GUOTAI HAITONG SECURITIES·2025-12-03 11:22Investment Rating - The report maintains an "Overweight" rating for the retail chain pharmacy industry [1][3]. Core Insights - The report highlights that leading pharmacies are beginning to recover from a challenging phase, with a focus on the growth potential in 2026 driven by both organic and external factors [2][3]. - The retail pharmacy market in China is projected to reach a retail scale of 611.9 billion yuan in 2024, reflecting a year-on-year decline of 1.8% due to factors such as population decrease and changes in healthcare insurance [3]. - The report identifies key companies to watch, including Yifeng Pharmacy, Dazhenglin, and Laobaixing, while also suggesting attention to Yixintang, Jianzhijia, and Shuyupingmin [3]. Summary by Sections Market Overview - The retail pharmacy market is experiencing a contraction in supply due to increased competition, with the number of physical pharmacies exceeding 700,000 in 2024, a 60% increase since 2014 [3]. - The report notes a recovery trend in the market, with a sequential growth of 6.7% in September 2025, despite a year-on-year decline of 1.9% in the first three quarters of 2025 [3]. Demand and Supply Dynamics - The demand side is showing signs of recovery, particularly in essential medicine categories, with a 6.9% sequential growth in drug retail sales in September 2025 [3]. - The report indicates that the concentration of leading pharmacy chains is expected to increase as smaller chains face operational challenges, leading to closures [3]. Future Outlook - The report anticipates that leading pharmacy chains will achieve recovery through both internal growth driven by rising flu cases and external growth via acquisitions, with a current low penetration of direct stores at about 1.5% [3][4]. - The long-term outlook remains positive for industry concentration, with expectations for continued growth in the leading pharmacy chains [3].