estimate that the initial public offering price will be between US$11.00 and US$13.00 per ADS.

ADSs offered by us

 

2,500,000 ADSs.

ADSs to be outstanding immediately after completion of this offering

 

2,500,000 ADSs (or 2,875,000 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares to be outstanding immediately after completion of this offering

 

70,838,671 ordinary shares (or 71,963,671 ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).

The ADSs

 

Each ADS represents three ordinary shares, par value US$0.001 per share. The ADSs may be evidenced by ADRs.

 

The depositary will hold the ordinary shares underlying your ADSs, and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and the holders and beneficial owners of ADSs.

 

If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

You may turn in your ADSs to the depositary for cancellation and receipt of the corresponding ordinary shares. The depositary will charge you fees for the cancellation of ADSs and delivery of the corresponding ordinary shares.

 

We may amend or terminate the deposit agreement without your consent. If an amendment becomes effective and you continue to hold your ADSs, you will be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read "Description of American depositary shares" in this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Depositary

 

Deutsche Bank Trust Company Americas.

Option to purchase
additional ADSs

 

The underwriters have an option to purchase up to an additional 375,000 ADSs from us within a period of 30 days after the date of this prospectus.

Use of proceeds

 

We estimate that the net proceeds from this offering will be approximately US$25.0 million, or approximately US$29.2 million if the underwriters exercise their option to purchase additional ADSs in full, at an assumed initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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We currently intend to use the net proceeds of this offering to finance the strategic expansion of our aesthetic medical treatment center network, both organically through the implementation of facility upgrades at existing treatment centers and the potential establishment of new treatment centers, and through acquisitions, for redemption of our convertible note, and for general corporate purposes, including working capital. See "Use of proceeds" for additional information.

Dividend policy

 

We do not expect to pay any dividends on the ADSs in the foreseeable future.

Risk factors

 

You should read the "Risk Factors" section and other information included in this prospectus for a discussion of risks you should consider carefully before deciding to invest in our ADSs.

Lock-up

 

We, our directors and executive officers, all of our existing shareholders and certain holders of our share-based awards have agreed to lock-up restrictions in respect of our ordinary shares, ADSs, and/or any securities convertible into or exchangeable or exercisable for any of our ordinary shares or ADSs, during the period ending 180 days after the date of this prospectus, subject to certain exceptions.

Proposed Nasdaq Global Market trading symbol

 

AIH.

        Unless otherwise indicated, the number of ordinary shares in this prospectus:

    assumes the effectiveness of our amended and restated memorandum and articles of association, which will occur immediately prior to the completion of this offering; and

    assumes no exercise by the underwriters of their option to purchase up to an additional 375,000 ADSs in this offering.

Our summary consolidated financial data

        The following summary consolidated financial data for the years ended December 31, 2016, 2017, 2018 and for the six months ended June 30, 2018 and 2019, and the selected financial position data as of December 31, 2017, 2018 and as of June 30, 2018 and 2019, have been derived from our audited consolidated financial statements and unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. Our consolidated financial statements appearing in this prospectus have been prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

        Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. The following information should be read in conjunction with "Selected Consolidated Financial Data," "Risk Factors," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

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Consolidated statement of comprehensive income data

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share and per share data)
   
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value (loss)/gain of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679  

Earnings per share for profit attributable to owners of the Company

                                           

Basic

    1.23     (1.87 )   (6.22 )   (0.91 )   0.39     1.89     0.28  

Diluted

    0.02     (1.87 )   (6.22 )   (0.91 )   0.29     0.35     0.05  

Unaudited pro forma basic(1)

                0.49     0.07           0.35     0.05  

Unaudited pro forma diluted(1)

                0.49     0.07           0.35     0.05  

Shares used in profit/(loss) per share computation:

                                           

Basic

    41,000,000     41,000,000     41,060,255     41,060,255     41,000,000     41,798,219     41,798,219  

Diluted

    56,844,957     41,000,000     41,060,255     41,060,255     56,600,000     57,398,219     57,398,219  

Non-IFRS Financial Measure:

                                           

EBITDA(2)

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Adjusted EBITDA(2)

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

Note:

(1)
See note 10 to our audited consolidated financial statements and note 11 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus.

(2)
EBITDA represents our profit/(loss) before income tax, adjusted to exclude finance costs and amortization and depreciation. Adjusted EBITDA represents EBITDA, adjusted to exclude one-time compensatory expense arising from the issuance of exchangeable note liabilities, fair value gain/(loss) of convertible redeemable preferred shares, fair value loss of convertible note, fair value loss of exchangeable note liabilities, fair value loss of derivative financial instrument, share-based compensation expense, and other one-off expenses.

EBITDA and Adjusted EBITDA are non-IFRS financial measures. You should not consider EBITDA and Adjusted EBITDA as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not determined in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. We encourage you to review our financial information in its entirety and not rely on a single financial measure. We present Adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by various items.

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Summary consolidated financial position data

 
  As of December 31,   As of June 30,  
 
  2017   2018   2019  
 
  RMB
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Cash and cash equivalents

    105,345     101,886     14,841     78,656     11,458  

Total current assets

    227,698     282,967     41,219     213,304     31,071  

Total non-current assets

    350,286     393,572     57,330     762,541     111,077  

Total assets

    577,984     676,539     98,549     975,845     142,148  

Total deficit

    (22,240 )   (249,356 )   (36,323 )   (153,507 )   (22,361 )

Total current liabilities

    133,466     171,292     24,951     240,670     35,058  

Total non-current liabilities

    466,758     754,603     109,921     888,682     129,451  

Total liabilities

    600,224     925,895     134,872     1,129,352     164,509  

Total equity and liabilities

    577,984     676,539     98,549     975,845     142,148  

Summary consolidated cash flow data

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Net cash generated from operating activities

    52,084     76,979     4,894     713     12,323     45,691     6,656  

Net cash used in investing activities

    (38,865 )   (69,195 )   (76,182 )   (11,097 )   (56,047 )   (72,823 )   (10,608 )

Net cash generated from/(used in) financing activities

    58,626     (28,187 )   66,741     9,722     18,734     3,991     581  

Net increase/(decrease) in cash and cash equivalents

    71,845     (20,403 )   (4,547 )   (662 )   (24,990 )   (23,141 )   (3,371 )

Cash and cash equivalents at beginning of the year/period

    60,465     129,626     106,006     15,442     105,345     101,886     14,938  

Cash and cash equivalents at the end of the year/period

    129,626     106,006     102,547     14,938     80,221     78,656     11,458  

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        The following table reconciles Adjusted EBITDA to profit/(loss) for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019:

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Add: Finance Costs

    2,920     6,581     9,244     1,347     4,186     12,250     1,784  

Add: Amortization and depreciation

    38,729     29,111     32,140     4,682     16,305     40,155     5,849  

EBITDA

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Add: One-time compensatory expenses arising from the issuance of exchangeable note liabilities

    39,202                          

Add: Fair value (gains)/losses of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Add: Fair value (gains)/losses of convertible note

        1,283     9,152     1,333         5,358     780  

Add: Fair value (gains)/losses of exchangeable note liabilities

        38,307     56,925     8,292         (16,193 )   (2,359 )

Add: Fair value of (gains)/losses of derivative financial instrument

            301     44         14     2  

Add: Share-based compensation expense

                        6,281     915  

Add: Other one-off expenses(1)

        4,536     13,055     1,902     6,277     4,855     707  

Adjusted EBITDA

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

    Note:

(1)
Other one-off expenses include (i) professional fees in relation to our financing activities but are not capitalized, and (ii) IT-related expenses paid to a related party pursuant to a service agreement, which has expired in June 2019.

        We have adopted IFRS 16 Leases from January 1, 2019. Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. For the six months period ended June 30, 2019, we recognized depreciation expense of RMB22.3 million for right-of-use asset, finance cost for lease liabilities of RMB6.4 million and payment for lease liabilities of RMB22.8 million.

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Risk Factors

        Investing in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and their related notes appearing at the end of this prospectus, before deciding to invest in the ADSs. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of the ADSs could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

Risks relating to our business and our industry

We depend significantly on the strength of our brand and reputation, and any damage to our brand or reputation could materially and adversely impact our business and results of operations.

        Our brand and reputation are critical to our success in China's rapidly growing aesthetic medical industry. We believe that our success and continued growth depends on the public perception of our brand name and our ability to protect and promote our brand name. Many factors which are important to help maintain and enhance our brand, are beyond our control and may negatively impact our brand and reputation. Such factors include:

    our ability to effectively control the quality of the services performed by our doctors and other medical staff, and to monitor the performance of such personnel as we continue to expand;

    our ability to maintain a convenient, standardized and reliable customer experience as customer preferences evolve and as we expand our service offerings; and

    our ability to increase brand awareness among existing and potential customers through various means of marketing and promotional activities.

        Our failure to develop, maintain and enhance our brand and reputation may materially and adversely affect the level of market recognition of, and trust in, our services, which could result in decreased sales and loss of customers leading to a material adverse effect on our results of operations and cash flows.

        In addition, allegations against us have appeared in online forums and news articles. These allegations have included claims of medical malpractice, dissatisfaction with treatment results, inappropriate sales tactics, arbitrary treatment service prices and the use of illegal pharmaceuticals. Any negative review, comment or allegation regarding our company, treatment centers or services by the media, our customers, our former employees or the public in the media or on online social networks may harm our brand, public image and reputation, which in turn may result in a loss of customers and business partners and have a material adverse effect on our business, financial condition, results of operations and prospects.

        Furthermore, our customers may have expectations regarding the degree of improvement of their physical appearance resulting from our services. However, we cannot guarantee the results of our services since results vary depending on factors such as the medical history of our customers, their adherence to our pre-procedure and post-procedure instructions, their respective responses to procedures, unknown allergies and other factors beyond our control. It is also an inherent risk that the results of our services may lead to undesirable or unexpected outcomes, such as complications and injuries, or otherwise fail to meet our customers' expectations. Such undesirable or unexpected outcomes may result in customer dissatisfaction, requests for refunds, or complaints, claims or legal actions against us, which may lead to negative publicity. Any negative publicity may adversely harm our brand image and reputation and cause a deterioration in the level of market recognition of and trust in

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our services, thereby resulting in decreased sales and potential loss of customers and business partners as well as physicians and staff, and therefore have a material adverse effect on our business, results of operations, financial condition and prospects.

We conduct our business in a heavily regulated industry and incur ongoing compliance costs as well as face penalties for non-compliance.

        We conduct our business in a heavily regulated industry. The rules and regulations relate mainly to the licensing of treatment centers, the quality and the licensing of medical facilities, equipment and services, the pricing, procurement and usage of pharmaceuticals, and the licensing, practice and number of medical professionals. For more details, please see the section headed "Regulation" in this prospectus. Accordingly, our treatment centers are subject to periodic licensing renewal requirements and inspections by various government agencies and departments at the provincial and municipal level. In addition, any changes in laws and regulations could require us to obtain additional licenses, permits, approvals or certificates, impose additional conditions or requirements for the renewal of the licenses of the treatment centers, or result in the invalidation of our currently owned licenses.

        In the past, some of our treatment centers were subject to administrative warnings and penalties due to certain non-compliance incidents. Although we took measures to improve the internal control on the procurement of medical facilities, as a result of the growth in our operations and the increasing number of treatment centers we manage, as well as the tightened PRC laws for consumer protection, we have experienced, and will continue to experience, non-compliance incidents. For instance, several of our treatment centers were subject to administrative penalties due to their failure to comply with certain regulations on medical advertisements, and several of our treatment centers were subject to administrative penalties due to the medical professionals' malpractice, operation beyond the permitted scope of licences or without licenses, use of unqualified medical facilities or pharmaceuticals, use of expired disinfectant, non-compliance with regulations on disposal of medical waste, failure to evaluate occupational hazards, non-compliance with statistic regulations, non-compliance with fire protection regulations, failure to timely file the required annual report of certain treatment centers to the relevant local branch of the State Administration of Market Regulation, failure to meet standards of hygiene, failure to fulfill inspection requirements of the licensing and medical facilities, and non-compliance with tax regulations, failure to meet the standard of drafting and preservation of medical case record and non-compliance with regulations on publicity of service items and fees. In addition, certain of our treatment centers may be subject to administrative penalties due to failure to comply with fire code and environmental regulations. Failure to comply with fire protection design review and inspection requirements could lead to the temporary closure of certain treatment centers. Also, certain information concerning some foreign doctors was published on the website of one of our treatment centers, which could have inadvertently created the impression that those foreign doctors were employed by us.

        In addition, we have experienced incidents of non-compliance which did not result in administrative warnings or penalties but could adversely impact our reputation, create additional compliance costs for us or otherwise impair our business and operations. For example, while we require that all human placenta extract products procured and used in our treatment centers are domestically produced, registered by the China Food and Drug Administration, or CFDA, and legally compliant, we have had instances in the past where certain of our treatment centers used imported human placenta extract products that were unregistered with the CFDA.

        Furthermore, relevant laws with respect to private healthcare facilities are undergoing regulatory changes in Hong Kong. The Private Healthcare Facilities Ordinance was gazetted in November 2018 and is expected to be phased in between 2019 and 2021. The ordinance requires, among other things, application for and subsequent renewal of licenses by private healthcare facilities. We may be required

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to apply for a license in the future to continue medical operations of Newa Medical Aesthetics Limited in Hong Kong.

        In June 2018, the business license of our treatment center in Shanghai was temporarily suspended for performing dental implants without the appropriate license, which we promptly rectified.

        We cannot guarantee that any future incidents of non-compliance would not result in temporary or permanent suspension of any of the licenses, permits, approvals and certificates necessary for our business. If we fail to obtain or renew any necessary licenses, permits, approvals and certificates, or are found to be non-compliant with any of these laws, regulations or rules, we may be unable to provide relevant medical services, suffer reputational harm, face penalties, suspension of operations or even revocation of operating licenses or criminal liability, depending on the nature of the findings, any of which could materially and adversely affect our business, financial condition and results of operations.

If we are unable to fully comply with PRC laws and regulations on medical advertisement, our brand image, results of operations and financial conditions could suffer significantly.

        As a medical aesthetic service provider, we must comply with the PRC Advertisement Law, the PRC Administrative Measures on Medical Advertisement and other relevant advertising laws and regulations and constantly monitor our advertising content. According to the Administrative Measures on Medical Advertisement and the Notice on Further Strengthening the Administrative Measures on Medical Advertisement, or Administrative Measures on Medical Advertisement, we must obtain a medical advertisement approval certificate before publishing any medical advertisement. The content in the published advertisement shall be consistent with what has been approved and recorded in the medical advertisement approval certificate. In addition, the Administrative Measures on Medical Advertisement explicitly stipulate that such medical advertisements shall not mention any specific treatment method, any guarantees of the treatment, any name or image of any patient, any particular medical professional, nor using any medical research institution or its personnel or any public association or organization to suggest any treatment is valid. For violations of these laws and regulations, the PRC competent health administrative authority and Chinese medicine administrative authority may issue warnings and require remediation. If the violations are more severe, they may impose measures such as suspension of business until the violations have been remedied, revocation of the license for operating a particular medical department, or even revocation of the Medical Institution Practicing License. In addition, the competent administration for industry and commerce (now known as the administration for market regulation) may also suspend the business and the business licenses of institutions that are repetitive and serious offenders in accordance with the PRC Advertisement Law. See "Regulation—Regulations on medical advertising in the PRC." See "Regulation—Regulations on medical advertising in the PRC."

        In the past, some of our treatment centers have received administrative penalties for non-compliance of these laws and regulations. For instance, several of our treatment centers have been penalized for publishing medical advertisements without having obtained relevant medical advertisement approval certificates, not strictly following the scope and manners as approved and recorded in the relevant medical advertisement approval certificates, and publishing medical advertisements using expressions explicitly prohibited by these laws and regulations, publishing medical advertisements without showing the relevant licensing number on the relevant medical advertisement approval certificate, publishing medical advertisements with untrue or misleading expressions. The results of such non-compliance actions ranged from warnings, fines, deduction of medical institution practice points, suspension of publication of advertisements, remediation, reduction of adverse impact and withdrawal of advertisement, among other things. Any violation of these laws and regulations on medical advertisements, if material or not rectified, may subject us to administrative penalties, impair our brand image, and materially and adversely impact our business, financial condition, results of operations and prospects.

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Our internal control system and compliance team may not be able to prevent all possible non-compliance incidents.

        We are subject to a number of regulations pertaining to the licensing of our treatment centers, the quality and the licensing of medical facilities, equipment and services, the pricing and procurement and usage of pharmaceuticals, and the licensing, conduct and number of medical professionals. We have established internal control process intended to ensure all of our employees and contractors comply with the relevant laws and regulations applicable to us. However, we cannot assure you that such controls will be effective to prevent all instances of non-compliance. Any failure of our internal controls could have a material adverse effect on our business, financial condition and results of operations.

We are subject to customer complaints, claims and legal proceedings in the regular course of our operations from time to time, which could result in significant costs and materially and adversely affect our brand image, reputation and results of operations.

        We rely on our doctors and other medical staff in our treatment centers to make appropriate decisions regarding the treatment of our customers. However, we cannot assure you that every employee at our treatment centers will always act in accordance with the appropriate professional standard of care. Any deviation from the appropriate standard of care by our doctors and other medical staff, or any failure to properly manage our treatment centers' activities, may result in unsatisfactory treatment outcomes, patient injuries or, in extreme cases, deaths. Given the nature of the aesthetic medical industry and subjectiveness of the level of satisfaction with services provided, we are also susceptible to other types of complaints associated with our services from time to time. These include claims relating to (i) dissatisfaction with our customer service; (ii) disputes over charges; (iii) over-promising of treatment outcome; (iv) dissatisfaction with post-treatment recovery periods; and (v) general dissatisfaction with treatment results. In addition, due to the fact that the number of procedures we performed has increased over the years as part of our growth, the absolute number of such complaints, allegations and other claims, regardless of merits, has increased and may continue to increase. Such complains, allegations and claims, if not managed properly, could have a material adverse effect on our reputation, business, results of operations, financial condition and prospects.

        With respect to settlement of client compliants, customers generally accept complimentary gifts, refunds, services or supplemental operations at no additional cost to settle their complaints. However, we may also be required to pay monetary compensation to settle customer complaints and medical disputes. In 2016, we received a complaint from a customer who had received a hyaluronic acid injection treatment at one of our treatment centers and subsequently suffered from ocular ischemia syndrome and secondary retinal detachment in one eye. We entered into a settlement agreement with this customer in January 2017 and paid this customer RMB1.1 million in four monthly installments. In addition, we may be subject to third-party liability claims and may be required to pay compensation to patients who suffer from unexpected adverse reactions to treatment received in our treatment centers, even if we were not at fault. For example, one of our patients filed a complaint in connection with the patient falling into a state of prolonged unconsciousness after receiving a Botulinum Toxin Type A, or Botox, injection at one of our treatment centers and we were brought in as a third-party defendant. The court found that the primary cause of the incident was due to defects in the Botox, that there was no wrongdoing on our part, and that all the liabilities rested with the manufacturer of the Botox. Prior to the final court decision, we had voluntarily provided an aggregate of approximately RMB6.1 million as financial support for the patient out of concern for her well-being. As of the date of this prospectus, we have filed a claim against the manufacturer to recover such amount and other losses incurred by us in connection with the incident, but the final verdict is yet to be delivered. In addition, as of the date of this prospectus, we have been named as the defendant in seven ongoing litigations in the PRC. While we believe many of the claims against us do not have merits, and plan to firmly defend our rights in the litigations, we cannot assure that we will be able to achieve satisfactory outcome in those

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litigations. The maximum amount of the damages claimed by the plaintiffs in those seven litigations in aggregate amounted to RMB2.9 million (US$0.4 million). Furthermore, some dissatisfied customers may even resort to extreme actions. For example, in 2012, a dissatisfied patient stabbed and injured several employees at our Pengcheng Hospital. To our knowledge, this patient was later convicted and imprisoned. We voluntarily paid approximately RMB150,000 for medical expenses and additional compensation to the injured employees.

        We may be subject to similar customer complaints, serious incidents or lawsuits in the future and may not successfully prevent or address all customer complaints in the future. Any complaint, claim or legal proceeding, regardless of merit, if widely disseminated, could affect our corporate image and reputation in the industry, divert management resources and cause us to incur extra costs to handle these complaints and litigation matters. A settlement or successful claim against us can also result in significant costs, damages, compensation and reputational damage and adversely affect our business, results of operations and financial condition.

If we are unable to recruit and retain an adequate number of managers, doctors, nurses, image consultants and other support staff in our treatment centers, our service quality and business strategy may suffer.

        Our performance is largely dependent on the talent and efforts of highly skilled medical professionals. Our future success will in part depend on our ability to identify, hire and retain highly qualified medical professionals of all areas of our treatment centers. The recruitment of qualified physicians is competitive in the PRC due to their shortage. The near-term supply of specialist physicians is limited due to the length of training required, including academic study and clinical training, which can take more than eight years for certain medical specialties, as well as additional certification and licensing requirements for certain specialties. Competition for such qualified professionals is intense. We believe that physicians generally consider the following key factors when selecting medical institutions to join: reputation and culture, the efficiency of hospital management, the quality of facilities and support staff, the number of patient visits, compensation, training programs and location. Our treatment centers may not effectively compete with other aesthetic medical treatment centers or clinics in hiring qualified professionals. We use physicians who also practice at other hospitals or treatment centers, as PRC regulations allow licensed physicians to register and practice at multiple medical institutions in the same provincial administrative area. If the PRC government imposes restrictions on such practice in the future, we may not be able to retain our current base of multi-site practice physicians. If we are unable to successfully recruit or retain seasoned and qualified physicians, our business, financial condition and results of operations may be adversely affected.

        Our success is also dependent on our ability to recruit and retain qualified medical institution administrators and medical professionals. It has become increasingly costly to recruit and retain medical professionals in recent years and there is no guarantee that we will be able to recruit and retain sufficient medical professionals in the future. If we do not succeed in attracting an appropriate number of qualified treatment center managers, nurses, image consultants or other support staff, our service quality and our ability to execute our business strategy may suffer. A shortage of skilled professionals could also require us to pay higher wages, which would reduce our profits and have a material and adverse effect on our operating results and financial performance.

If our physicians and other medical professionals do not obtain and maintain appropriate licenses, we may be subject to penalties against our treatment center, which could adversely affect our business.

        Medical practice in China is strictly regulated. Physicians, nurses and medical technicians who practice at medical institutions must hold practicing licenses and may only practice within the scope of their licenses and at the specific medical institutions at which their licenses are registered. Please see "Regulation" for more details. In practice, it takes some time for physicians, nurses and medical technicians to transfer their licenses from one medical institution to another or add any further service

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scope or another medical institution to their permitted practicing institutions. From time to time, some of our physicians, nurses and other medical professionals could be required to make such amendments to their licences due to changes to the location or nature of their work. We cannot assure you that all of our medical professionals have completed the transfer of their licenses and related government procedures in a timely manner or at all. In addition, we cannot assure you that our physicians, nurses and other medical professionals will always strictly follow the requirements and will not practice outside the permitted scope of their respective licenses. Our failure to properly manage the employment of our physicians, nurses and other medical professionals may subject us to administrative penalties against our treatment centers, which could adversely affect our business.

We may fail to maintain the quality of the pharmaceuticals, medical equipment, medical supplies, injection materials, skincare products, implants and consumables we use. If these products do not meet the required standards, we could be exposed to liabilities and our business operations and reputation could suffer.

        Although we have adopted a series of measures for selecting suppliers, such as maintaining and updating a list of qualified suppliers, we cannot guarantee that all of the pharmaceuticals, medical equipment, medical supplies, injection materials, skincare products, implants and consumables we use are free of defects or substantially meet the relevant quality standards. We were involved in an lawsuit related to one of our patients who suffered severe complications after receiving a Botox injection at one of our treatment centers. Although the court found that all liability rested with the manufacturer, we cannot assure you that similar incidents will not occur in the future, or that such incidents will not materially and adversely affect us. If the products provided by our suppliers are defective, of poor quality, or cause any adverse drug reaction, we could be subject to liability claims, complaints or related adverse publicity that could result in the imposition of penalties or even suspension of licenses by relevant authorities or compensation awarded by courts against us. We may also need to find suitable replacement products, which may lower our profit margins and result in delays in services to our customers.

        Our suppliers are also subject to extensive laws and regulations. If our suppliers violate applicable laws and regulations, our reputation or procurement may be materially and adversely affected. PRC laws and regulations require us to procure materials from qualified suppliers, with requisite licenses, permits or filings to operate their business. We cannot ensure that all of our suppliers maintain all the licenses required or the validity of their licenses at all times. We have been fined with insignificant amounts by regulators in the past for failure to maintain proper records of our suppliers' qualification expiration dates. It is possible we may in the future fail to comply with this requirement if, for example, our suppliers lose appropriate qualifications without our knowledge, which could result in penalties and fines. See "Regulation." In addition, we may be exposed to reputational damage or even liabilities for defective goods provided by our suppliers or negative publicity associated with our suppliers, and our results of operations could suffer as a result.

We have not entered into any long-term supply agreements with our suppliers. A decrease in supply, or an increase in the cost, or quality supplies may adversely affect our business, financial condition and results of operations.

        For the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2019, our cost of inventories and consumables amounted to RMB79.5 million, RMB91.7 million, RMB107.0 million (US$15.6 million) and RMB48.2 million (US$7.0 million), respectively, representing 36.6%, 38.9%, 42.0% and 38.1% of our total cost of sales and services rendered for the same periods, respectively. Consistent with industry practice, we have not entered into any long-term supply agreements with our suppliers and we cannot assure you that our suppliers will continue to supply to us on commercially reasonable terms, or at all. If any of our suppliers fail to supply sufficient quantities, we may have to obtain replacements for such supplies from alternate suppliers. We cannot assure you

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that we will be able to do so in a timely manner at commercially reasonable terms. Any such disruption in supply may adversely affect the operations of our treatment centers, which may in turn adversely affect our business, results of operations, financial condition and prospects. In addition, should the prices of supplies increase significantly, we cannot assure you that we would be able to pass on any increase in purchase costs to our customers. Any substantial fluctuation in market prices of the supplies required in our operations may significantly increase our costs, resulting in us reducing, suspending or ceasing provision of certain types of services, thereby reducing our sales and profit.

        Furthermore, we source BOTOX®, the only imported brand of botulinum toxin type A in China, from its exclusive licensed distributor in China. We experienced an approximately 16% increase in the procurement price of BOTOX® from 2016 to 2018. We also source a domestic brand of botulinum toxin type A called Hengli. Although the price of Hengli was flat between 2016 and 2018, we cannot guarantee that a shortage of BOTOX® will not arise in the future, or our suppliers will not increase their prices. In the event that we are not able to source from these suppliers on commercially reasonable terms, or at all, our business, financial condition and results of operation will be adversely affected.

Our business, financial condition, results of operations and prospects may be adversely affected by an unfavorable market perception of the overall aesthetic medical industry.

        Aesthetic medical services have been gaining popularity in recent years. According to Frost & Sullivan, the number of aesthetic medical procedures performed in the PRC increased from 8.3 million in 2014 to 20.2 million in 2018, representing a CAGR of 25.1%. However, many consumers remain cautious about the risks inherent in aesthetic medical procedures. Media influences, peer perceptions, research indicating adverse health effects of aesthetic medical procedures or otherwise could lead to deterioration in the market perception of aesthetic medical treatments and to less demand for aesthetic medical services. In addition, if any allegation surfaces in the media or in social media forums of any accident, ineffectiveness of treatment, poor service standards or mishandling of sensitive personal information by any operator of aesthetic medical services, regardless of merit, the entire aesthetic medical industry and any industry participant including us could experience reputational harm. Our business, financial condition, results of operations and prospects may be materially and adversely affected as a result.

We may not be able to maintain proper inventory levels for our operations.

        To ensure adequate inventory supply, we must forecast inventory needs and place orders with our suppliers based on our estimates of future demand for particular products. We may not be able to accurately forecast demand for supplies because of the difficulties of estimating the demand for our services. In 2016, 2017, 2018 and the six months ended June 30, 2019, our average inventory turnover days were 22.8 days, 29.9 days, 32.2 days and 35.4 days, respectively. The volatile economic environment and fast-evolving demands and preferences of our customers have made accurate projection of inventory levels increasingly challenging.

        Inventory levels in excess of customer demand may result in inventory obsolescence, a decline in inventory values, inventory write-downs or write-offs, or expiration of products, which would cause our gross margin to suffer and could impair the strength of our brand. High inventory levels may also require us to commit substantial capital resources, preventing us from using them for other important business purposes. Conversely, if we underestimate customer demand or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory shortages. Such inventory shortages might result in unfilled customer needs, damage to our reputation, and have a negative impact on customer relationships and reduce our sales. We cannot assure you that we will be able to maintain proper inventory levels for our operations and such failure may have an adverse effect on our business, financial condition, results of operations and profitability.

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We face intense competition, and if we do not compete successfully against new or existing competitors, we may lose our market share and our profitability may be adversely affected.

        We compete with private aesthetic hospitals and clinics and aesthetic medical departments in public general hospitals located in the same geographic areas as our treatment centers. We will also compete with future market entrants as the rapid growth of the aesthetic medical industry in the PRC may attract more domestic or international players to enter. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources and may be able to mimic and adopt our business model. We compete for customers primarily on the basis of location, price, the range and the quality of services that we offer and our brand name. We cannot assure you that we will be able to successfully compete against new or existing competitors. Any inability to successfully compete with new or existing competitors may prevent us from increasing or sustaining our revenue and profitability level and result in a loss of market share.

If we are unable to adapt to changing aesthetic medical trends and our customers' changing needs, we will not be able to compete effectively, which may materially and adversely affect our business, financial condition and results of operations.

        The aesthetic medical market requires us to closely monitor the trends in the market and the needs of our customers, which may require us to introduce new products, technologies, devices, solutions, service categories and treatment procedures and enhance our existing services and procedures. We have active dialogue and exchange of information with experts from well-respected aesthetic medical institutions overseas such as the United States, Europe, Singapore, Japan and South Korea to learn and adopt aesthetic medical solutions, standards and technologies. We must maintain strong relationships with leading overseas aesthetic medical institutions to ensure that we are accessing the latest technology and quickly and cost-effectively responding to our customers' changing needs. We may be required to incur development and acquisition costs to keep pace with new technologies, implement technological innovations or to replace obsolete technologies. If we fail to identify, develop and introduce new products, solutions, service categories, features, enhancements and technologies on a timely and cost-effective basis, demand for our services may decrease and we may not be able to compete effectively or attract customers, which may materially and adversely affect our business and results of operations.

Our revenue is particularly sensitive to changes in economic conditions.

        Demand for our aesthetic medical services and the resulting spending by our customers are particularly sensitive to changes in general economic conditions and our customers' disposable incomes. We cannot assure you that the local economy in the places where we operate can sustain stable growth in consumer spending. During periods of economic downturn, people may reduce their spending on aesthetic medical services, which may materially and adversely affect our ability to generate revenue from these services, and our financial condition and results of operations.

If we are unable to manage our growth effectively, we may not be able to capitalize on new business opportunities and our business and financial results may be materially and adversely affected.

        We have significantly expanded our business in the past few years. Out of our existing network of 21 treatment centers, we have established six treatment centers, acquired eight treatment centers, and obtained minority stakes in one treatment center since January 2014. Our organization may become larger and more complex with the addition of treatment centers in the future. Our expansion may require a significant amount of time from our management and substantial operational, financial and other resources.

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        To manage our growth and expansion, and to attain and maintain profitability, we will continue to place significant demands on our management and on our administrative, operational and financial personnel and infrastructure. Our success also depends on our ability to recruit, train and retain additional qualified management personnel and professionals as well as other administrative, sales and marketing personnel. To accommodate our growth, we need to continue managing our relationships with our suppliers and customers. All of these endeavors will require substantial management attention and effort and significant additional expenditure. We cannot assure you that we will be able to manage any future growth effectively and efficiently, and any failure to do so may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse effect on our business and financial results.

We have operations outside of China and intend to expand our international operations, which exposes us to significant risks.

        We have operations throughout China and our network also covers Hong Kong and Singapore. In addition, we entered into an agreement in February 2019 for an investment in LZP, which owns and operates five plastic surgery centers in California. Our business strategy includes further expanding our operations into new markets outside of China. Our company may become larger and more complex with our intended plans to expand into new geographic areas, through a combination of acquisitions and organic growth. The success of our business therefore depends, in large part, on our ability to operate successfully from geographically disparate locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those that we face in the China. We cannot assure you that further international expansion will be successful. Among the risks we believe are most likely to affect us are:

    lack of control, difficulties, inefficiencies and costs associated with staffing and managing foreign operations;

    greater difficulty collecting accounts receivable and longer payment cycles;

    compliance with local laws and regulations and unexpected changes in regulatory requirements;

    reduced protection for intellectual property rights in some countries;

    the effectiveness of our policies and procedures designed to ensure compliance with similar anti-corruption, anti-money laundering, and sanction laws;

    potential distraction of management from our China operations;

    possible tariffs and trade restrictions;

    foreign taxes;

    fluctuations in currency exchange rates; and

    political and economic instability.

        Our failure to manage any of these risks successfully could harm our operations, reduce our revenue, and have other adverse effects on our operating results.

Execution of our strategies to grow our business depends on our ability to successfully expand into new geographic areas in a timely, cost-effective and non-disruptive manner.

        Execution of our strategies to grow our business depends partly on our ability to expand into new geographic areas in a timely, cost-effective and non-disruptive manner, through a combination of

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acquisitions and organic growth. Our ability to successfully expand into new markets depends on many factors including, among others, our ability to:

    identify suitable geographic markets for the type of services we offer;

    identify local consumer preferences;

    address local market competition;

    negotiate acceptable lease terms, including desirable tenant allowances;

    hire, train and retain a growing workforce of doctors and other personnel;

    successfully integrate new treatment centers into our existing control structure and operations, including our information technology systems; and

    secure financing or maintain sufficient capital to invest in new treatment centers or making acquisitions.

        If we fail to expand into new markets in a timely and cost-effective manner, whether through organic growth or through acquisitions, our overall business growth strategy and prospects could be materially and adversely affected.

We may be unable to identify or execute acquisition opportunities, businesses we acquire may have unknown or contingent liabilities, and we may not realize the benefits we anticipate from such acquisitions, which may materially and adversely affect our business, financial condition, results of operations and prospects.

        Our success depends on our ability to continually enhance and broaden our service offerings in response to changing customer demands, competitive pressures and innovation. We may consider opportunities to partner with or acquire other businesses, products or technologies that may enhance our services platform or technology, expand the breadth of our operations or customer base or advance our business strategies. We may not be able to identify suitable targets for acquisition, or negotiate commercially acceptable terms for acquisitions. Even if we are able to identify suitable targets, such acquisitions can be difficult, time consuming and costly and we may not be able to secure necessary financing for the acquisitions. Businesses that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with relevant laws, rules and regulations. In acquiring the treatment centers, we typically require sellers to indemnify us for any claims and liabilities that are in connection with or arise from a time prior to our acquisitions.

        However, we could suffer reputational harm for actual or alleged inferior service or harm that occurred at treatment centers prior to our acquisition and need to respond to claims initially as unsatisfied customers will likely pursue their claims against the treatment centers and us. Depending on the circumstances of the sellers, the indemnities we receive from them may not be sufficient or forthcoming, due to bankruptcy or disappearance of sellers or otherwise. Historically, certain entities we have acquired failed to comply with certain regulations and the sellers did not provide sufficient indemnities. As a result, we may be liable for historical defects. Even if we have received indemnities, our reputation may be harmed because of the sellers' historical defects. We maintain contact with the sellers of the treatment centers we acquired post acquisitions. Some of the sellers of our acquired treatment centers remain as minority shareholders of these subsidiaries. Moreover, any financial mitigation we receive from sellers of these treatment centers may not mitigate against any reputational harm we may suffer as a result of these claims. In addition, future acquisitions and subsequent integration of newly acquired assets and businesses into our own could be expensive and time-consuming, require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results we expect. If we are not able to identify, capture or execute opportunities to expand our operations successfully through

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acquisitions, or suffer reputational or financial harm caused by unknown or contingent liabilities of the treatment centers we acquire, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Newly opened and acquired treatment centers may not achieve operating results as anticipated, which could materially and adversely affect our results of operations.

        It typically takes newly opened and acquired treatment centers a period of time to achieve a utilization rate comparable to our existing treatment centers, due to factors such as time needed to build customer awareness in the local community and to integrate new treatment centers' operations into our existing infrastructure. The opening and acquisition of new treatment centers involve regulatory approvals and reviews by various authorities in China, including health authorities. We may not be able to obtain all the required approvals, permits or licenses for opening and acquisitions of treatment centers in a timely manner or at all. We may not be able to fully utilize the newly opened and acquired treatment centers as anticipated due to our inability or material delay in obtaining the required approvals, permits or licenses and any substantial increase in costs to ramp up operations and utilization. In addition, the operating results generated at the newly opened and acquired treatment centers may not be comparable to the operating results generated at any of our existing treatment centers. The treatment centers may even operate at a loss, which could materially and adversely affect our results of operations. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Our expansion through organic growth and acquisitions." As a result, our results of operations may fluctuate from year to year. For details of our expansion plans, see "Business—Our Strategies." Therefore, period-to-period comparisons of our operating results may not be meaningful and you should not rely on them to predict our future performance or the price of our ADSs.

If we fail to obtain sufficient funding for our expansion plans, our business and growth prospects may be adversely affected.

        We believe that our current cash and cash equivalents, anticipated cash flow from operations, available credit facilities, and the proceeds from this offering will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months from the date of this prospectus. We may, however, require additional cash resources to finance our continued growth or other future developments, including any marketing initiatives or investments we may decide to pursue. The amount and timing of such additional financing needs will vary depending on the timing of our new treatment centers openings, investments in acquired treatment centers and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements, we may seek additional financing. To the extent that we raise additional financing by selling additional equity, our shareholders may experience dilution. To the extent we engage in debt financing, the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that may, among other things, restrict our operations or our ability to pay dividends. Servicing such debt obligations could also be burdensome to our operations. If we fail to service the debt obligations or are unable to comply with such debt covenants, we could be in default under the relevant debt obligations and our liquidity and financial conditions may be materially and adversely affected.

        Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, some of which are beyond our control, including general economic and capital market conditions, credit availability from banks or other lenders, the consents of our prior creditors, receipt of necessary PRC government approvals, investors' confidence in us, the performance of the aesthetic medical treatment industry in general, and our operating and financial performance in particular. We cannot assure you that future financing will be available in amounts or on terms acceptable to us, if at all. In the event

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that financing is not available or is not available on terms acceptable to us, our business, results of operations and growth prospects may be adversely affected.

We are dependent on certain key members of our senior management and other key employees, and our business, financial condition and results of operations will suffer greatly if we lose their services.

        We are dependent on certain key members of our senior management team, some of whom have been with us since our inception, to manage our current operations and meet future business challenges. In particular, we rely on the expertise, experience and leadership of Dr. Zhou Pengwu, our chairman and chief executive officer and Ms. Ding Wenting, our vice-chairwoman and spokesperson.

        We do not maintain key personnel insurance. Competition for competent candidates in the industry is intense and the pool of competent candidates is limited. The loss of any key members of our senior management team could materially disrupt our operations and delay the implementation of our business strategies. In addition, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely limit our business and growth. In addition, if any member of our senior management team or key employees joins a competitor or forms a competing business, we may lose know-how, trade secrets, customers and key professionals and staff. We have entered into employment agreements, confidentiality and non-compete agreements with all of the key members of our management team. We cannot assure you, however, the extent to which any of these agreements will be enforceable under the applicable laws. For more details, see "—Risks relating to doing business in the PRC—Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us." If, as a result of similar incidents, or events, we may lose the services of key members of our senior management, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to adequately protect our intellectual property rights, which could harm our brand and our business.

        We believe our trademarks and other intellectual property rights are crucial to our success. Our principal intellectual property rights include our trademarks for the "Pengai" brand. Although we rely on the registration of trademarks and applicable laws to protect our intellectual property rights, these measures may not be sufficient to prevent misappropriation of our intellectual property rights. There is no assurance that third parties will not infringe on our intellectual property rights. Our efforts to enforce or defend our intellectual property rights may not be adequate, may require significant attention from our management and may be costly. We may have to initiate legal proceedings to defend the ownership of our trademarks or brand against any infringement by third parties, which may be costly and time-consuming, and we might be required to devote substantial management time and resources in an attempt to achieve a favorable outcome. Furthermore, the outcome of any legal actions to protect our intellectual property rights may be uncertain. If we are unable to adequately protect or safeguard our intellectual property rights, our business, financial condition, results of operations and prospects may be adversely affected.

        In addition, as permitted by the PRC laws, other parties may register trademarks which may look similar to our registered trademarks under certain circumstances, which may cause confusion among consumers. We may not be able to prevent other parties from using trademarks that are similar to ours and our consumers may confuse our treatment centers with others using similar trademarks. In such case, the goodwill and value of our trademarks and the public perception of our brand and our image may be adversely affected. A negative perception of our brand and image could have a material and adverse effect on our sales, and therefore on our business, financial condition, results of operations and prospects.

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Our business is subject to seasonality.

        Our operating results are exposed to seasonal fluctuations in demand for our services. During 2016, 2017 and 2018, we experienced relatively higher customer visits in the second half of each financial year, which was mainly because (i) customers tend to come to our treatment centers and receive our services in summer, which led to an increased number of procedures performed in the second half of the year; and (ii) we also experienced a higher number of customer visits for the period from October to December, primarily due to the Chinese National Day holiday, Christmas, and in anticipation of the subsequent New Year and Chinese New Year holidays. As such, our revenue was slightly higher in the second half of each financial year during 2016, 2017 and 2018.

Our historical financial and operating results may not be indicative of future performance, and we may not be able to achieve and sustain the historical level of revenue and profitability.

        Our historical results may not be indicative of future performance. Our financial and operating results may not meet the expectations of public market analysts or investors, which could cause the future price of the ADSs to decline. Our revenue, cost, expenses and operating results may vary from period to period in response to a variety of factors beyond our control, including general economic conditions, new trends in the aesthetic medical market and our ability to control costs and operating expenses. Our operations largely depend on our ability to retain current customers and attract new ones, encourage more spending by our customers, continue adopting innovative technologies and introducing new services in response to customer demand, increase brand awareness through marketing and promotional activities and take advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of them in the future. We believe that period-to-period comparisons of our operating results during the past two years may not be indicative of our future performance and you should not rely on them to predict the future performance of our operating results or ADSs.

Landlords' lack of required permits, failure to renew leases, failure to fulfill the procedure of leasing or substantial increases in rents may materially and adversely affect our business and financial performance.

        Most real estate for our treatment centers is leased. The availability of commercially attractive locations for our treatment centers is important to our business. Upon the expiry of each of the lease agreements, we have to negotiate terms of renewal with the relevant landlord. As there has been a general increase in rent for commercial properties in the PRC in recent years, and as a majority of our treatment centers are located on premises leased from independent third parties in central urban locations, there is no guarantee that we can renew the leases or negotiate new leases on similar or favorable terms (including, without limitation, on similar tenure and with similar rent) in the future, if at all, or that the leases will not be terminated early by the landlords. In the event that we are required to seek alternative locations for our treatment centers, there is no guarantee that we can secure comparable locations or negotiate leases on comparable terms. In addition, the use of certain of our leased buildings is inconsistent with the permitted use of such buildings or such land and some landlords or lessors did not obtain sufficient approvals, permits and registrations from the governmental authorities and the other third parties. If any challenge from any government authority or a third party arises, our lease agreement may be invalidated and we may also be required to relocate our operations. Furthermore, certain of our lease agreements have not been filed with the PRC authorities, which may subject us to fines if the relevant PRC authority requires us to rectify and we fail to do so within a specified period of time. In addition, certain of our leased properties are subject to mortgage. We may be forced to relocate in the event that the mortgagees are entitled to exercise their rights under the relevant mortgages. If we were forced to relocate, we might not be able to relocate to desirable locations in a timely and cost-effective manner. All these factors may have an adverse impact upon our business operation, financial position and our future potential growth.

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We are not in full compliance with social insurance, housing provident funds and income tax contributions.

        We are required to make social insurance, housing provident funds and income tax contributions for the benefit of employees of our PRC subsidiaries under PRC laws and regulations. Our PRC subsidiaries have not made social insurance, housing provident funds and income tax contributions in full for all of their employees. Companies operating in the PRC are also required to withhold individual income tax on employees' salaries based on the actual salary of each employee upon payment. Our PRC subsidiaries have not fully withheld the individual income tax in accordance with the relevant PRC laws and regulations.

        Under the relevant PRC laws and regulations, the relevant PRC authorities may determine that we need to make supplemental social insurance and housing fund contributions and that we are subject to fines, supplementary payment and legal sanctions in relation to our failure to make social insurance and housing fund contributions in full for our employees, in which case our business, financial position or operation may be adversely affected. With respect to the underwithheld individual income tax, we may be required by relevant PRC authorities to make up sufficient withholding and pay late fees and fines. In addition, some of our PRC subsidiaries make social insurance for employees of other PRC subsidiaries, in which case we are subject to fines and adverse record on our credit files. If so, our business, financial position or operation may be adversely affected.

Our business is subject to professional and other liabilities for which we may not be insured.

        We are exposed to potential liabilities that are inherent to the aesthetic medical and healthcare industries. Our treatment centers have been the subject of such claims during the three years ended December 31, 2018. As of the date of this prospectus, we maintain professional malpractice liability insurance for key doctors and medical staff in most of our aesthetic medical treatment centers. However, we may face liabilities that exceed our available insurance coverage or arise from claims outside the scope of our insurance coverage. For example, although the scope of our insurance generally covers all of the treatments and services we provide, from time to time, we have commenced operations at new treatment centers before those centers were added to our group insurance coverage package. As a result, the operations at those centers temporarily exceeded the scope of our insurance coverage while we worked with our insurers to extend coverage to those centers. In 2016, 2017, 2018 and the six months ended June 30, 2019, revenue generated from our operations at treatment centers while outside the scope of our insurance coverage amounted to 3.7%, 3.0%, 2.2% and 0.7% of our total revenue, respectively. In 2016, 2017, 2018 and the six months ended June 30, 2019, we incurred costs of RMB0.7 million, RMB0.9 million, RMB1.5 million (US$0.2 million) and RMB0.7 million (US$0.1 million), respectively, in connection with settlements which were not covered by our insurance. Our insurance policies are subject to annual renewal and we may not be able to obtain malpractice insurance in the future on acceptable terms or at all. In addition, our insurance premiums could be subject to increases in the future, which may be material. If the coverage limits are inadequate to cover our liabilities or our insurance costs continue to increase as a result of liability claims or other litigation, then our business, financial condition and results of operations may be adversely affected.

We could be exposed to risks related to our management of customers' medical data.

        Our treatment centers collect and maintain medical data and treatment records of our customers. PRC laws and regulations generally require medical institutions and their medical personnel to protect the privacy of their customers and prohibit unauthorized disclosure of personal information. Such medical institutions and their medical personnel will be liable for damage caused by divulging the customers' private or medical records without consent. We have taken measures to maintain the confidentiality of our customers' medical records, including encrypting such information in our information technology system so that it cannot be viewed without proper authorization and setting internal rules requiring our employees to maintain the confidentiality of our customers' medical

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records. However, these measures may not always be effective in protecting our customers' medical records. Our information technology systems could be breached through hacking. Personal information could be leaked due to any theft or misuse of personal information due to misconduct or negligence. In addition, although we do not make the customers' medical records available to the public, we use such data on an aggregated basis after redacting personally identifiable information for marketing purposes. Although we believe our current usage of customers' medical records is in compliance with applicable laws and regulations governing the use of such information, any change in such laws and regulations could affect our ability to use medical data and subject us to liability for the use of such data. Failure to protect customers' medical records, or any restriction on or liability as a result of, our use of medical data, could have a material adverse effect on our business.

A technological failure, security breach or other disruptions of our computer network infrastructure and centralized information technology systems may interrupt our business.

        Our computer network infrastructure and information technology systems are critical for our operation, such as billing, financial and budgeting data, customer records and inventory. We regularly maintain, upgrade and enhance the capabilities of our information technology systems to meet operational needs. Any failure associated with our information technology systems, including those caused by power disruption or loss, natural disasters, computer viruses or hackers, network failures or other unauthorized tampering, may cause interruptions in our ability to provide services to our clients, keep accurate records, and maintain proper business operations, which may adversely affect our business, financial condition and results of operations.

        In addition, a variety of our software systems are hosted by third-party service providers whose security and information technology systems are subject to similar risks. The failure of our or our service providers' information technology could disrupt our entire operation or result in decreased sales, increased overhead costs and product shortages, all of which could have a material adverse effect on our reputation, business, financial condition and results of operations.

Any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases in the PRC could prevent us from effectively serving our customers and thus adversely affect our results of operations.

        Any occurrence of force majeure events, natural disasters or outbreaks of epidemics, including those caused by avian influenza or swine influenza, may restrict business activities in the areas affected and materially and adversely affect our business and results of operations. Since early 2013, there have been outbreaks of highly pathogenic avian flu, caused by the H7N9 virus, in certain parts of China, and in early 2009, there were reports of outbreaks of a highly pathogenic swine flu, caused by the H1N1 virus, in certain regions of Asia and Europe. Moreover, the PRC has experienced natural disasters like earthquakes, floods and droughts in the past few years. Any future occurrence of several natural disasters in the PRC may materially and adversely affect its economy and therefore our business. An outbreak of contagious diseases, and other adverse public health developments in China, would have a material adverse effect on our business operations. These could include restrictions on our ability to provide services to our customers, as well as cause temporary closure of our treatment centers. Such closures or service restrictions would severely disrupt our operations and adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future occurrence of force majeure events, natural disasters or outbreaks of contagious diseases.

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The significant amount of advertising and marketing expenses spent on enhancing our brand awareness may not be effective and may adversely affect our results of operations.

        We plan to enhance our brand recognition among our existing and target customers along with our expansion into new geographic areas. Our sales and marketing strategies are key to enhancing our brand awareness. In connection with our strategic expansion into new markets, we normally increase advertising of our brand through various advertising media platforms, which requires significant expenses before these newly opened treatment centers reach expected profit levels, thereby affecting our overall profitability. In 2016, 2017, 2018 and the six months ended June 30, 2019, our advertising and marketing expenses were RMB157.8 million, RMB227.5 million, RMB245.9 million (US$35.8 million) and RMB116.5 million (US$17.0 million), respectively. We expect the trend of increased advertising and marketing spending to continue as we spend on an increasingly diverse array of online and mobile search engines, marketing and social media platforms. If we do not adequately spend on such platforms, or effectively select or utilize the right platforms, we may not generate the desired result from our advertising spending. Moreover, it may take months or several years to implement our sales and marketing strategies and such time is hard to predict. As a result, we cannot guarantee that our marketing spending or the marketing strategies we have adopted or plan to adopt will have their anticipated effect or generate sustainable revenue and profit.

If we fail to maintain and further develop our direct sales force and partner networks, our business could suffer. Additionally, our third-party partners may not effectively promote our services or may engage in activities that could harm our reputation and sales of our products and services.

        We rely on our direct sales force and partner networks to generate sales, including referral arrangements with businesses in the beauty industry such as hairdressers. However, if we fail to maintain or develop our sales force and partner networks, or if any of our partners are ineffective in promoting our services or engage in activities that harm our reputation, it could have a material adverse effect on our ability to generate sales, which could have a material adverse effect on our business, financial condition and results of operations.

The shares of certain of our subsidiaries are subject to share charges under the terms of our convertible note.

        On December 8, 2016, we issued a convertible note to Peak Asia Investment Holdings V Limited with an aggregate principal amount of US$8.7 million. As a security interest on the convertible note, we charged all the shares of our subsidiaries, Dragon Jade Holdings Limited, Peng Oi Investment (Hong Kong) Holdings Limited and Peng Yida Business Consulting (Shenzhen) Co, Ltd., which directly and indirectly wholly own our operating companies. See "Our History and Corporate Structure." To the extent we default on the convertible note and the holder of the convertible note seeks to enforce claims against us, the holder of the convertible note could obtain title to these shares, which could dilute our ADR holders' indirect equity ownership in these operating subsidiaries and the interest of the ADR holders will be materially adversely affected.

We may grant employee share options and other share-based compensation awards in the future. Any additional grant of employee share options and other share-based compensation awards in the future may have a material adverse effect on our results of operations.

        We have adopted and may in the future adopt employee share option plans for the purpose of granting share-based compensation awards to our employees, officers, directors and other eligible persons to incentivize their performance and align their interests with ours. For more information on these share incentive plans, see "Management—Share Incentive Plan" and "Management—Performance Incentive Plan." As a result of these grants and potential future grants, we expect to continue to incur significant share-based compensation expenses in the future. We are required to account for share-based compensation in accordance with IFRS 2—Share-based Payment, which

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generally requires a company to recognize, as an expense, the fair value of share options and other equity incentives to employees based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award. If we grant options or other equity incentives in the future, we could incur significant compensation charges and our results of operations could be adversely affected. The expenses associated with share-based compensation will decrease our profitability, and the additional awards issued under share-based compensation plans will dilute the ownership interests of our shareholders, including holders of our ADSs. However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain key personnel who expect to be compensated by such share-based awards.

During the preparation of our consolidated financial statements included in this prospectus, a material weakness was identified in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.

        During the preparation of our consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 included in this prospectus, a material weakness was identified in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

        The material weakness identified related to a lack of an effective control procedure to evaluate accounting of complex non-routine transactions. Following the identification of the material weakness, we have taken measures and plan to continue to take measures to remedy the material weakness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control over Financial Reporting." However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting, and we cannot conclude that it has been fully remedied. Our failure to correct the material weakness or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

        Upon completion of this offering, we will become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2020. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

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        During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.

Risks relating to our corporate structure

If the PRC government deems that the Contractual Arrangements do not comply with PRC laws and regulations, or if these laws and regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests received through the Contractual Arrangements.

        Since the Industry Catalog for Guiding Foreign Investment (Revision 2015), or the Foreign Investment Catalog 2015, became effective in April 2015, PRC law only allows foreign investment in PRC medical institutions through joint venture entities, and the foreign shareholding in these entities is limited to 70.0%, which percentage was stipulated in the Interim Administrative Measures on Sino-Foreign Equity Medical Institutions and Sino-Foreign Cooperative Medical Institutions, or the JV Interim Measures. We historically held more than 70.0% in five of our PRC subsidiaries after the effective date of the Foreign Investment Catalog 2015, namely Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical Hospital Co., Ltd., and Shanghai Pengai Aesthetic Medical Clinic Co., Ltd. We decreased our shareholdings in these PRC subsidiaries to 70.0% by transferring excess equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer to Dr. Zhou and Dr. Zhou Pengwu's shareholding, in Shenzhen Pengai Xiuqi Aesthetic Medical Hospital, Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., which he acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu and the Relevant Subsidiaries, among other parties, with respect to the Target Equity Interests. For details of the Contractual Arrangements, see "Our History and Corporate Structure—Contractual arrangements with respect to Target Equity Interests."

        In the opinion of Han Kun Law Offices, our PRC legal counsel, the execution, delivery and performance of each of the Contractual Arrangements by the parties thereto, and the consummation of the transactions contemplated thereunder, both currently and immediately after giving effect to this offering, do not and will not result in any violation of any explicit requirement under applicable PRC Laws currently in effect. However, we have been advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules, including those relating to foreign investment restrictions and the Foreign Investment Law (as defined below). There can be no assurance that the PRC regulatory authorities will take a view that is consistent with the opinion of our PRC legal counsel.

        It is uncertain whether any new PRC laws or regulations relating to Contractual Arrangements will be adopted, or if adopted, what they would provide. In particular, the Ministry of Commerce of the

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PRC, or MOFCOM published discussion drafts of a proposed Foreign Investment Law for public review and comments in January 2015. The Standing Committee of National People's Congress published another discussion draft of the Foreign Investment Law and its amendment in December 2018 and January 2019 respectively, and on March 15, 2019, the National People's Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020. See "—Risks relating to doing business in the PRC—Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us".

        If our ownership structure, Contractual Arrangements or businesses of the Relevant Subsidiaries are found to be in violation of any existing or future PRC laws or regulations, or if the Relevant Subsidiaries fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:

    revoking the Contractual Arrangements;

    imposing fines, confiscating the income from the Relevant Subsidiaries, or imposing other requirements with which we may not be able to comply;

    discontinuing or restricting our operations in the PRC;

    imposing conditions or requirements with which we may not be able to comply; or

    taking other regulatory or enforcement actions that could be harmful to our business.

        Any of these actions could materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our failure to receive the economic benefits of the Target Equity Interests, we may not be able to consolidate the above in our consolidated financial statements in accordance with IFRS as issued by IASB.

The Contractual Arrangements may not be as effective in providing control as direct ownership and Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements.

        We own and hold 70.0% of equity interests in the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and will rely on the Contractual Arrangements to control the Target Equity Interests in the Relevant Subsidiaries. The Contractual Arrangements may not be as effective as direct ownership in controlling over the Target Equity Interests. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. These legal remedies may not be as effective as direct ownership in controlling the Target Equity Interests. All the agreements under the Contractual Arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these Contractual Arrangements will be resolved through arbitration in China. However, the legal framework and system in China are not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce Contractual Arrangements. Meanwhile, there are very few precedents and little formal guidance as to how Contractual Arrangements should be interpreted or enforced under PRC law. Significant uncertainties remain regarding the ultimate outcome of such arbitration. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in the PRC courts through arbitration award recognition proceedings, which would require additional expenses and cause a delay. If we fail to enforce Contractual Arrangements, or if we suffer significant delay or face other obstacles in the

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process of enforcing Contractual Arrangements, our control over the Target Equity Interests may be negatively affected.

Dr. Zhou Pengwu may have potential conflicts of interest with us, which may materially and adversely affect our control over the Target Equity Interests.

        We have control over the Relevant Subsidiaries by holding 70.0% of equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively), and we control the Target Equity Interests directly held by Dr. Zhou Pengwu through the Contractual Arrangements. Dr. Zhou Pengwu may have potential conflicts of interest with us due to his role as director of our company and director of certain of the Relevant Subsidiaries, as what is in the best interests of the Relevant Subsidiaries may not be in the best interests of our company. Dr. Zhou Pengwu may breach or refuse to renew the existing Contractual Arrangements we have with him and the Relevant Subsidiaries, which would materially and adversely affect our control over the Target Equity Interests and our ability to receive economic benefits in connection with the Target Equity Interests. If Dr. Zhou Pengwu breaches Contractual Agreements or otherwise has disputes with us, we may have to initiate arbitration or other legal proceedings, which involve significant uncertainty. Such disputes and proceedings may significantly distract our management's attention, adversely affect our ability to control the Target Equity Interests and otherwise result in negative publicity and adversely affect the reputation of our treatment centers. There is no assurance that the outcome of any such dispute or proceeding will be in our favor.

Our Contractual Arrangements with the Relevant Subsidiaries may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could negatively affect our financial condition and the value of your investment.

        Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities, and additional taxes and interest may be imposed. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm's length principles. We may be subject to material and adverse tax consequences if the PRC tax authorities determine that the Contractual Arrangements between Shenzhen Pengai Investment, Dr. Zhou Pengwu and the Relevant Subsidiaries were not entered into on an arm's length basis and make special tax adjustments to the tax positions of Shenzhen Pengai Investment and Dr. Zhou Pengwu.

        In addition, if Shenzhen Pengai Investment exercises the option to purchase all or any part of the Target Equity Interests, the equity interest transfer price may be subject to review and tax adjustment by the relevant tax authority. Dr. Zhou Pengwu will be subject to personal income tax on the difference between the equity interest transfer price and the amount he has paid to obtain the Target Equity Interests. According to the exclusive option agreement under the Contractual Arrangements, Dr. Zhou Pengwu may pay the remaining amount to Shenzhen Pengai Investment, and the amount to be received by Shenzhen Pengai Investment may also be subject to enterprise income tax. Such tax amounts could be substantial, and our financial condition may be adversely affected as a result.

        Furthermore, the PRC tax authorities may impose any late payment fees and other penalties on the Relevant Subsidiaries for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if any of the Relevant Subsidiaries' tax liabilities increase or if late payment fees and other penalties are imposed.

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If the PRC government deems our PRC medical centers as "Sino-Foreign Equity Medical Institutions," we could be subject to certain liabilities for the failure to be compliance with the JV Interim Measures.

        Since the Foreign Investment Catalog 2015 became effective in April 2015, PRC law only allows foreign investment in PRC medical institutions through joint venture entities, and the foreign shareholding in these entities is limited to 70.0%, the percentage stipulated in the JV Interim Measures. We own and hold our equity interests in the PRC treatment centers indirectly through Pengai Investment. Since the JV Interim Measures do not address the equity percentage of a medical institution held indirectly by a non-PRC entity through its subsidiary in the PRC, we do not believe that we, both prior to and after we decreased our indirect shareholding in the Relevant Subsidiaries to 70.0%, are in violation of any explicit provision of the JV Interim Measures. However, we cannot assure you that the PRC regulatory authorities will not take a different view in the future. In the case that the PRC government authorities deem our PRC medical centers as a Sino-Foreign Equity Medical Institution, we may face liabilities for not meeting the requirements or administrative procedures for Sino-Foreign Equity Medical Institutions historically.

Risks relating to doing business in the PRC

The enforcement of the PRC Labor Contract Law, and other labor-related regulations in the PRC may increase our labor costs and limit our flexibility to use labor. Our failure to comply with PRC labor-related laws may expose us to penalties.

        On June 29, 2007, the Standing Committee of the National People's Congress of China enacted the PRC Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012. The PRC Labor Contract Law introduces specific provisions related to fixed-term employment contracts, part-time employment, probation, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining, which together represent enhanced enforcement of labor laws and regulations. According to the PRC Labor Contract Law, an employer is obliged to sign an unfixed-term labor contract with any employee who has worked for the employer for 10 consecutive years and will reach the statutory retirement age within ten years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unfixed term, with certain exceptions. The employer must pay economic compensation to an employee where a labor contract is terminated or expires in accordance with the PRC Labor Contract Law, except for certain situations which are specifically regulated. As a result, our ability to terminate employees is significantly restricted. In addition, the government has issued various labor-related regulations to further protect the rights of employees. According to such laws and regulations, employees are entitled to annual leave ranging from five to 15 days and are able to be compensated for any untaken annual leave days in the amount of three times their daily salary, subject to certain exceptions. In the event that we decide to change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective. In addition, as the interpretation and implementation of these new regulations are still evolving, our employment practices may not be at all times deemed in compliance with the new regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and financial conditions may be adversely affected.

        Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of their employees up to a maximum amount specified by the local government from time to time. The requirement to maintain employee benefit plans has not been implemented consistently by local governments in China given the different levels of economic

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development in different locations. We did not pay, or were not able to pay, certain past social security and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of our employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC and varying levels of acceptance of the housing fund system by our employees. We may be subject to fines and penalties for our failure to make payments in accordance with the applicable PRC laws and regulations. We may be required to make up the contributions for these plans as well as to pay late fees and fines. We have not made any accruals for the interest on underpayments and penalties that may be imposed by the relevant PRC government authorities in the financial statements. If we are subject to penalties, late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

The PRC's economic, political and social conditions, as well as governmental policies, could affect the business environment and financial markets in China, our ability to operate our business, our liquidity and our access to capital.

        Most of our operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China's economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange allocation of resources, an evolving regulatory resources, and a lack of sufficient transparency in the regulatory process. While the PRC economy has experienced significant growth over the past 40 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are currently applicable to us. In addition, in the past the PRC government implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operation. More generally, if the business environment in China deteriorates from the perspective of domestic or international investment, our business in China may also be adversely affected.

Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and adversely affect us.

        We conduct our business primarily through our subsidiaries in China. PRC laws and regulations govern our operations in China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China, which may not sufficiently cover all of the aspects of our economic activities in China. In addition, the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability regarding our contractual, property and procedural rights could adversely affect our business and impede our ability to continue our operations. Furthermore, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties could materially and adversely affect our business and results of operations.

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        In January 2015, the Ministry of Commerce of the PRC, or the MOFCOM, published a discussion draft of the proposed Foreign Investment Law, or the 2015 Draft Foreign Investment Law. The National People's Congress published another discussion draft of the Foreign Investment Law and its amendment, or the 2018 Draft Foreign Investment Law, on December 2018 and January 2019 respectively. On March 15, 2019, the National People's Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020, or the 2019 Foreign Investment Law. Among other things, the 2015 Draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company should be treated as a foreign invested enterprise, or FIE. Once an entity falls within the definition of FIE, it may be subject to foreign investment "restrictions" or "prohibitions" set forth in a "negative list" to be separately issued by the State Council. If an FIE proposes to conduct business in an industry subject to foreign investment "restrictions" in the "negative list," the FIE must go through a pre-approval process. The 2019 Foreign Investment Law have revised the definition of "foreign investment" and removed all references to the definitions of "actual control" or "variable interest entity structure" under the 2015 Draft Foreign Investment Law, and have further specified that all "foreign investments" shall be conducted pursuant to the negative list issued or approved to be issued by the State Council.

        Notwithstanding the above, the 2019 Foreign Investment Law stipulates that foreign investment includes foreign investors investing in China through any other methods under laws, administrative regulations or provisions prescribed by the State Council. There are possibilities that the Contractual Arrangements adopted by us will be deemed as a form of foreign investment, at which time it will be uncertain whether our investment in treatment centers in China and the Contractual Arrangements will be deemed to be in violation of the foreign investment regulations and how they will be handled. Therefore, there is no guarantee that the Contractual Arrangements, our business and operation will not be materially and adversely affected in the future due to the changes in PRC laws and regulations.

        In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

Changes in international trade policies and barriers to trade or the emergence of a trade war may dampen growth in China and other markets where we operate, and our business operations and results may be negatively impacted.

        The U.S. administration under President Donald J. Trump has advocated for greater restrictions on international trade in general, which significantly increases import tariffs on certain goods into the U.S., particularly from China. President Trump has also taken steps toward restricting trade in certain goods. For example, in 2018, the U.S. government announced three finalized tariffs that applied exclusively to products imported from China, totaling approximately US$250 billion, and in May 2019 the U.S. government increased the rate of certain import tariffs previously levied on Chinese products from 10% to 25%. In addition, in August 2019, President Trump threatened to impose additional tariffs on remaining Chinese products, totaling approximately US$300 billion, while the U.S. government declared China as a currency manipulator. In light of such events, trade tensions between China and the U.S. may intensify, and the U.S. government may adopt even more drastic measures in the future. China and other countries have retaliated, and may further retaliate, in response to new trade policies, treaties and tariffs implemented by the U.S. government. Such retaliatory measures may further escalate existing tensions between the countries or even lead to a trade war. Such escalation of trade tensions and the proposed tariffs may cause further depreciation of the RMB currency and a contraction of certain PRC industries. As such, there may be potential decrease in the spending power of our target customers, a negative impact on our operations or on our suppliers, and/or a contraction of the PRC aesthetic medical services market. We may have access to fewer business opportunities, and our operations may be negatively impacted. In addition, the current and future actions or escalations by either the United States or China that affect trade relations may cause global economic turmoil and

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potentially have a negative impact on our markets, our business, and/or our results of operations, and we cannot provide any assurances as to whether such actions will occur or the form that they may take.

We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, Chinese anti-unfair competition laws and relevant tax laws, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation.

        Following this offering, we will be subject to the FCPA. The FCPA generally prohibits us from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the anti-bribery laws of other jurisdictions, particularly China. As our business expands, the applicability of the FCPA and other anti-bribery laws to our operations will increase. Our procedures and controls to monitor anti-bribery compliance may fail to protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.

        Some of our PRC subsidiaries may pay commissions to or reimburse the expenses and costs incurred by individuals or entities if they recommend customers. Pursuant to the Anti-Unfair Competition Law of the PRC, amended and effective on April 23, 2019, commissions to suppliers are permitted if the parties properly reflect such commissions in their financial records. We are also required to withhold individual income tax in the case the referee is an individual. We have reflected such commissions on our financial records and withheld individual income tax based on our understanding. However, as we do not regard the reimbursement of expenses and costs as part of the commissions, reimbursement paid to the referee may not be reflected on our financial records or have individual income tax withheld. There is no assurance that the relevant PRC authorities will take a view consistent with our understanding. As of the date of this prospectus, we have not received any penalty decisions from any relevant PRC authorities. However, we cannot assure you that we will not be subject to penalty due to allegations of violating relevant commercial bribery or anti-unfair competition laws or tax laws in the future by the local authorities in the regions where we have operations or that we will be able to defend ourselves against such allegations. If we become subject to penalties or fines for violating relevant commercial bribery or anti-unfair competition laws and/or tax laws, our business and reputation may be adversely affected.

Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies, including proceeds from this offering, effectively.

        Our PRC subsidiaries' ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of transactions under the capital account, requires the approval of and/or registration with PRC government authorities, including the Chinese State Administration of Foreign Exchange, or SAFE. In particular, if we finance our PRC subsidiaries by means of foreign debt from us or other foreign lenders, the amount is not allowed to, among other things, exceed the statutory limits and such loans must be registered with the local counterpart of the SAFE. If we finance our PRC subsidiaries by means of additional capital contributions, the amount of these capital contributions must first be registered or filed by the relevant government authority.

        In the light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations, filings or obtain the necessary government approvals on timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations, filings, or obtain such approval, our ability to use the proceeds we receive from this offering and to capitalize or otherwise fund our PRC

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operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC resident beneficial owners or our wholly foreign-owned subsidiaries in China to liability or penalties, limit our ability to inject capital into these subsidiaries, limit these subsidiaries' ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

        In October 2005, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Return Investments by Domestic Residents through Offshore Special Purpose Vehicles, or SAFE Circular 75, that requires PRC citizens or residents to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore entity acquires or controls onshore assets or equity interests held by the PRC citizens or residents.

        In July 2014, SAFE promulgated the Circular on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 and overruled SAFE Circular 75 on the same date. SAFE Circular 37 requires PRC residents or entities to register with of the SAFE or its local branches in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents' legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a "special purpose vehicle." The term "control" under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purpose vehicles by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any changes with respect to the basic information of or any significant changes with respect to the special purpose vehicle. According to the Circular of Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment released in February 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration under SAFE Circular 37 from June 2015. If the shareholders of the offshore holding company who are PRC residents do not complete their registration with the local SAFE branches, our wholly foreign-owned subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to our wholly foreign-owned subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.

        To our knowledge, besides Dr. Zhou and Ms. Ding, who have fulfilled the registration under SAFE Circular 75, and besides Shanghai Qiangshi Business Information Consultant Co., Ltd, who has fulfilled the procedure of overseas investment for the purpose of purchasing and holding our company's ordinary shares through Wise Sunny Limited, we are not aware of any PRC residents or entities who hold direct or indirect interests in our company and are subject to SAFE filing or registration requirements, and we will request PRC residents who we know hold direct or indirect interests in our company, if any, to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents or entities will comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37 or other related

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rules. The failure or inability of our PRC resident or entities shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and we may also be prohibited from injecting additional capital into our wholly foreign-owned subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.

PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        PRC regulations and rules concerning mergers and acquisitions including the Rules on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules with respect to mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, according to the Anti-Monopoly Law of PRC promulgated on August 30, 2007 and the Provisions of the State Council on the Threshold of Filings for Undertaking Concentrations, or the Prior Notification Rules issued by the State Council in August 2008 and amended on September 2018, the concentration of business undertakings by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the MOFCOM when the threshold is crossed and such concentration shall not be implemented without the clearance of prior notification. In addition, the Circular of the General Office of the State Council on the Establishment of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors that became effective in March 2011, and the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the Security Review Rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire the de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review by structuring the transaction through, among other things, trusts, entrustment or contractual control arrangements. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. We believe that our business is not in an industry that raises "national defense and security" or "national security" concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

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Our business benefits from certain financial incentives and discretionary policies granted by local governments. Expiration of, or changes to, these incentives or policies would have an adverse effect on our results of operations.

        In the past, local governments in China granted certain financial incentives from time to time to our PRC subsidiaries as part of their efforts to encourage the development of local businesses. The Circular on the Relevant Tax Policies in Respect of Medical and Hygiene Institutions issued by the State Administration of Taxation, or the SAT and Ministry of Finance that became effective in July 2000 and amended in 2009, specifies that to support the development of profitable medical institution, the following preferential policy shall be applied to the income derived by profitable medical institution as is directly used to improve the medical and hygiene service conditions within three years after the date of obtaining practice registration: (1) the self-produced preparation for its own use shall be exempted from any value-added tax; and (2) the property, land, vehicles and vessels for the profitable medical institution's own use shall be exempted from real estate tax, land-use tax of cities and towns and operation tax of vehicle and ship. Upon the expiration of the term of three years for exempting from tax, the tax collection shall be restored. The Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax issued by the State Administration of Taxation, or the SAT and Ministry of Finance that became effective in May 2016, specifies that medical institutions which provide the medical services are exempted from value-added tax during the pilot scheme period for levying VAT in place of business tax. The timing, amount and criteria of government financial incentives are determined within the sole discretion of the local government authorities and cannot be predicted with certainty before we actually receive any financial incentive. We generally do not have the ability to influence local governments in making these decisions. Local governments may decide to reduce or eliminate incentives at any time. In addition, some of the government financial incentives are granted on a project basis and subject to the satisfaction of certain conditions, including compliance with the applicable financial incentive agreements and completion of the specific project therein. We cannot guarantee that we will satisfy all relevant conditions, and if we do so we may be deprived of the relevant incentives. We cannot assure you of the continued availability of the government incentives currently enjoyed by us. Any reduction or elimination of incentives would have an adverse effect on our results of operations.

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

        The PRC Enterprise Income Tax Law, or the EIT Law and the Regulation on the Implementation of the EIT Law, effective as of January 1, 2008, define the term "de facto management bodies" as "bodies that substantially carry out comprehensive management and control on the business operation, employees, accounts and assets of enterprises." Under the EIT Law, an enterprise incorporated outside of PRC whose "de facto management bodies" are located in PRC is considered a "resident enterprise" and will be subject to a uniform 25% enterprise income tax, or EIT, rate on its global income. On April 22, 2009, PRC's State Administration of Taxation, or the SAT, in the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, further specified certain criteria for the determination of what constitutes "de facto management bodies." If all of these criteria are met, the relevant foreign enterprise may be regarded to have its "de facto management bodies" located in China and therefore be considered a PRC resident enterprise. These criteria include: (i) the enterprise's day-to-day operational management is primarily exercised in China; (ii) decisions relating to the enterprise's financial and human resource matters are made or subject to approval by organizations or personnel in China; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meeting minutes are located or maintained in China; and (iv) 50% or more of voting board members or senior executives of the enterprise habitually reside in China. Although SAT Circular 82 only applies to foreign enterprises that are majority-owned and

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controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in SAT Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises.

        We believe that neither our company nor any of our subsidiaries outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term "de facto management body." If the PRC tax authorities determine that our company or any of its subsidiaries outside of China is a PRC resident enterprise for enterprise income tax purposes, that entity would be subject to a 25% enterprise income tax on its global income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. If such entity derives income other than dividends from its wholly-owned subsidiaries in China, a 25% EIT on its global income may increase our tax burden. Dividends paid to a PRC resident enterprise from its wholly-owned subsidiaries in China may be regarded as tax-exempt income if such dividends are deemed to be "dividends between qualified PRC resident enterprises" under the EIT Law and its implementation rules. However, we cannot assure you that such dividends will not be subject to PRC withholding tax, as the PRC tax authorities, which enforce the withholding tax, have not yet issued relevant guidance.

        In addition, if we are classified as a PRC resident enterprise for PRC tax purposes, we may be required to withhold tax at a rate of 10% from dividends we pay to our shareholders, including the holders of the ADSs, that are non-resident enterprises. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within China. Furthermore, gains derived by our non-PRC individual shareholders from the sale of our shares and ADSs may be subject to a 20% PRC withholding tax. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including the ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us), if such gains are deemed to be from PRC sources. These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares.

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

        We are a holding company, and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders or to service any debt we may incur. If any of our PRC subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, Peng Yi Da, which is a wholly foreign-owned enterprise may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund.

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        Our PRC subsidiaries generate primarily all of their revenue in renminbi, which is not freely convertible into other currencies. As result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their renminbi revenues to pay dividends to us.

        In response to the persistent capital outflow in China and renminbi's depreciation against U.S. dollar in the fourth quarter of 2016, the PBOC and the SAFE have promulgated a series of capital control measure over recent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas investments, dividends payments and shareholder loan repayments.

        The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

We and our shareholders face uncertainties in the PRC with respect to indirect transfers of equity interests in PRC resident enterprises.

        The indirect transfer of equity interest in PRC resident enterprises by a non-PRC resident enterprise, or Indirect Transfer, is potentially subject to income tax in China at a rate of 10% on the gain if such transfer is considered as not having a commercial purpose and is carried out for tax avoidance. The SAT has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years. SAT Circular 7 sets out the scope of Indirect Transfers, which includes any changes in the shareholder's ownership of a foreign enterprise holding PRC assets directly or indirectly in the course of a group's overseas restructuring, and the factors to consider in determining whether an Indirect Transfer has a commercial purpose. An Indirect Transfer satisfying all the following criteria will be deemed to lack a bona fide commercial purpose and be taxable under PRC laws: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from the PRC taxable assets; (ii) at any time during the one-year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in China, or 90% or more of its income is derived directly or indirectly from China; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable assets are limited and are insufficient to prove their economic substance; and (iv) the non-PRC tax payable on the gain derived from the indirect transfer of the PRC taxable assets is lower than the potential PRC income tax on the direct transfer of such assets. Nevertheless, a non-resident enterprise's buying and selling shares or ADSs of the same listed foreign enterprise on the public market will fall under the safe harbor available under SAT Circular 7 and will not be subject to PRC tax pursuant to SAT Circular 7.

        On October 17, 2017, the State Administration of Taxation issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax at Source, or SAT Circular 37, which came into effect on December 1, 2017 and amended on June 15, 2018. SAT Circular 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

        However, as these rules and notices are relatively new and there is a lack of clear statutory interpretation, we face uncertainties regarding the reporting required for and impact on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or the sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. For example, the PRC tax authorities may consider that our current offering involves an indirect change of shareholding in our PRC subsidiaries and therefore it may be regarded as an Indirect Transfer under SAT Circular 7 or SAT Circular 37. Although we believe no SAT Circular 7 or SAT Circular 37 reporting is required on the

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basis that the current offering has commercial purposes and is not conducted for tax avoidance, the PRC tax authorities may pursue us to report under SAT Circular 7 or SAT Circular 37 and request that we and our PRC subsidiaries assist in the filing. As a result, we and our subsidiaries may be required to expend significant resources to provide assistance and comply with SAT Circular 7 or SAT Circular 37, or establish that we or our non-resident enterprises should not be subject to tax under SAT Circular 7 or SAT Circular 37, for the current offering or other transactions, which may have an adverse effect on our and their financial condition and day-to-day operations.

Any failure to comply with PRC regulations regarding the registration requirements for our employee equity incentive plans may subject us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations.

        We have adopted a share incentive plan and a performance incentive plan pursuant to which we may grant share options or other equity incentives to our directors, employees or consultants in the future. In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies, or the Stock Option Rules. In accordance with the Stock Option Rules and relevant rules and regulations, PRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas publicly listed company, and complete certain procedures. We and our employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who participate in our stock incentive plan will be subject to such regulation. However, any failure to comply with the SAFE registration requirements may subject them to fines and legal sanctions and may limit the ability of our PRC subsidiaries to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors and employees under PRC law.

Proceedings brought by the SEC against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, could result in our inability to file future financial statements in compliance with the requirements of the Exchange Act.

        Starting in 2011 the Big Four PRC-based accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.

        In December 2012, the SEC instituted administrative proceedings under Rule 102(e)(1)(iii) of the SEC's Rules of Practice against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC's rules and regulations thereunder by failing to provide to the SEC the firms' audit work papers with respect to certain PRC-based companies under the SEC's investigation. On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC's rules of practice by failing to produce audit workpapers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. On February 12, 2014, the Big Four PRC-based accounting firms appealed the ALJ's initial decision to the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms were to receive matching Section 106 requests, and were required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they failed to meet specified criteria, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.

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        Under the terms of the settlement, the underlying proceeding against the Big Four PRC-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the Big Four PRC-based accounting firms' compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting firm, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

        In the event the Big Four PRC-based accounting firms become subject to additional legal challenges by the SEC or PCAOB, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United States-listed companies and the market price of the ADSs may be adversely affected.

        If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of the ADSs from the Nasdaq Global Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the United States.

Risks relating to the ADSs and this offering

We have broad discretion to determine how to use the net proceeds from this offering and may use them in ways that may not enhance our results of operations or the price of the ADSs.

        Although we currently intend to use the net proceeds from this offering in the manner described in the section titled "Use of proceeds" in this prospectus, our management will have broad discretion over the use of net proceeds from this offering, and we could spend the net proceeds from this offering in ways the holders of the ADSs may not agree with or that do not yield a favorable return. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering.

Our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will be able to control and exert significance influence over our company following this offering, and their interest may be different from or conflict with that of the holders of our ADSs.

        Our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, will jointly control more than 50% of the voting power of our company after this offering. As more than 50% of the voting power for the election of directors is held by Dr. Zhou Pengwu and Ms. Ding Wenting following this offering, we are a "controlled company" as defined under Rule 5615(c)(1) of the Nasdaq Listing Rules. See "Principal Shareholders." In addition, one of our directors, Dr. Zhou Yitao, is the son of Dr. Zhou Pengwu. In addition to the elections of our directors, Dr. Zhou Pengwu and

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Ms. Ding Wenting are and will continue to be able to exert a significant degree of influence or actual control over other management and affairs and control matters requiring an approval from a majority of shareholders, including the merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. Dr. Zhou Pengwu's and Ms. Ding Wenting's interest might not always be aligned with the interests of our other shareholders.

Certain provisions in our post-offering amended and restated articles of association will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions.

        Our post-offering amended and restated articles of association will provide, among other things, that (i) ADV and IDG (and under certain circumstances, a transferee of ADV's shares) will each have the right to appoint one of our directors; (ii) subject to applicable laws and our post-offering amended and restated articles of association, Dr. Zhou Pengwu's consent is required to approve certain mergers, acquisitions, joint ventures, partnerships and alliances of or by us or our subsidiaries, or to approve the appointment or removal of our chief executive officers; and (iii) certain actions including the voluntary delisting of the our securities, a Change of Control Event (as defined in our post-offering amended and restated articles of association) and certain transfers or other disposals of any assets, businesses or securities of us or any of our subsidiaries, can only be approved by shareholders' resolutions. For more details, please see "Management—Appointment of directors by our principal shareholders" and "Description of Share Capital—Ordinary Shares—Reserved Matters."

        As a result of these provisions in our post-offering amended and restated articles of association, although holders of our ordinary shares have the same voting rights, certain principal shareholders such as Dr. Zhou Pengwu, ADV and IDG will have considerable influence over certain corporate governance matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets and appointment of chief officers. Such principal shareholders may take actions that are not in the best interest of us or our other shareholders.

        These provisions may also discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. These provisions will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of our ordinary shares and ADSs may view as beneficial.

We will be a "controlled company" as defined under the Nasdaq Stock Market Rules. As a result, we may rely on exemptions from certain corporate governance requirements and holders of our ordinary shares or ADSs may not have the same protections generally available to stockholders of other companies listed on stock exchanges in the United States.

        Because more than 50% of the voting power for the election of our directors will be controlled by our chief executive officer, Dr. Zhou Pengwu, together with his spouse, Ms. Ding Wenting, following the completion of this offering, we will be a "controlled company" as defined under Rule 5615(c)(1) of the Nasdaq Listing Rules. As a "controlled company", we qualify for, and our board of directors intends to rely upon, exemptions from several of Nasdaq's corporate governance requirements, including requirements that:

    a majority of the board of directors consist of independent directors;

    compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee comprised solely of independent directors; and

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    director nominees be selected or recommended to the board of directors by a majority of its independent directors or by a nominating committee that is composed entirely of independent directors.

        Accordingly, to the extent that we may choose to rely on one or more of these exemptions, our shareholders would not be afforded the same protections generally as shareholders of other Nasdaq-listed companies as long as Dr. Zhou Pengwu and Ms. Ding Wenting together control more than 50% of the voting power of our company and our board determines to rely upon one or more of such exemptions.

After the completion of this offering, we may be at an increased risk of securities class action litigation.

        Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we were to be sued, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business, the price of the ADSs could decline.

        The trading market for the ADSs will rely in part on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

We are an "emerging growth company" as defined in the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to us as an "emerging growth company" will make the ADSs less attractive to investors.

        We are eligible to be treated as an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds US$1.07 billion, if we issue more than US$1.0 billion in non-convertible debt securities during any three-year period, or if the market value of our ordinary shares held by non-affiliates exceeds US$700.0 million. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our stock price may be more volatile.

If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

        Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in

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financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management's attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.

        If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the ADSs may not be able to remain listed on the Nasdaq Global Market.

As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.

        As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by the Cayman Islands requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares or ADSs.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

        As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. When the ADSs are listed on the Nasdaq Global Market, we intend to continue to follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Market that listed companies must have a majority of independent directors. Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors. Nor does Cayman Islands law impose specific requirements on the establishment of a compensation committee or nominating committee or nominating process. To the extent we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.

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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

        As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer's most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.

The audit report included in this prospectus was prepared by an auditor who is not inspected by the U.S. Public Company Accounting Oversight Board, or the PCAOB, and as such, you are deprived of the benefits of such inspection.

        Auditors of companies that are registered with the SEC and traded publicly in the United States, including the independent registered public accounting firm of our company, must be registered with the PCAOB, and are subject to the laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with applicable professional standards. Because substantially all of our operations are within the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB.

        In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC, and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the United States or the CSRC or the Ministry of Finance in the PRC. The PCAOB continues to be in discussions with the CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

        On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. However, it remains unclear what further actions, if any, the SEC and PCAOB will take to address the problem.

        This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

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We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.

        We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our investors purchased their ADSs.

There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell the ADSs at or above the price you paid, or at all.

        Prior to this offering, there has been no public market for our ordinary shares or ADSs. We have applied to have the ADSs listed on the Nasdaq Global Market. Our ordinary shares will not be listed on any other exchange, or quoted for trading on any over-the-counter trading system, in the United States.

        The initial public offering price for the ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for the ADSs after this initial public offering. We cannot assure you that an active trading market for the ADSs will develop or that the market price of the ADSs will not decline below the initial public offering price. If an active trading market for the ADSs does not develop after this offering, the market price and liquidity of the ADSs will be materially and adversely affected.

The market price for the ADSs may be volatile which could result in substantial loss to you.

        The market price for the ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the following:

    announcements of competitive developments;

    regulatory developments affecting us, our customers or our competitors;

    announcements regarding litigation or administrative proceedings involving us;

    actual or anticipated fluctuations in our period-to-period operating results;

    changes in financial estimates by securities research analysts;

    additions or departures of our executive officers;

    fluctuations of exchange rates between the RMB and the U.S. dollar;

    release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and

    sales or perceived sales of additional ordinary shares or ADSs.

        In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. For example, since August 2008, multiple exchanges in the United States and other countries and regions, including China, experienced sharp declines in response to the growing credit market crisis and the recession in the United States. As recently as August 2015, the exchanges in China experienced a sharp decline. Prolonged global capital markets volatility may affect overall investor sentiment towards the ADSs, which would also negatively affect the trading prices for the ADSs.

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Fluctuations in currency exchange rates may have a material adverse effect on our results of operations and the value of your investment.

        The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the renminbi to the U.S. dollar, and the renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the renminbi and U.S. dollar remained within a narrow band. In June 2010, China's People's Bank of China, or PBOC, announced that the PRC government would increase the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. However, more recently, on August 11, 12 and 13, 2015, the PBOC significantly devalued the renminbi by fixing its price against the U.S. dollar 1.9%, 1.6%, and 1.1% lower than the previous day's value, respectively. On October 1, 2016, the renminbi joined the International Monetary Fund's basket of currencies that make up the Special Drawing Right, or SDR, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the renminbi depreciated significantly while the U.S. dollar surged and China experienced persistent capital outflows. See "Exchange Rate Information." With the development of the foreign exchange market and progress towards interest rate liberalization and renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system. There is no guarantee that the renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces, PRC and U.S. government's policies and regulations may impact the exchange rate between the renminbi and the U.S. dollar in the future.

        Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, appreciation or depreciation in the value of the renminbi relative to U.S. dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations.

        Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert renminbi into foreign currency.

Since the U.S. initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase the ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of US$9.07 per ADS, representing the difference between our net tangible book value per ADS as of June 30, 2019, after giving effect to this offering and an assumed initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon completion of this offering.

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Substantial future sales or perceived sales of the ADSs in the public market could cause the price of the ADSs to decline.

        Sales of the ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline. Upon the completion of this offering, we will have 70,838,671 ordinary shares outstanding, including 7,500,000 ordinary shares represented by ADSs, assuming no exercise of the over-allotment option granted to the underwriters. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, subject to restrictions as applicable under Rule 144 under the Securities Act, upon the expiration of the 180-day lock-up arrangements entered into among us and the underwriters. There are certain exceptions to these lock-up arrangements. See "Underwriting" and "Shares Eligible for Future Sale" for additional information. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.

        Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. As an ADS holder, you will only be able to exercise the voting rights carried by the underlying ordinary shares indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the ordinary shares underlying your ADSs in accordance with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying ordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares unless you withdraw the shares, and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our post-offering memorandum and articles of association that will become effective immediately prior to completion of this offering, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary notice of shareholder meetings sufficiently in advance of such meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are voted and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

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Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the ordinary shares underlying your ADSs if you do not vote at shareholders' meetings, which could adversely affect your interests.

        Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the ordinary shares underlying your ADSs at shareholders' meetings unless:

    we have instructed the depositary that we do not wish a discretionary proxy to be given;

    we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

    a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

    the voting at the meeting is to be conducted via a show of hands unless voting by poll is required by the applicable listing rules or our articles of association.

        The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares will not be subject to this discretionary proxy.

You may not receive distributions on the ADSs or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you.

        Although we do not have any present plan to pay any dividends, the depositary of the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities whose offering would require registration under the Securities Act but are not so properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any

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such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of the ADSs or ordinary shares.

        Depending upon the value of the ADSs and ordinary shares and the nature and composition of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on assumptions as to our projections of the value of our outstanding ADSs and ordinary shares, our expected use of the proceeds from this offering and of the other cash that we will hold and generate in the ordinary course of our business throughout taxable year 2019, and the composition of our assets and income, we do not expect to be a PFIC for the taxable year ending December 31, 2019. Despite our expectation, there can be no assurance that we will not be a PFIC in the current taxable year. In addition, there can be no assurance that we will not be a PFIC for any future taxable year. PFIC status is a factual determination that must be tested each taxable year and will depend on the composition of our assets and income in each such taxable year. Our PFIC status for the current taxable year 2019 will not be determinable until the close of the taxable year ending December 31, 2019.

        We will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on a quarterly value of the assets during the taxable year) is attributable to assets that produce or are held for the production of passive income. In determining the average percentage value of our gross assets, the aggregate value of our assets will generally be deemed to be equal to our market capitalization (determined by the sum of the aggregate values of our outstanding equity) plus our liabilities. Accordingly, we could become a PFIC if our market capitalization were to decrease significantly while we hold substantial cash, cash equivalents or other assets that produce or are held for the production of passive income. In addition, because there are uncertainties in the application of the relevant PFIC rules, it is possible that the Internal Revenue Service, or IRS, may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, which could result in a determination that we were a PFIC for the current or subsequent taxable years.

        If we were classified as a PFIC in any taxable year in which a U.S. Holder (as defined in "Taxation—United States Federal Income Taxation") holds the ADSs or ordinary shares, the U.S. Holder would generally be subject to additional taxes and interest charges on certain "excess" distributions we make and on the gain, if any, recognized on the disposition or deemed disposition of such U.S. Holder's ADS or ordinary shares, even if we are no longer a PFIC in the year of distribution or disposition. Moreover, such U.S. Holder would also be subject to special U.S. tax reporting requirements. For more information on the U.S. tax consequences to U.S. Holders that would result from our classification as a PFIC, see "Taxation—United States federal income taxation—Passive foreign investment company."

You may have difficulty enforcing judgments obtained against us.

        We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, some of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained

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in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, some of whom currently reside in the United States and whose assets are located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

        The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

You may be subject to limitations on transfers of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.

        Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. See "Description of American Depositary Shares" for more information.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

        The deposit agreement governing the ADSs representing our ordinary shares provides that the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

        If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. In determining whether to

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enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

        If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

        Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Techniques employed by short sellers may drive down the market price of the ADSs.

        Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller's interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

        Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

        It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in the ADSs could be greatly reduced or even rendered worthless.

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Special Notes Regarding Forward-looking Statements

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. All statements other than statements of current or historical facts are forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify some of these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

    our business prospects, trends and conditions in the industry and markets in which we operate;

    our goals, business strategies and plans to achieve these strategies;

    our expected growth in, and market size of, our services in the markets we operate;

    expected changes in our revenue, costs and expenditures;

    our ability to offer new services in the markets and the industry we operate;

    our ability to continue to develop new technologies and/or update our existing technologies;

    growth of and trends of competition in our industry;

    general economic, political and business conditions in the markets in which we operate;

    changes to the regulatory environment and general outlook in the industry and markets in which we operate;

    the performance of the global financial markets, including changes in our ability to access the capital markets and changes in the levels of interest rates;

    our liquidity and financial condition;

    our relationship with, and other conditions affecting, our customers;

    our expectation regarding the use of proceeds from this offering;

    our dividend policy; and

    other factors beyond our control.

        These factors should not be construed as exhaustive and should be read with the other cautionary statements in this prospectus.

        These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. We operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in "Prospectus Summary—Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial

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Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the rapidly evolving nature of our industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

        You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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Use of Proceeds

        We estimate that the net proceeds to us from our issuance and sale of 2,500,000 ADSs in this offering will be approximately US$25.0 million, or approximately US$29.2 million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. This estimate assumes an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus.

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS would increase (decrease) the net proceeds to us from this offering by approximately US$2.3 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

        We intend to use the net proceeds of this offering primarily for the following purposes:

    approximately 5% to finance the implementation of facility upgrades at existing aesthetic medical treatment centers;

    approximately 15% for redemption of our convertible note;

    approximately 15% to finance the potential establishment of new treatment centers; and

    approximately 60% to finance strategic acquisitions of aesthetic medical treatment centers when such opportunities arise.

        We intend to use the remaining approximately 5% of the net proceeds we receive from this offering for general corporate purposes, including working capital.

        Overall, our management will have broad discretion in the application of our net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of these proceeds. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. We intend to invest the net proceeds in short- and intermediate-term interest bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government pending their use as described above.

        In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our subsidiaries in China only through loans or capital contributions, subject to the requirements of government authorities and limits on the amount of capital contributions and loans. Subject to satisfaction of applicable government requirements, we may extend inter-company loans to our wholly foreign-owned subsidiary in China or make additional capital contributions to our wholly-foreign-owned subsidiary to fund its capital expenditures or working capital. For an increase of registered capital of our wholly foreign-owned subsidiary, we need to submit recordation of modification documents with the Ministry of Commerce of the PRC or its local counterparts within 30 days of such increase of registered capital. If we provide funding to our wholly foreign-owned subsidiary through loans, the total amount of such loans shall be subject to any statutory limits on the amount under PRC laws and regulations. Such loans must be registered with SAFE or its local branches. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks related to doing business in China—Restrictions on currency exchange may limit our ability to receive and use financing in foreign currencies, including proceeds from this offering, effectively." Additionally, while there is no statutory limit on the amount of capital contribution that we can make to our PRC subsidiaries, loans provided to our PRC subsidiaries and consolidated variable interest entities in the PRC are subject to certain statutory limits. With respect to our PRC subsidiaries, the maximum amount of the loans that they can

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incur in aggregate from outside China as of June 30, 2019 is (i) approximately US$13 million under the total investment minus registered capital approach; or (ii) approximately US$132 million under the net asset approach. We intend to use all of the net proceeds from this offering for investment in our PRC operations by funding our PRC subsidiaries through capital contributions, the amounts of which are not subject to any statutory limit under PRC laws and regulations. We expect the net proceeds from this offering to be used in the PRC will be in the form of RMB and therefore, our PRC subsidiaries will need to convert any capital contributions or loans from U.S. dollars into Renminbi in accordance with applicable PRC laws and regulations. All of the net proceeds from this offering would be available for investment in our operations in the PRC, subject to the foregoing statutory limits on the amount of loans provided to our PRC subsidiaries in the PRC and the laws and regulations on the conversion from U.S. dollars into Renminbi.

        For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources."

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Dividend Policy

        We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. Dividend distributions from our PRC subsidiary to us are subject to PRC taxes, including withholding tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China. For more details, see "Regulation" and "Risk Factors—Risks relating to doing business in the PRC."

        Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, subject to the provisions in our articles of association, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares represented by the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares represented by the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

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Capitalization

        The following table sets forth our capitalization as of June 30, 2019:

    on an actual basis;

    on a pro forma basis to give effect to (i) the automatic conversion and re-designation of our issued and outstanding series A preferred shares into an aggregate of 15,600,000 ordinary shares immediately prior to the completion of this offering and (ii) the exchange of the exchangeable notes into 5,976,960 series B preferred shares re-designated from the corresponding number of ordinary shares held by the issuers of such notes and transferred to the holder, which will in turn be automatically converted and re-designated into ordinary shares immediately prior to the completion of this offering; and

    on a pro forma as adjusted basis to give effect to (i) the automatic conversion and re-designation of our issued and outstanding series A preferred shares into an aggregate of 15,600,000 ordinary shares immediately prior to the completion of this offering, (ii) the exchange of the exchangeable notes into 5,976,960 series B preferred shares re-designated from the corresponding number of ordinary shares held by the issuers of such notes and transferred to the holder, which will in turn be automatically converted and re-designated into ordinary shares immediately prior to the completion of this offering, as detailed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Indebtedness—Exchangeable Notes", and (iii) the issuance and sale of 7,500,000 ordinary shares in the form of ADSs by us in this offering.

        The information below is illustrative only, and assumes an initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our capitalization following this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing, including the amount by which actual offering expenses are higher or lower than estimated. The table should be read in conjunction with the information contained in "Use of Proceeds," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and

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Results of Operations," as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  As of June 30, 2019  
 
  Actual   Pro forma   Pro forma
as
adjusted(1)(2)
 
 
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Convertible redeemable preferred shares

    433,056     63,082                  

Exchangeable note liabilities

    169,552     24,698                  

Convertible note(3)

    75,956     11,064     75,956     11,064     75,956     11,064  

Long-term Borrowings

    30,496     4,442     30,496     4,442     30,496     4,442  

Equity attributable to owners of our company:

                                     

Share capital

    306     45     408     60     459     67  

Treasury shares

    (41 )   (6 )   (41 )   (6 )   (41 )   (6 )

Other reserves

    99,635     14,513     702,141     102,278     873,688     127,267  

Accumulated losses

    (297,240 )   (43,298 )   (297,240 )   (43,298 )   (297,240 )   (43,298 )

Non-controlling interests

    43,833     6,385     43,833     6,385     43,833     6,385  

Total (deficit)/equity

    (153,507 )   (22,361 )   449,101     65,419     620,699     90,415  

Total capitalization

    555,553     80,925     555,553     80,925     727,151     105,921  

(1)
The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

(2)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, would increase (decrease) the amount of share capital, total (deficit)/equity and total capitalization on a pro forma as adjusted basis by approximately US$2.3 million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)
For a discussion of the terms of the convertible note, including the conversion rights of the holders and our redemption rights, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness—Convertible note." The table above does not give effect to the conversion or redemption of the convertible note.

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Dilution

        If you invest in our ADSs, your investment will be diluted for each ADS you purchase to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        As of June 30, 2019, our net tangible book value was a deficit of RMB339.2 million, or RMB8.1 per ordinary share and US$3.55 per ADS. We calculate net tangible book value per ordinary shares by dividing our total consolidated assets, excluding our intangible assets, less our total consolidated liabilities by the number of our ordinary shares outstanding. Pro forma as adjusted net tangible book value per ordinary share is calculated after giving effect to the automatic conversion and re-designation of all our issued and outstanding preferred shares and the issuance of ordinary shares in the form of ADSs by us in this offering. Dilution is determined by subtracting pro forma as adjusted net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price per ordinary share.

        Without taking into account any other changes in such net tangible book value after June 30, 2019, other than to give effect to (i) the automatic conversion and re-designation of our issued and outstanding series A preferred shares into 15,600,000 ordinary shares on a one to one basis immediately prior to the completion of this offering; (ii) the exchange of the exchangeable notes into 5,976,960 of our series B preferred shares re-designated from the corresponding number of ordinary shares held by the issuers of such notes and transferred to the holder, which will in turn be automatically converted and re-designated into ordinary shares immediately prior to the completion of this offering, as detailed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors affecting our results of operations—Indebtedness—Exchangeable Notes"; and (iii) the issuance and sale of 2,500,000 ADSs in this offering, calculated based on the assumed initial offering price of US$12.00 per ADS, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming the underwriters' option to purchase additional ADSs is not exercised, our pro forma as adjusted net tangible book value at June 30, 2019 would have been US$63.4 million, or US$0.98 per ordinary share, including ordinary shares underlying the outstanding ADSs, or US$2.93 per ADS. This represents an immediate increase in net tangible book value of US$2.16 per ordinary share and US$6.48 per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$3.02 per ordinary

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share and US$9.07 per ADS, to investors purchasing ADSs in this offering. The pro forma as adjusted information discussed above is illustrative only. The following table illustrates such dilution:

 
  Per ordinary
share
  Per ADS  

Assumed initial public offering price

  US$ 4.00   US$ 12.00  

Historical net tangible book value per ordinary share as of June 30, 2019

  US$ (1.18 ) US$ (3.55 )

Pro forma net tangible book value after giving effect to (i) the automatic conversion and re-designation of all of our issued and outstanding preferred shares as of June 30, 2019 and (ii) the exchange of the exchangeable notes into our series B preferred shares, which will be automatically converted and re-designated into ordinary shares

  US$ 0.67   US$ 2.01  

Pro forma as adjusted net tangible book value after giving effect to (i) the automatic conversion and re-designation of all of our issued and outstanding preferred shares as of June 30, 2019; (ii) the exchange of the exchangeable notes into our series B preferred shares, which will be automatically converted and re-designated into ordinary shares and (iii) this offering

  US$ 0.98   US$ 2.93  

Increase in net tangible book value attributable to (i) the automatic conversion and re-designation of all of our issued and outstanding preferred shares as of June 30, 2019; (ii) the exchange of the exchangeable notes into our series B preferred shares, which will be automatically converted and re-designated into ordinary shares and (iii) this offering

  US$ 2.16   US$ 6.48  

Amount of dilution to new investors in this offering

  US$ 3.02   US$ 9.07  

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$12.00 per ADS would increase (decrease) our pro forma as adjusted net tangible book value as described above by US$2.3 million, the pro forma as adjusted net tangible book value per ordinary share and per ADS by US$0.03 per ordinary share and by US$0.11 per ADS, and the dilution per ordinary share and per ADS to new investors in this offering by US$0.30 per ordinary share and US$0.90 per ADS, respectively, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2019, the differences between the existing shareholders as of June 30, 2019 and the new investors with respect to the number of ordinary shares (in the form of ADSs or ordinary shares) purchased from us in this offering, the total consideration paid to us and the average price per ordinary share and per ADS paid ADS at an assumed initial public offering price of US$12.00 per ADS, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Ordinary shares
purchased
  Total
consideration
   
   
 
 
  Average
price per
ordinary
share
   
 
 
  Average
price per
ADS
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

    57,398,219     88.4 % US$ 18,554,172     38.2 % US$ 0.32   US$0.97  

New investors

    7,500,000     11.6 % US$ 30,000,000     61.8 %   4.00   US$12.00  

Total

    64,898,219     100.0 % US$ 48,554,172     100.0 %          

        The above discussion and tables are based on 57,398,219 ordinary shares issued and outstanding as of June 30, 2019, (i) after excluding 5,940,452 ordinary shares issued to Shengli Family Limited, which are treated as treasury shares for accounting purposes only, as indicated in the unaudited interim condensed consolidated financial statements for the six months ended and as of June 30, 2019 and

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note 20 thereto appearing elsewhere in this prospectus, and (ii) after giving effect to (x) the assumed exchange of exchangeable notes into 5,976,960 series B preferred shares re-designated from the corresponding number of ordinary shares held by the issuers of such notes and transferred to the holder and automatic conversion and re-designation of such series B preferred shares into our ordinary shares and (y) the assumed automatic conversion and re-designation of all of our outstanding preferred shares to an aggregate of 15,600,000 ordinary shares upon completion of this offering.

        The above discussion and tables do not give effect to:

    the redemption of our convertible note; or

    the exercise of any outstanding share options as of the date of this prospectus.

        The total number of ordinary shares does not include ordinary shares represented by the ADSs issuable upon the exercise of the option to purchase additional ADSs which we granted to the underwriters.

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Enforceability of Civil Liabilities

        We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

    Cayman Islands companies may not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. All of our directors and executive officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Puglisi & Associates as our agent to receive service of process with respect to any action brought against us in the U.S. District Court for the Southern District of New York in connection with this offering under the federal securities laws of the United States or the securities laws of any State in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York in connection with this offering under the securities laws of the State of New York.

        Conyers Dill & Pearman, our legal counsel as to Cayman Islands law, and Han Kun Law Offices, our legal counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Conyers Dill & Pearman has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under the civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce

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the judgment against a Cayman Islands company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands. Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

        In addition, Conyers Dill & Pearman has advised us that there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided that (i) such courts had proper jurisdiction over the parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained by fraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws of the Cayman Islands.

        Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or social public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. However, it would be difficult for foreign shareholders to establish sufficient nexus to China by virtue only of holding the ADSs or ordinary shares.

        In addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding the ADSs or ordinary shares, to establish a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

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Our History and Corporate Structure

        We commenced operations in 1997 through Shenzhen Pengcheng Clinic, which became Pengcheng Hospital in 2003. Since then, we have expanded our business operations through acquisitions and organic growth. In particular, we established our second flagship hospital, Shenzhen Pengai Hospital, in 2005.

        In May 2011, our company was incorporated in the Cayman Islands under the name of Pengai Hospital Management Corporation as our offshore holding company. Following certain name changes, our company changed its name to Aesthetic Medical International Holdings Group Limited in July 2018.

        Peng Oi Investment (Hong Kong) Holdings Limited (formerly known as Peng Cheng Investment (Hong Kong) Holdings Limited) was incorporated in Hong Kong in July 2004. In July 2011, we acquired the entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited from Dr. Zhou Pengwu and Ms. Ding Wenting.

        Dragon Jade Holdings Limited was incorporated in the BVI in January 2014. Later in 2014, we transferred to Dragon Jade Holdings Limited our entire equity interest in Peng Oi Investment (Hong Kong) Holdings Limited in exchange for Dragon Jade Holdings Limited to issue and allot one fully paid share of US$1.00 to our company. Upon completion of the share swap, Dragon Jade Holdings Limited became a direct wholly-owned subsidiary of our company.

        Peng Yida Business Consulting (Shenzhen) Co., Ltd. is a direct wholly-owned subsidiary of Peng Oi Investment (Hong Kong) Holdings Limited, which was established in the PRC in December 2010.

        Shenzhen Pengai Hospital Investment Management Co., Ltd. (formerly known as Shenzhen Pengcheng Hospital Investment Co., Ltd.), or Shenzhen Pengai Investment, is a direct wholly-owned subsidiary of Peng Yida Business Consulting (Shenzhen) Co., Ltd., which was established in the PRC in December 2004. Shenzhen Pengai Investment is the holding company of our operating subsidiaries in the PRC.

        We acquired the entire equity interest in Newa Medical Aesthetics Limited in October 2015 to further extend our footprint to Hong Kong.

        We incorporated Stargaze Wealth Limited in the BVI in April 2017 and Aesthetic Medical International Holdings (Singapore) Pte. Ltd., formerly known as China Aesthetic Healthcare Holding (Singapore) Pte. Ltd., in Singapore in May 2017 to invest in our Singapore medical center. As of the date of this prospectus, we owned 44.4% of equity interest in Singapore Mendis.

        In February 2019, we entered into an agreement for an investment in LZP Holding, Inc., or LZP, which owns and operates five plastic surgery centers in California under the name WAVE Plastic Surgery & Aesthetic Laser Centers. Under the terms of the agreement, we will invest US$5 million for a 20% equity stake in LZP consisting of US$4 million in cash for LZP's shares and a further US$1 million in promissory notes secured against LZP's shares, repayable either in shares or in cash. In addition, we have an option to acquire a further 20% equity stake under the same terms, subject to the completion of a re-financing of LZP. As of the date of this prospectus, the closing of the transaction is subject to certain conditions including the refinancing of certain of LZP's indebtedness.

        As of the date of this prospectus, we have a strategically established network, comprising 21 treatment centers including 19 wholly or majority owned centers. Our treatment centers spread across 15 cities in mainland China, Hong Kong and Singapore. All of our treatment centers are wholly or majority owned with the exception of Baotou Pengai Yueji Aesthetic Medical Clinic Co., Ltd. or Baotou Pengai, and Mendis Aesthetics Pte. Ltd. or Singapore Mendis.

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        The following diagram illustrates our shareholding structure after giving effect to the exchange of exchangeable notes and the corresponding automatic conversion and re-designation of preferred shares into ordinary shares immediately prior to the completion of this offering:

GRAPHIC


Notes:

(1)
For more information on their respective beneficial ownerships, see "Principal Shareholders."

(2)
The beneficial owners of China Concentric Capital Group Ltd. and SCI Aesthetic Holding Co., Ltd. are our independent third parties.

(3)
Represent shareholding on an as-converted basis.

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        The following diagram illustrates our corporate structure immediately upon completion of this offering, assuming no exercise of the over-allotment option granted to the underwriters.

GRAPHIC


Notes:

(1)
As of the date of this prospectus, Yantai Pengai Jiayan Cosmetic Surgery Hospital Co., Ltd., Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd., Chongqing Pengai Aesthetic Medical Hospital Co., Ltd., Changsha Pengai Aesthetic Medical Hospital Co., Ltd., Shanghai Pengai Aesthetic Medical Clinic Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital, Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. and Jinan Pengai Cosmetic Surgery Hospital Co., Ltd, collectively "Relevant Subsidiaries," or each a "Relevant Subsidiary," was held by Dr. Zhou Pengwu, our chairman and chief executive officer, as to 24.0%, 30%, 30.0%, 9.0%, 10.0%, 22.0%, 21.0% and 25%, respectively. We refer to these equity interests held by Dr. Zhou Pengwu as the "Target Equity Interests", which constitute all of Dr. Zhou Pengwu's shareholdings in the Relevant Subsidiaries.

(2)
As of the date of this prospectus, except for the Target Equity Interests (as defined above) representing all of Dr. Zhou Pengwu's equity interests in the Relevant Subsidiaries which we consolidate through Contractual Arrangements as further described below, the remaining equity interest in our PRC operating subsidiaries was held by independent third parties and certain of our employees.

(3)
Haikou Pengai Aesthetic Medical Hospital Co., Ltd. was established before the effective date of the Foreign Investment Catalogue 2015 and thus, it is not subject to the 70% foreign shareholding restrictions.

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Contractual arrangements with respect to Target Equity Interests

        Pursuant to the Foreign Investment Catalog 2015 which became effective in April 2015, foreign investors in PRC medical institutions can only conduct investment activities through joint ventures. The foreign shareholding in these entities is limited to 70.0% as stipulated in the JV Interim Measures since the effective date of the Foreign Investment Catalog 2015. We historically held more than 70.0% equity interest in certain of our PRC subsidiaries that are medical institutions which we acquired or established after the effective date of the Foreign Investment Catalog 2015. Due to such restriction, we had decreased our shareholding to no more than 70.0% in such PRC subsidiaries by transferring excessive equity interests to Dr. Zhou Pengwu and certain of our employees in 2018. In connection with such equity transfer and Dr. Zhou's shareholding in Hangzhou Pengai Aesthetic Medical Clinic Co., Ltd, Jinan Pengai Cosmetic Surgery Hospital Co., Ltd., Shenzhen Pengai Xiuqi Aesthetic Medical Hospital, Guangzhou Pengai Aesthetic Medical Hospital Co., Ltd. and Chongqing Pengai Aesthetic Medical Hospital Co., Ltd. which he subsequently acquired from other shareholders in 2018 and 2019, we entered into a series of Contractual Arrangements with Dr. Zhou Pengwu, Shenzhen Pengai Investment, the Relevant Subsidiaries and Ms. Ding Wenting in 2018 and 2019 with respect to the Target Equity Interests. These Contractual Arrangements enable us to (i) exercise control over the Target Equity Interests in the Relevant Subsidiaries; (ii) receive economic benefits from the Target Equity Interests in the Relevant Subsidiaries; and (iii) have an exclusive option to purchase all or part of the Target Equity Interests when and to the extent permitted by PRC laws.

        Our revenue generated from the Relevant Subsidiaries aggregately accounted for approximately 19.0% and 26.1% of our total revenue in 2017 and 2018, respectively. We do not rely on the Contractual Arrangements to exercise control over the Relevant Subsidiaries as we hold 70.0% equity interest in each of the Relevant Subsidiaries (except for Shenzhen Pengai Xiuqi and Yantai Pengai Jiayan, in which we hold 67.0% and 65.0% equity interest, respectively) and consolidate the Target Equity Interests in each of the Relevant Subsidiaries held by Dr. Zhou Pengwu through the Contractual Arrangements. However, with respect to our control over the Target Equity Interests, the Contractual Arrangements may not be as effective as direct ownership. If the Relevant Subsidiaries and/or Dr. Zhou Pengwu fail to perform their respective obligations under the Contractual Arrangements, we may have to incur substantial costs and expend additional resources to enforce such Contractual Arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. See "Risk Factors—Risks relating to our corporate structure—The Contractual Arrangements may not be as effective in providing control as direct ownership and the Relevant Subsidiaries or Dr. Zhou Pengwu may fail to perform their respective obligations under the Contractual Arrangements."

        The following is a summary of the currently effective Contractual Arrangements with respect to the Target Equity Interests.

Loan agreement

        Shenzhen Pengai Investment, as the lender, entered into certain loan agreements with Dr. Zhou Pengwu, as the borrower. Pursuant to each of these loan agreements, Shenzhen Pengai Investment agrees to extend a loan to Dr. Zhou Pengwu in an equivalent amount to the purchase price to be paid by Dr. Zhou Pengwu for acquiring the Target Equity Interests. Pursuant to each of these loan agreements, Dr. Zhou Pengwu shall repay the loan by transferring the current and future economic interest of the Target Equity Interests to Shenzhen Pengai Investment.

Economic interest transfer agreement

        Dr. Zhou Pengwu, Shenzhen Pengai Investment and each of the Relevant Subsidiaries entered into certain economic interest transfer agreements. Pursuant to each of these economic interest transfer

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agreements, the economic interest in relation to the Target Equity Interests currently held and subsequently acquired by Dr. Zhou Pengwu, including but not limited to (i) incomes arising from the disposal of the Target Equity Interests (including derivative equity interest of the Target Equity Interests) under any circumstance; (ii) dividends and bonus obtained on the basis of the Target Equity Interests (including derivative equity interest of the Target Equity Interests) under any circumstance; (iii) residual assets and other economic profits allocated after the liquidation of the Relevant Subsidiary, and (iv) any other cash income, property and economic benefit arising from the Target Equity Interests (including derivative equity interest of the Target Equity Interests), shall be transferred to Shenzhen Pengai Investment. Upon the execution of each economic interest transfer agreement, the repayment obligation of Dr. Zhou Pengwu under each loan agreement is deemed fully discharged.

Exclusive option agreement

        Dr. Zhou Pengwu, Shenzhen Pengai Investment and each of the Relevant Subsidiaries entered into certain exclusive option agreements. Pursuant to these exclusive option agreements, Dr. Zhou Pengwu irrevocably granted Shenzhen Pengai Investment an exclusive right to purchase, or have its designated person(s) to purchase, at its discretion, all or part of his equity interest in the Relevant Subsidiary, and the purchase price shall be the lowest price permitted by applicable PRC law. Each of Dr. Zhou Pengwu and the Relevant Subsidiary undertakes that, among others, without the prior written consent of Shenzhen Pengai Investment, he or it shall or shall cause the Relevant Subsidiary not to declare any dividends or distribute any residual profits, change or amend its articles of association, increase or decrease its registered capital, or change its structure of registered capital in other manners. In the event that Dr. Zhou Pengwu increases its capital injection into the Relevant Subsidiary, Dr. Zhou Pengwu undertakes and confirms that any additional equity so acquired shall be subject to the purchase option. Unless terminated by Shenzhen Pengai Investment at its sole discretion, the exclusive option agreement will remain effective until all equity interest in the Relevant Subsidiary held by Dr. Zhou Pengwu are transferred or assigned to Shenzhen Pengai Investment or its designated person(s).

Equity interest pledge agreement

        Dr. Zhou Pengwu as pledgor, Shenzhen Pengai Investment as pledgee, and each of the Relevant Subsidiaries entered into certain equity interest pledge agreements. Pursuant to these equity interest pledge agreements, Dr. Zhou Pengwu has pledged all of the Target Equity Interests in Relevant Subsidiaries and agreed to pledge all future equity interest in the Relevant Subsidiary acquired by him to Shenzhen Pengai Investment to guarantee the performance by Dr. Zhou Pengwu and the Relevant Subsidiary of their respective obligations under the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney. If the Relevant Subsidiary or Dr. Zhou Pengwu breaches any obligations under these agreements, Shenzhen Pengai Investment, as pledgee, will be entitled to dispose of the pledged equity and have priority to be compensated by the proceeds from the disposal of the pledged equity. Dr. Zhou Pengwu shall not permit the existence of any security interest or other encumbrance on the pledged equity interest or any portion thereof, without the prior written consent of Shenzhen Pengai Investment and the Relevant Subsidiary shall not assent to or assist in such actions. These equity interest pledge agreements will remain effective until Dr. Zhou Pengwu discharge all the obligations under the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney and the full payment of all direct, indirect and derivative losses and losses of anticipated profits, suffered by the pledgee, incurred as a result of any breach by Dr. Zhou Pengwu or the Relevant Subsidiary under these agreements or invalidity, revocation and termination of any of these agreements. As of the date of this prospectus, the equity pledges of Target Equity Interests have been registered.

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Power of attorney

        Pursuant to relevant power of attorney executed by Dr. Zhou Pengwu, he has irrevocably authorized Shenzhen Pengai Investment or its designated person(s) to exercise all of such shareholder's voting and other rights associated with the Target Equity Interests in each of the Relevant Subsidiaries, including but not limited to, the right to attend shareholder meetings, the right to vote, the right to sell, transfer, pledge or depose of the Target Equity Interests and the right to appoint legal representatives, directors and other management. The proxy agreement remains effective as long as Dr. Zhou Pengwu remains a shareholder of the Relevant Subsidiary, unless Pengai Investment has given contrary written instructions.

Spousal consent letter

        Pursuant to relevant spousal consent letters executed by Ms. Ding Wenting, she unconditionally and irrevocably agreed that the equity interest in each of the Relevant Subsidiaries held or to be held by Dr. Zhou Pengwu and registered or to be registered in his name will be disposed of pursuant to the loan agreement, the economic interest transfer agreement, the exclusive option agreement and the power of attorney. Ms. Ding Wenting agreed not to assert any rights over the equity interest in the Relevant Subsidiaries held or to be held by Dr. Zhou Pengwu. In addition, in the event that Ms. Ding Wenting obtains any equity interest in each of the Relevant Subsidiaries for any reason, she agreed to be bound by the Contractual Arrangements.

        In the opinion of Han Kun Law Offices, our PRC counsel, (i) the above Contractual Arrangements currently do not, and immediately after giving effect to this offering, will not result in any violation of the applicable PRC laws or regulations currently in effect; and (ii) the agreements under the Contractual Arrangements among Dr. Zhou Pengwu, Shenzhen Pengai Investment and Relevant Subsidiaries are governed by PRC laws or regulations, are valid and binding upon each party to such arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect, and immediately after giving effect to this offering, will not contravene applicable PRC laws or regulations currently in effect.

        There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. We have been further advised by our PRC legal counsel that if the PRC government finds that the above Contractual Arrangements or the agreements under the Contractual Arrangements that establish the structure for operating aesthetic medical services, do not comply with PRC government restrictions on foreign investment in such businesses, we could be subject to severe penalties including being prohibited from continuing operations. For a description of the risks related to these contractual arrangements and our corporate structure, please see "Risk Factors—Risks related to our corporate structure."

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Selected Consolidated Financial Data

        The following selected consolidated financial data for the years ended December 31, 2016, 2017, 2018 and for the six months ended June 30, 2018 and 2019, and the selected financial position data as of December 31, 2016, 2017, 2018 and as of June 30, 2018 and 2019, have been derived from our audited consolidated financial statements and unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus. Our consolidated financial statements appearing in this prospectus have been prepared and presented in accordance with IFRS as issued by IASB.

        Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. The following information should be read in conjunction with "Risk Factors," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Consolidated statement of comprehensive income data

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share and per share data)
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value (loss)/gain of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679  

Earnings per share for profit attributable to owners of the Company

                                           

Basic

    1.23     (1.87 )   (6.22 )   (0.91 )   0.39     1.89     0.28  

Diluted

    0.02     (1.87 )   (6.22 )   (0.91 )   0.29     0.35     0.05  

Unaudited pro forma basic(1)

                0.49     0.07           0.35     0.05  

Unaudited pro forma diluted(1)

                0.49     0.07           0.35     0.05  

Shares used in profit/(loss) per share computation:

                                           

Basic

    41,000,000     41,000,000     41,060,255     41,060,255     41,000,000     41,798,219     41,798,219  

Diluted

    56,844,957     41,000,000     41,060,255     41,060,255     56,600,000     57,398,219     57,398,219  

Non-IFRS Financial Measure:

                                           

EBITDA(2)

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Adjusted EBITDA(2)

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

Note:

(1)
See note 10 to our audited consolidated financial statements and note 11 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this prospectus.

(2)
EBITDA represents our profit/(loss) before income tax, adjusted to exclude finance costs and amortization and depreciation. Adjusted EBITDA represents EBITDA, adjusted to exclude one-time compensatory expense arising from the issuance of exchangeable note liabilities, fair value gain/(loss) of convertible redeemable preferred shares, fair value loss of convertible note, fair value loss of exchangeable note liabilities, fair value loss of derivative financial instrument, share-based compensation expense, and other one-off expenses.

EBITDA and Adjusted EBITDA are non-IFRS financial measures. You should not consider EBITDA and Adjusted EBITDA as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not determined in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. We encourage you to review our financial information in its entirety and not rely on a single financial measure. We present

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    Adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by various items.

Selected consolidated financial position data

 
  As of December 31,   As of June 30,  
 
  2017   2018   2019  
 
  RMB
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Cash and cash equivalents

    105,345     101,886     14,841     78,656     11,458  

Total current assets

    227,698     282,967     41,219     213,304     31,071  

Total non-current assets

    350,286     393,572     57,330     762,541     111,077  

Total assets

    577,984     676,539     98,549     975,845     142,148  

Total deficit

    (22,240 )   (249,356 )   (36,323 )   (153,507 )   (22,361 )

Total current liabilities

    133,466     171,292     24,951     240,670     35,058  

Total non-current liabilities

    466,758     754,603     109,921     888,682     129,451  

Total liabilities

    600,224     925,895     134,872     1,129,352     164,509  

Total equity and liabilities

    577,984     676,539     98,549     975,845     142,148  

Selected consolidated cash flow data

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Net cash generated from operating activities

    52,084     76,979     4,894     713     12,323     45,691     6,656  

Net cash used in investing activities

    (38,865 )   (69,195 )   (76,182 )   (11,097 )   (56,047 )   (72,823 )   (10,608 )

Net cash generated from/(used in) financing activities

    58,626     (28,187 )   66,741     9,722     18,734     3,991     581  

Net increase/(decrease) in cash and cash equivalents

    71,845     (20,403 )   (4,547 )   (662 )   (24,990 )   (23,141 )   (3,371 )

Cash and cash equivalents at beginning of the year/period

    60,465     129,626     106,006     15,442     105,345     101,886     14,938  

Cash and cash equivalents at the end of the year/period

    129,626     106,006     102,547     14,938     80,221     78,656     11,458  

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        The following table reconciles Adjusted EBITDA to profit/(loss) for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019:

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Add: Finance Costs

    2,920     6,581     9,244     1,347     4,186     12,250     1,784  

Add: Amortization and depreciation

    38,729     29,111     32,140     4,682     16,305     40,155     5,849  

EBITDA

    105,889     (17,477 )   (192,588 )   (28,054 )   43,660     144,349     21,028  

Add: One-time compensatory expenses arising from the issuance of exchangeable note liabilities

    39,202                          

Add: Fair value (gains)/losses of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Add: Fair value (gains)/losses of convertible note

        1,283     9,152     1,333         5,358     780  

Add: Fair value (gains)/losses of exchangeable note liabilities

        38,307     56,925     8,292         (16,193 )   (2,359 )

Add: Fair value of (gains)/losses of derivative financial instrument

            301     44         14     2  

Add: Share-based compensation expense

                        6,281     915  

Add: Other one-off expenses(1)

        4,536     13,055     1,902     6,277     4,855     707  

Adjusted EBITDA

    96,064     112,110     113,093     16,474     49,937     101,608     14,801  

    Note:

(1)
Other one-off expenses include (i) professional fees in relation to our financing activities but are not capitalized; and (ii) IT-related expenses paid to a related party pursuant to a service agreement, which has expired in June 2019.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

        You should read the following discussion and analysis of our financial condition and results of operations together with "Selected consolidated financial data," and our financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the "Risk factors" and "Cautionary note regarding forward-looking statements" sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The terms "our company", "we", "our" or "us" as used herein refer to Aesthetic Medical International Holdings Group Limited and its consolidated subsidiaries unless otherwise stated or indicated by context.

Overview

        We are a leading provider of aesthetic medical services in China. We provide aesthetic medical services through 21 treatment centers (including 19 wholly or majority owned centers) in China, Hong Kong and Singapore. According to Frost & Sullivan, we are the third-largest private aesthetic medical services provider in China based on revenue in 2018.

        We generate revenue primarily from the provision of the following services, which represent our core business:

    Surgical aesthetic treatments, commonly referred to as plastic surgery in the United States, such as eye surgery, rhinoplasty, breast augmentation and liposuction; and

    Non-surgical aesthetic treatments, which comprise minimally invasive aesthetic treatments and energy-based treatments.

        We also generate revenue from our non-core business of providing general healthcare and other aesthetic services. General healthcare comprises a range of medical services, such as internal medicine and traditional Chinese medicine, and other aesthetic medical treatments comprise aesthetic dentistry, aesthetic traditional Chinese medicine and hair loss treatments.

        We generate our revenue primarily from providing aesthetic treatments. In the six months ended June 30, 2019, we generated 40.1%, 51.2% and 8.7% of our revenue from providing surgical aesthetic treatments, non-surgical aesthetic treatments, and general healthcare and other aesthetic services, respectively, as compared with 41.2%, 49.1% and 9.7% for the year ended December 31, 2018. The majority of our revenue came from out-of-pocket payments by our customers, who pay in advance for treatments.

        Our business has grown significantly in recent years through the expansion of our active customer base as well as our extensive treatment center network. Our active customer base, defined as customers who have received at least one procedure in the relevant year, has increased from 108,291 in 2016 to 178,657 in 2018, and from 85,635 in the six months ended June 30, 2018 to 100,048 in the six months ended June 30, 2019. Repeat customer, defined as active customers who have previously received at least one procedure, accounted for 54.1% and 52.8% of our active customer base in 2018 and the six months ended June 30, 2019, respectively, compared to 53.0% in 2016.

        The number of non-surgical aesthetic treatments we performed on our customers increased by 34.3%, from 124,116 in the year ended December 31, 2016 to 166,629 in the year ended December 31, 2017 and further increased by 41.3% to 235,367 in the year ended December 31, 2018. The number of non-surgical aesthetic treatments increased by 30.6% to 147,436 in the six months ended June 30, 2019 from 112,900 in the six months ended June 30, 2018. We have also seen strong growth in our surgical

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aesthetic treatments segment, with the number of procedures increasing 23.9%, from 27,337 in the year ended December 31, 2016 to 33,857 in the year ended December 31, 2017 and by 87.7% to 63,553 in the year ended December 31, 2018. The number of our surgical treatments increased by 14.1% to 27,984 in the six months ended June 30, 2019 from 24,531 in the six months ended June 30, 2018. Our revenue grew 19.2% from RMB584.9 million for the year ended December 31, 2016 to RMB697.4 million for the year ended December 31, 2017. Our revenue also grew 9.2% from RMB697.4 million for the year ended December 31, 2017 to RMB761.3 million for the year ended December 31, 2018. Our revenue grew 10.3% from RMB356.3 million for the six months ended June 30, 2018 to RMB393.1 million (US$57.3 million) for the six months ended June 30, 2019. We reported a profit of RMB50.5 million, a loss of RMB72.4 million, a loss of RMB252.5 million (US$36.8 million) and a profit of RMB80.2 million (US$11.7 million) in 2016, 2017, 2018 and the six months ended June 30, 2019, respectively, and an adjusted EBITDA of RMB96.1 million, RMB112.1 million, RMB113.1 million (US$16.5 million), RMB49.9 million and RMB101.6 million (US$14.8 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. See "Prospectus Summary—Consolidated statement of comprehensive income data" for information related to non-IFRS financial measures.

Factors affecting our results of operations

        We believe our financial condition and operations are affected by the following factors:

Our expansion through organic growth and acquisitions

        From January 1, 2016 to December 31, 2018, organic growth and the acquisition of new treatment centers were important contributors to our revenue growth. During these three years, we opened three and acquired three treatment centers, which contributed RMB18.4 million and RMB106.9 million (US$15.6 million) additional revenue in 2017 and 2018, respectively. During the six months ended June 30, 2019, we acquired one treatment center and increased our shareholding in another treatment center from 30% to 60%, which contributed RMB24.1 million (US$3.5 million) additional revenue in the six months ended June 30, 2019. We plan to continue to grow and strengthen our market position in the aesthetic medical market through both organic growth and strategic acquisitions of and investments in treatment centers in fast-growing, populous regions of China as well as in selected global markets to further extend our footprint. We believe continued expansion through organic growth and acquisitions will be an important factor affecting our future operating results.

Number of procedures performed and average spending per procedure

        Revenue from surgical and non-surgical aesthetic medical services is affected by the number of such procedures performed and the average spending per procedure. The number of procedures is generally affected by market demand, the number of our treatment centers and our marketing efforts. Average spending per procedure is generally affected by our product and service mix, customers' consumption habits, our marketing strategies and our pricing policy. The provision of general healthcare services has recently been affected by the current medical regulatory environment in China, which is not favorable to privately owned general hospitals. As a result, we have decided to decrease the general healthcare services we provide. However, we will continue to focus on other aesthetic medical services, and expect to continue generating revenue from these services.

Cost of sales and services rendered

        Our ability to control costs and expenses affects our profitability. Salaries in the medical treatment industry in China have generally been increasing in recent years, and we offer competitive wages and other benefits to recruit and retain quality medical professionals. In addition, when we open or acquire new treatment centers we hire additional employees who may initially be less productive than existing

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employees. In addition, our cost of inventories and consumables is significant, comprising 36.6%, 39.1%, 41.4%, 42.7% and 38.1% of our cost of sales and services rendered in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Cost of inventories and consumables is affected primarily by the number of procedures we perform, but the costs of materials we use in our services have been declining over time.

Successful marketing of our services

        In order to enhance public recognition of our brand and new treatment procedures or services in both existing and new markets, we advertise through various media platforms. We utilize various marketing tools, including advertising on traditional media and online channels, hosting promotional events and circulating promotional materials, to attract new customers, retain our existing customers and increase customers' spending. We have been seeking to optimize the marketing channels we use, and to deepen our cooperation with new media marketing channels such as So-Young, in order to improve the efficiency of our sales and marketing efforts. Our advertising and marketing expenses were RMB157.8 million, RMB227.5 million, RMB245.9 million (US$35.8 million), RMB112.2 million and RMB116.5 million (US$17.0 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively, accounting for 27.0%, 32.6%, 32.3%, 31.5% and 29.6% respectively, of our revenue for the same periods. The effectiveness of our marketing and promotional efforts will directly impact our revenue and profitability.

Ability to introduce and develop innovative aesthetic medical service techniques

        Success in the aesthetic medical market requires us to monitor closely market trends and customer preferences, introduce new treatment procedures and services, and enhance our existing services and procedures. We regularly consult with experts at well-respected foreign aesthetic medical institutions in the United States, Europe, South Korea and Japan to learn and adopt new aesthetic medical solutions, standards and technologies. Our ability to adopt the latest technologies and quickly and cost-effectively respond to our customers' ever changing preferences are key to our success.

Certain statements of comprehensive income line items

Revenue

        We have one reporting segment and generate revenue from three service offerings: (i) non-surgical aesthetic medical services, comprising minimally invasive aesthetic treatments and energy-based treatments, (ii) surgical aesthetic medical services, and (iii) general healthcare services and other aesthetic medical services. We regard our non-surgical and surgical aesthetic medical services as our core business that we believe will have the greatest impact on our future results of operations. The following table sets forth a breakdown of our revenue, as an amount and as a percentage of total revenue, by service offering for the periods indicated.

 
  For the year ended December 31,   For the six months ended June 30,  
 
  2016   2017   2018   2018   2019  
 
  RMB
   
  RMB
   
  RMB
  US$
   
  RMB
   
  RMB
  US$
   
 
 
  (in thousands, except percentages)
 

Non-surgical aesthetic medical services

                                                                         

Minimally invasive aesthetic treatments

    171,160     29.3 %   189,668     27.2 %   199,119     29,005     26.2 %   91,279     25.6 %   102,456     14,925     26.1 %

Energy-based treatments

    126,887     21.7 %   141,760     20.3 %   174,229     25,379     22.9 %   78,608     22.1 %   98,684     14,375     25.1 %

Sub-total

    298,047     51.0 %   331,428     47.5 %   373,348     54,384     49.1 %   169,887     47.7 %   201,140     29,300     51.2 %

Surgical aesthetic medical services

    174,072     29.7 %   239,094     34.3 %   313,897     45,724     41.2 %   138,343     38.8 %   157,524     22,946     40.1 %

General healthcare services and other aesthetic medical services

    112,738     19.3 %   126,874     18.2 %   74,061     10,788     9.7 %   48,079     13.5 %   34,410     5,012     8.7 %

Total

    584,857     100.0 %   697,396     100.0 %   761,306     110,897     100.0 %   356,309     100.0 %   393,074     57,258     100.0 %

        Our revenue primarily depends on the number of procedures performed and average spending by our customers per procedure.

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        The following table sets forth certain of our operating data for the periods indicated.

 
  For the year ended
December 31,
  For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  

Number of procedures performed

                               

Non-surgical aesthetic medical services

                               

Minimally invasive aesthetic treatments          

    41,983     59,463     77,111     37,015     44,206  

Energy-based treatments

    82,133     107,166     158,256     75,885     103,230  

Sub-total

    124,116     166,629     235,367     112,900     147,436  

Surgical aesthetic medical services

    27,337     33,857     63,553     24,531     27,984  

 

 
  For the year ended
December 31,
  For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 

Average spending by our customers per procedure

                                           

Non-surgical aesthetic medical services

    2,401     1,989     1,586     231     1,505     1,364     199  

Minimally invasive aesthetic treatments

    4,077     3,190     2,582     376     2,466     2,318     338  

Energy-based treatments

    1,545     1,323     1,101     160     1,036     956     139  

Surgical aesthetic medical services

    6,368     7,062     4,939     719     5,640     5,629     820  

        From 2016 to 2018, and from the six months ended June 30, 2018 to the six months ended June 30, 2019, average spending by our customers per procedure had generally declined due to a number of factors. For example, as part of our marketing strategy, we encourage potential customers to try out our services by offering a small number of low-ASP treatments; in addition, in order to increase utilization of our equipment, we from time to time offer promotional events to attract new customers; and as such we may adjust our pricing policy in response to increased competition and the decrease in cost of materials, such as hyaluronic acid. These measures have negatively contributed to our overall average spending by customers per procedure, but we believe these measures are beneficial to our overall profitability and long-term growth.

Aesthetic medical services (surgical and non-surgical)

        Our aesthetic medical services consist of surgical and non-surgical aesthetic medical services. Our revenue from aesthetic medical services was RMB472.1 million, RMB570.5 million, RMB687.2 million (US$100.1 million), RMB308.2 million and RMB358.7 million (US$52.3 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Revenue from aesthetic medical services as a percentage of our total revenue was 80.7%, 81.8%, 90.3%, 86.5% and 91.3% in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively.

Non-surgical aesthetic medical services

        Our non-surgical aesthetic medical services primarily consist of services such as injection treatments, energy-based treatments and thread lifts. Our revenue from non-surgical aesthetic medical services was RMB298.0 million, RMB331.4 million, RMB373.3 million (US$54.4 million), RMB169.9 million and RMB201.1 million (US$29.3 million) in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively. Revenue from non-surgical aesthetic medical services as a percentage of our total revenue was 51.0%, 47.5%, 49.1%, 47.7% and 51.2% in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively.

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Surgical aesthetic medical services

        Our surgical aesthetic medical services primarily consist of services such as eye surgery (for example, double eyelid surgery), nose surgery (rhinoplasty), breast augmentation and liposuction. Our revenue from surgical aesthetic medical services was RMB174.1 million, RMB239.1 million, RMB313.9 million (US$45.7 million), RMB138.3 million and RMB157.5 million (US$22.9 million), respectively, representing 29.8%, 34.3%, 41.2%, 38.8% and 40.1%, of our total revenue, respectively, in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019.

General healthcare services and other aesthetic medical services

        General healthcare services and other aesthetic medical services primarily consist of a range of medical services, such as internal medicine, urology, gynecology and obstetrics treatments, as well as various other aesthetic medical treatments, such as dentistry, dermatology and hair loss treatments. Our revenue from general healthcare services and other aesthetic medical services was RMB112.7 million, RMB126.9 million, RMB74.1 million (US$10.8 million), RMB48.1 million and RMB34.4 million (US$5.0 million), respectively, representing 19.3%, 18.2%, 9.7%, 13.5% and 8.7% of our total revenue, respectively, in 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019.

Cost of sales and services rendered

        Our cost of sales and services rendered primarily consists of employee benefit expenses for our medical staff, cost of inventories and consumables, inspection fee paid to third party inspection service providers, as well as operating lease and rental expenses, depreciation and amortization, and utilities and office expenses incurred in relation to our medical staff.

        In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our cost of sales and services rendered amounted to RMB217.3 million, RMB234.5 million, RMB258.6 million (US$37.7 million), RMB125.9 million and RMB126.5 million (US$18.4 million), respectively, representing 37.2%, 33.6%, 34.0%, 35.3% and 32.2% of our total revenue, respectively.

Gross margin

        The table below sets forth a breakdown of our gross margin by service offering for the periods indicated.

 
  Gross margin
for the year
ended
December 31,
  Gross margin
for the six
months ended
June 30,
 
 
  2016   2017   2018   2018   2019  

Non-surgical aesthetic medical services

    66.2 %   66.2 %   67.4 %   64.5 %   72.4 %

Minimally invasive aesthetic treatments

    69.3 %   67.5 %   70.1 %   65.0 %   72.7 %

Energy-based treatments

    62.0 %   66.0 %   64.2 %   64.0 %   72.2 %

Surgical aesthetic medical services

    60.8 %   66.0 %   66.4 %   64.0 %   62.7 %

General healthcare services and other aesthetic medical services

    57.0 %   65.7 %   57.7 %   67.0 %   64.3 %

Overall

    62.8 %   66.4 %   66.0 %   64.7 %   67.8 %

Selling expenses

        Selling expenses primarily consist of advertising and marketing expenses, and the employee benefit expenses for our sales team. In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our selling expenses amounted to RMB231.2 million, RMB300.4 million, RMB333.5 million (US$48.6 million), RMB158.4 million and RMB165.3 million (US$24.1 million), respectively, representing 39.5%, 43.1%, 43.8%, 44.5% and 42.0% of our revenue in the corresponding period.

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General and administrative expenses

        General and administrative expenses primarily consist of employee benefit expenses for our management team, as well as the utility and office expense and rental expense incurred in relation to our administrative staff. In 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, our general and administrative expenses amounted to RMB121.8 million, RMB92.8 million, RMB115.5 million (US$16.8 million), RMB52.4 million and RMB66.3 million (US$9.7 million), respectively, representing 20.8%, 13.3%, 15.2%, 14.7% and 16.9% of our revenue in the corresponding period.

Fair value gain/(loss) of convertible redeemable preferred shares

        We designated our convertible redeemable preferred shares as financial liabilities at fair value through profit or loss. They were initially recognized at fair value. They are carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value gain of the convertible redeemable preferred shares of RMB49.0 million in 2016 and a fair value loss of the convertible redeemable preferred shares of RMB85.5 million and RMB226.2 million (US$32.9 million), in 2017 and 2018, respectively. We recorded a fair value gain of the convertible redeemable preferred shares of RMB43.1 million (US$6.3 million) in the six months ended June 30, 2019. Immediately prior to the completion of this offering, the convertible redeemable preferred shares will be automatically converted and re-designated into our company's ordinary shares on a one-to-one basis (subject to adjustment for dilutive issuances) and their carrying amount will be transferred to our company's equity. Accordingly, there will be no fair value gain or loss of the convertible redeemable preferred shares for any period following completion of this offering.

Fair value loss of convertible note

        We designated our convertible note as a financial liability at fair value through profit or loss. It was initially recognized at fair value. It is carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value loss of the convertible note of RMB1.3 million, RMB9.2 million (US$1.3 million), RMB5.4 million (US$0.8 million) in 2017, 2018 and the six months ended June 30, 2019, respectively.

Fair value gain/(loss) of exchangeable note liabilities

        We designated our exchangeable note liabilities as financial liabilities at fair value through profit or loss. They were initially recognized at fair value. They are carried at fair value with changes in fair value recognized in profit or loss. We recorded a fair value loss of exchangeable note liabilities of RMB38.3 million and RMB56.9 million (US$8.3 million) in 2017 and 2018, respectively. We recorded a fair value gain of exchangeable note liabilities of RMB16.2 million (US$2.4 million) in the six months ended June 30, 2019.

Income tax expense

        Our income tax expense consists of current income taxation and deferred income tax credit or charge. Our subsidiaries established and operated in the PRC are subject to PRC corporate income tax at the rate of 25%.

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        The following table shows a breakdown of our income tax expense for the periods indicated.

 
  For the year ended on
December 31,
  For the six months
ended on June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Current income taxation:

                                           

—PRC corporate income tax

    20,251     18,713     21,073     3,070     9,797     16,318     2,377  

Deferred income tax (credit)/charge

    (6,538 )   547     (2,565 )   (374 )   (3,524 )   (4,538 )   (661 )

Total

    13,713     19,260     18,508     2,696     6,273     11,780     1,716  

        Our effective tax rates were 21.3%, (36.2%), (7.9)%, 27.1% and 12.8% for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019, respectively, which fluctuation was mainly due to the non-taxable fair value changes in relation to our convertible redeemable preferred shares, convertible note, exchangeable note liabilities, and derivative financial instruments, as well as certain other non-tax deductible expenses such as the interest expense on convertible note, share-based compensation expenses, and professional fees in relation to our financing activities but are not capitalized.

        The income tax expense as a percentage of adjusted profit before income tax is presented as a supplemental disclosure because it is used by us to analyze the fluctuation of income tax expenses. However, adjusted profit before income tax is a non-IFRS financial measure and should not be considered in isolation or construed as an alternative to profit/(loss) before income tax as an indicator normally included in IFRS-based financial results. Adjusted profit before income tax presented in this prospectus may not be comparable to other similarly titled measurements of other companies. The following table provides a quantitative reconciliation of adjusted profit before income tax to its most directly comparable IFRS measurement, profit/(loss) before income tax:

 
  For the year ended December 31,   For the six months
ended June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Profit/(loss) before income tax for the year

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Adjusted for:

                                           

One-time compensatory expense arising from the issuance of exchangeable note liabilities

    39,202                          

Fair value (gain)/loss of convertible redeemable preferred shares

    (49,027 )   85,461     226,248     32,957         (43,056 )   (6,272 )

Fair value loss of convertible note

        1,283     9,152     1,333         5,358     780  

Fair value (gain)/loss of exchangeable note liabilities

        38,307     56,925     8,292         (16,193 )   (2,359 )

Fair value loss of derivative financial instrument

            301     44         14     2  

Interest expense on convertible note

        4,815     4,660     679     2,185     2,370     345  

Share-based compensation expense

                        6,281     915  

Professional fees

        2,036     8,055     1,173     3,777     2,355     343  

Adjusted profit before income tax for the year/period

    54,415     78,733     71,369     10,395     29,131     49,073     7,149  

Effective tax rate based on adjusted profit before income tax

    25.2 %   24.5 %   25.9 %         21.5 %   24.0 %      

        Our income tax expense as a percentage of the adjusted profit before income tax for the years ended December 31, 2016, 2017, 2018 and the six months ended June 30, 2018 and 2019 were 25.2%, 24.5%, 25.9%, 21.5% and 24.0%, respectively.

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Taxation

Cayman Islands

        We are an exempted company with limited liability incorporated in the Cayman Islands. Under Cayman Islands law, we are not subject to income or capital gains tax in the Cayman Islands.

Hong Kong

        Hong Kong profits tax rate is 16.5%. During the periods under review, we did not incur any profit tax as there was no estimated assessable profit that was subject to Hong Kong profit tax.

PRC

        Pursuant to the EIT Law, a uniform 25% EIT rate is generally applied to both foreign-invested except where a special preferential rate applies. Our PRC subsidiaries were subject to this uniform 25% EIT rate during the periods under review.

        Under the EIT Law, the profits of a foreign-invested enterprise that are distributed to its immediate holding company outside the PRC will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC, such rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of a PRC company during the 12 consecutive months preceding the receipt of the dividends and is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements.

Results of operations

        The following table sets forth our results of operations for the periods indicated in absolute amounts and as a percentage of revenue.

 
  For the year ended December 31,   For the six months ended
June 30,
 
 
  2016   2017   2018   2018   2019  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
   
 

Revenue

    584,857     697,396     761,306     110,897     356,309     393,074     57,258  

Cost of sales and services rendered

    (217,339 )   (234,522 )   (258,567 )   (37,665 )   (125,883 )   (126,545 )   (18,433 )

Gross profit

    367,518     462,874     502,739     73,232     230,426     266,529     38,825  

Selling expenses

    (231,229 )   (300,362 )   (333,526 )   (48,584 )   (158,424 )   (165,286 )   (24,077 )

General and administrative expenses

    (121,763 )   (92,836 )   (115,485 )   (16,822 )   (52,419 )   (66,303 )   (9,658 )

Finance income

    309     868     322     47     161     213     31  

Finance costs

    (2,920 )   (6,581 )   (9,244 )   (1,347 )   (4,186 )   (12,250 )   (1,784 )

Other gains, net

    1,704     9,334     12,118     1,765     6,845     16,532     2,408  

Fair value gain/(loss) of the convertible redeemable preferred shares

    49,027     (85,461 )   (226,248 )   (32,957 )       43,056     6,272  

Fair value loss of convertible note

        (1,283 )   (9,152 )   (1,333 )       (5,358 )   (780 )

Fair value gain/(loss) of exchangeable note liabilities

        (38,307 )   (56,925 )   (8,292 )       16,193     2,359  

Fair value loss of derivative financial instrument

            (301 )   (44 )       (14 )   (2 )

Share of profits/(losses) of investments accounted for using the equity method

    1,594     (1,415 )   1,730     252     766     (1,368 )   (199 )

Profit/(loss) before income tax

    64,240     (53,169 )   (233,972 )   (34,083 )   23,169     91,944     13,395  

Income tax expense

    (13,713 )   (19,260 )   (18,508 )   (2,696 )   (6,273 )   (11,780 )   (1,716 )

Profit/(loss) for the year/period

    50,527     (72,429 )   (252,480 )   (36,779 )   16,896     80,164     11,679