Core Viewpoint - The traditional Chinese medicine (TCM) sector is experiencing a phase of adjustment, with signs of resilience and potential recovery in profitability, supported by policy backing and market dynamics [3][4]. Group 1: Market Performance - The Shanghai Composite Index experienced a pullback, while the TCM sector continued to adjust, with the TCM ETF (560080) declining by 0.91% for five consecutive days [1]. - The trading volume for the TCM ETF exceeded 120 million yuan, marking a 68% increase compared to the previous day [1]. - The TCM ETF has seen net inflows in 9 out of the last 10 days, accumulating over 150 million yuan, with the latest fund size exceeding 2.4 billion yuan, leading its peers significantly [1]. Group 2: Financial Performance - In the first half of 2025, the TCM sector's total revenue was 172.9 billion yuan, a year-on-year decrease of 4.95%, while the net profit attributable to the parent company was 19.1 billion yuan, down 9.31% [4]. - The operating cash flow improved by 30.77% year-on-year, reaching 16.96 billion yuan [4]. - The gross margin for the TCM sector in H1 2025 was 42.05%, a decrease of 1.01 percentage points year-on-year, while the net profit margin was 11.04%, down 0.56 percentage points [4]. Group 3: Market Dynamics and Trends - Despite short-term demand pressures, the retail pharmacy sector's consolidation is expected to enhance the market concentration of OTC products [7]. - Market shares for leading OTC products have increased, with notable gains for brands like Huazhu Sanjiu and Jiangzhong Pharmaceutical [7]. - The TCM sector is characterized by both new consumer demand and pharmaceutical attributes, suggesting a favorable investment outlook for the TCM ETF (560080) and related funds [7].

Core Viewpoint - The Chinese medicine sector is experiencing a phase of performance pressure, but there are signs of potential recovery in demand and profitability in the second half of 2025, with a focus on companies with strong fundamentals and innovative pipelines [7][10][11]. Market Performance - On September 4, the Shanghai Composite Index fell over 1%, and the Sci-Tech Innovation 50 Index dropped more than 5%, indicating a volatile market environment [1]. - The Chinese medicine ETF (560080) saw a slight decline of 0.54%, with a trading volume exceeding 44 million yuan, reflecting strong demand for buying on dips despite recent losses [1]. Valuation Metrics - As of September 3, 2025, the TTM price-to-earnings ratio of the CSI Traditional Chinese Medicine Index is 25.75x, which is at a low level since 2021 [3]. Company Performance - In the first half of 2025, the total revenue of 64 Chinese medicine companies was 172.9 billion yuan, a year-on-year decrease of 4.95%, while the net profit attributable to shareholders decreased by 9.31% to 19.1 billion yuan [7]. - The gross margin for the sector was 42.05%, down 1.01 percentage points year-on-year, while the net profit margin was 11.04%, down 0.56 percentage points [7]. Cash Flow and Expenses - The median expense ratio for the Chinese medicine sector in the first half of 2025 was 44.5%, up 1.5 percentage points from the same period in 2024, indicating stable expense management [9]. - Operating cash flow improved by 30.77% year-on-year, suggesting better collection of receivables [7][9]. Market Trends - Despite weak OTC demand, the consolidation of retail pharmacies is expected to enhance market concentration for leading OTC products, with market shares for key products increasing [10]. - The Chinese medicine industry is expected to benefit from three main themes: price governance, consumption recovery, and state-owned enterprise reform, which could lead to improved performance for competitive companies [11][12].

Core Viewpoint - The Chinese herbal medicine sector is expected to see a gradual recovery in gross margins in H2 2025 as the pressure from high-priced raw materials diminishes, despite ongoing operational challenges for companies and weak OTC demand [1][2]. Group 1: Industry Performance - In H1 2025, the total revenue of 64 Chinese herbal medicine companies was 172.9 billion yuan, a year-on-year decrease of 4.95%, while the net profit excluding extraordinary items was 19.1 billion yuan, down 9.31% year-on-year [2]. - The gross margin for the sector in H1 2025 was 42.05%, a decline of 1.01 percentage points year-on-year, and the net profit margin excluding extraordinary items was 11.04%, down 0.56 percentage points year-on-year [2]. - The prices of Chinese medicinal materials have stabilized since mid-2024, with a notable decline starting in May 2025, which is expected to alleviate cost pressures in H2 2025 [2]. Group 2: Financial Metrics - The median expense ratio for the herbal medicine sector in H1 2025 was 44.5%, an increase of 1.5 percentage points compared to the same period in 2024, while the median sales expense ratio was 31.6%, a slight decrease of 0.1 percentage points [3]. - The ratio of accounts receivable plus notes receivable to total revenue was 48.8%, and the inventory to total assets ratio was 12.3%, indicating an increase in accounts receivable as a proportion of total revenue compared to 2024 [3]. - Operating cash flow showed a slight improvement year-on-year in H1 2025, indicating enhanced collection efforts by herbal medicine companies [3]. Group 3: OTC Market Dynamics - The OTC demand remains weak, with a median revenue growth rate of -7.6% and a net profit growth rate of -19.7% for 22 OTC-focused herbal medicine companies in Q2 2025, indicating greater operational pressure compared to the overall sector [4]. - The retail scale of physical pharmacies in China for H1 2025 was 296.1 billion yuan, reflecting a year-on-year decline of 2.2%, which corroborates the weak OTC demand [4]. - Despite short-term demand pressures, the consolidation of retail pharmacies is expected to accelerate the concentration of the OTC market, with leading products gaining market share [4].

Investment Rating - The report maintains an "Overweight" rating for the traditional Chinese medicine sector [4]. Core Viewpoints - The traditional Chinese medicine sector is experiencing short-term performance pressure, but there are expectations for demand recovery in the future [7][10]. - The overall revenue and profit decline in the sector has narrowed compared to 2024, indicating a gradual recovery in industry sentiment [10]. - The report highlights the importance of brand OTC products, which are expected to see market share increases despite current demand pressures [7][26]. Summary by Sections 2025H1 Performance - In 2025H1, the total revenue of traditional Chinese medicine companies reached 172.9 billion yuan, a year-on-year decrease of 4.95% [10]. - The net profit excluding non-recurring items was 19.1 billion yuan, down 9.31% year-on-year [10]. - The operating cash flow improved significantly, reaching 16.96 billion yuan, an increase of 30.77% year-on-year [10]. OTC Market Analysis - The OTC segment is under pressure, with a median revenue growth rate of -7.6% and a net profit decline of -19.7% in Q2 2025 [26]. - The retail market for pharmaceuticals and non-pharmaceuticals in China saw a slight decline, with a total of 296.1 billion yuan in H1 2025, down 2.2% year-on-year [26][29]. - The report notes that the concentration of leading OTC brands is increasing, with significant market share gains for products like Huaren Sanjiu's Ganmaoling Granules [26][31]. Cost and Margin Outlook - The median gross margin for the sector in 2025H1 was 42.05%, a decrease of 1.01 percentage points year-on-year [10]. - The report anticipates a recovery in gross margins in H2 2025 as the pressure from high-priced raw materials eases [13]. - The median expense ratio for the sector was 44.5%, reflecting a stable cost structure despite slight increases in certain areas [15]. R&D and Innovation - The median R&D expense ratio for the sector remains around 3%, with leading companies like Kangyuan Pharmaceutical and Tian Shili investing over 10% of their revenue in R&D [24]. - The report emphasizes the potential for revaluation of innovative pipelines as companies increase their R&D investments [7].

Core Viewpoint - China Resources Sanjiu has been awarded the "ESG New Benchmark Enterprise Award" and "ESG Investment Value List" for its outstanding practices in Environmental, Social, and Governance (ESG) fields, highlighting its commitment to integrating economic efficiency with social responsibility [1] Environmental Dimension (E) - The company is focused on green and low-carbon development, with over 40% of its subsidiaries certified by ISO 14001 [4] - Pollution emissions are strictly controlled, with greenhouse gas emissions significantly reduced by 19.65% in 2024 compared to the previous year [4] - The innovative "Pharmaceutical Light Complementarity" zero-carbon demonstration project integrates photovoltaic power generation with traditional medicinal herb cultivation, providing over 220 million kWh of green electricity and reducing carbon emissions by over 1.23 million tons [4] - The total installed capacity of photovoltaic systems has exceeded 20 MWp, and the use of renewable energy has been steadily increased to 6.33% [4] Social Responsibility Dimension (S) - The company adheres to the principle of "Quality Safeguards Life," establishing a comprehensive quality management system that ensures full traceability throughout the drug lifecycle [5] - In 2024, the drug inspection pass rate remained at 100%, with no major responsibility accidents reported [5] - Customer rights protection is meticulous, achieving a complaint resolution rate and satisfaction rate of 100%, with zero data security incidents [5] - The company has invested in education and health support, building eight primary schools in Ya'an and benefiting millions of patients through health assistance [5] - In 2024, the company purchased over one million yuan worth of agricultural products to support rural revitalization [5] Governance Dimension (G) - The company promotes compliance operations through high-quality party building, integrating political leadership with business operations [5] - A comprehensive risk management system based on the COSO framework has been established to systematically identify and control risks [5] - The board of directors has made progress in diversity, with female directors accounting for 18.18% [5] Future Outlook - Looking ahead to 2025, the company aims to strengthen quality management, enhance independent research and intelligent manufacturing, and deepen its green and low-carbon transformation [6] - The company is committed to expanding the breadth and depth of its ESG practices and supporting rural revitalization, contributing to the "Healthy China" strategy [6]

Investment Rating - The report maintains an investment rating of "Outperform the Market - A" for the pharmaceutical industry [8]. Core Insights - The overall retail sales of traditional Chinese medicine (TCM) in pharmacies showed a year-on-year decline in Q1 2025, indicating pressure on the market [3][19]. - The report highlights stable rankings among major products in various therapeutic areas despite the overall sales decline [18]. Summary by Sections Overall Situation - The retail sales of TCM in pharmacies increased from 143.9 billion yuan in 2017 to 168 billion yuan in 2024, with a compound annual growth rate (CAGR) of 2.23%. However, Q1 2025 sales were 41.2 billion yuan, down 7.67% year-on-year, attributed to regulatory pressures and consumer downgrade [3][19]. Therapeutic Areas - **Cold and Heat Relief**: Sales decreased by 6.90% year-on-year in Q1 2025, with sales reaching 7.3 billion yuan, influenced by lower respiratory disease cases compared to the previous year [4][22]. - **Nutritional and Health Supplements**: Sales slightly declined by 1.01% year-on-year in Q1 2025, totaling 5.8 billion yuan, impacted by consumer downgrade and high sales in the previous year [5][25]. - **Cardiovascular Health**: Sales showed a slight decline of 2.98% year-on-year in Q1 2025, with sales at 10.4 billion yuan, reflecting stable market demand [6][28]. - **Musculoskeletal Health**: Sales increased by 0.68% year-on-year in Q1 2025, reaching 3.7 billion yuan, indicating long-term growth potential due to aging demographics [14][31]. - **Gastrointestinal Health**: Sales grew by 7.13% year-on-year in Q1 2025, totaling 16 billion yuan, reflecting a recovery in demand [34]. - **Cough and Phlegm Relief**: Sales dropped significantly by 26.80% year-on-year in Q1 2025, amounting to 4.8 billion yuan, primarily due to a high base effect from the previous year [15][37].

Group 1 - The core viewpoint indicates a resurgence of COVID-19 cases in China, with a notable increase in positive rates among emergency and hospitalized patients, leading to a surge in demand for related medications [1][2] - The COVID-19 positive rate in emergency visits rose from 7.5% to 16.2%, and in hospitalized cases from 3.3% to 6.3% during the monitoring period from March 31 to May 4 [1] - The demand for COVID-19 medications has significantly increased, with online searches for related drugs on platforms like Meituan doubling in recent days, particularly in cities like Guangzhou and Shenzhen [3][6] Group 2 - Sales of certain anti-fever and cold medications have increased by 2 to 5 times year-on-year, indicating a heightened consumer interest in these products [6][7] - Specific products, such as Baiyunshan Banlangen, have become popular for their multifunctional benefits in treating COVID-19 and throat symptoms, reflecting a shift in consumer preferences towards effective home remedies [6][7] - Pharmacies report that the supply of various medications is sufficient, and consumers are advised to purchase as needed rather than stockpiling [6][7]

证券研究报告|医药生物|2025年3月21日 www.hczq.com 华创医药投资观点&研究专题周周谈·第118期 2024年零售渠道中成药表现 本周专题联系人：高初茜 | 华创医药团队： | | | --- | --- | | 首席分析师 郑辰 | 执业编号: S0360520110002 邮箱: zhengchen@hcyjs.com | | 联席首席分析师 刘浩 | 执业编号: S0360520120002 邮箱: liuhao@hcyjs.com | | 医疗器械组组长 李婵娟 | 执业编号: S0360520110004 邮箱: lichanjuan@hcyjs.com | | 中药和流通组组长 高初茜 | 执业编号：S0360524070002 邮箱：gaochulei@hcyjs.com | | 分析师 万梦蝶 | 执业编号：S0360523080008 邮箱：wanmengdie@hcyjs.com | | 分析师 王宏雨 | 执业编号：S0360523080006 邮箱：wanghongyu@hcyjs.com | | 分析师 朱珂琛 | 执业编号: S0360524070007 邮箱: ...

Market Overview - The overall market sentiment for the pharmaceutical sector remains cautious, with the CITIC Pharmaceutical Index rising by 1.08%, underperforming the CSI 300 Index by 0.03 percentage points, ranking 18th among 30 CITIC first-level industry indices [4][7]. - The top ten stocks by weekly gain include Kanghui Pharmaceutical, *ST Jingfeng, and Rongchang Bio, while the biggest losers include Beiyikang and Wuxi Jinghai [3][4]. Investment Themes - The pharmaceutical sector is currently undervalued, with public funds (excluding pharmaceutical funds) showing low allocation to this sector. The outlook for the pharmaceutical industry in 2025 remains optimistic due to macroeconomic factors such as the recovery of US Treasury yields and the driving effect of large categories on the industry [7]. - In the innovative drug segment, there is a shift from quantity to quality, emphasizing differentiated and internationalized pipelines. Companies like Heng Rui, Bai Ji, and Bei Da are recommended for investment [7]. - The medical device market is witnessing a recovery in bidding volumes, particularly in imaging equipment, with companies like Mindray and United Imaging being highlighted. The home medical device market is also expected to benefit from subsidy policies [7]. - The CXO and life sciences services sector is anticipated to see a rebound in investment, with a focus on companies that can deliver high profit elasticity as they enter the return phase [7]. Traditional Chinese Medicine (TCM) Market - The retail sales of TCM are projected to remain stable, with a slight decline expected in 2024. The total retail sales are expected to reach 168 billion yuan, down 3.6% year-on-year [9][10]. - The top categories in TCM retail sales for 2024 include cold medicine, health supplements, and cardiovascular drugs, with notable products like Ganmao Ling Granules and Ejiao experiencing varying growth rates [15][19][24]. Specific Drug Categories - **Cold Medicine**: The retail sales are expected to decline by 8.4% in 2024, with the top product, Ganmao Ling Granules, showing a growth of 5.4% [20][21]. - **Health Supplements**: Despite a high base, the market is expected to see a slight decline, with Ejiao projected to drop by 13.4% [19][21]. - **Cardiovascular Drugs**: This category is experiencing its first decline in recent years, with a projected drop of 5.9% in 2024 [24]. - **Cough and Phlegm Relief**: Retail sales are expected to decrease by 4.3%, with products like Mi Lian Chuan Bei Pi Pa Gao showing a slight increase [29]. - **Gastrointestinal Drugs**: The market remains stable, with a projected decline of 3.4% in 2024 [33]. - **Musculoskeletal Drugs**: This category is expected to continue its downward trend, with a projected decline of 3.7% [36]. - **Urological Drugs**: The market has seen a significant decline, with a projected drop in sales [46]. - **Nervous System Drugs**: This category is expected to maintain stability, with a slight decline of 0.3% [48]. Conclusion - The pharmaceutical sector is navigating a complex landscape with varying performance across different categories. While some areas show promise for recovery and growth, others are facing challenges that could impact overall market sentiment and investment strategies [7][9][20][24].