Net profit increased only 1.6%, hitting a five-year low, as China Pharma Holdings faces M&A "growing pains"

Question AI · How does China Resources Sanjiu address the pressure of rising costs during mergers and acquisitions?

On March 20, China Resources Sanjiu (000999.SZ) released its 2025 annual report. In the first year after acquiring Tasly (600535.SH), China Resources Sanjiu experienced an increase in revenue without corresponding profit growth, with net profit growth slowing down significantly for the first time in recent years. Continuous acquisitions in recent years have made integration one of the key themes for the company’s future development. At the same time, challenges are emerging due to the declining performance of its subsidiary Kun Pharmaceutical Group (600422.SH) and changes in pharmaceutical industry policies.

According to the latest annual report, China Resources Sanjiu achieved operating revenue of 31.603 billion yuan in 2025, a year-on-year increase of 14.43%; net profit attributable to the parent was 3.421 billion yuan, up 1.58%; non-recurring net profit was 3.134 billion yuan, up 0.52%. This growth rate is significantly slower than in previous years and is the lowest in the past five years—between 2021 and 2024, the company’s annual net profit maintained double-digit growth.

Behind the phenomenon of rising revenue but stagnant profit: dual pressures from rising costs and integration challenges

It is evident that the company’s revenue growth outpaced profit growth, resulting in a situation of increasing income without increasing profit. Some reasons can be inferred from gross profit data. According to Tonghuashun iFinD data, China Resources Sanjiu’s gross profit margin in 2025 was 54.03%, an increase of 2.17 percentage points year-on-year; meanwhile, the net profit margin decreased slightly by 0.5 percentage points to 13.18%.

While gross profit margin increased, net profit margin declined, indicating that operating expenses grew faster than gross profit. Notably, sales expenses and R&D expenses increased significantly. Data shows that in 2025, sales expenses reached 9.089 billion yuan, a 25.88% increase year-on-year, accounting for 28.76% of revenue, up 2.62 percentage points. R&D expenses surged by 58.16% to 1.268 billion yuan, accounting for 4.01% of revenue, an increase of 1.11 percentage points. The company explained in the annual report that this was due to acquisitions of subsidiaries during the period.

In recent years, China Resources Sanjiu has carried out multiple major acquisitions. Before acquiring Tasly in 2025, the company integrated Kun Pharmaceutical Group into its revenue structure. Currently, China Resources Sanjiu positions its various segments as: China Resources Sanjiu, Tasly, and Kun Pharmaceutical Group, focusing respectively on CHC (Consumer Healthcare), prescription drugs, and premium traditional Chinese medicine.

The consolidation of Tasly has directly impacted the cost structure. As mentioned earlier, Tasly mainly focuses on prescription drugs and invests heavily in innovative Chinese medicine, with R&D investment consistently high. According to Tonghuashun iFinD data, in 2024, Tasly’s R&D expenditure accounted for 12.23% of its revenue, ranking fifth among 69 Chinese medicine companies. Additionally, Tasly’s historical sales expense ratio has been higher than that of China Resources Sanjiu, raising the overall sales expense level.

Kun Pharmaceutical Group, on the other hand, is a different drag on performance. Its traditional Chinese medicine business saw a significant revenue decline in 2025, down 33.68% year-on-year. According to its previous annual reports, factors such as channel reforms and market segmentation in retail contributed to its performance decline.

CHC under pressure, prescription drugs recovering, aiming for profit growth matching revenue in 2026

Regarding revenue structure, the annual report indicates that due to acquisitions, China Resources Sanjiu’s revenue structure has changed, with self-diagnosis (CHC) and prescription drugs contributing 47.82% and 38.27% respectively. Wholesale and retail of medicines and medical devices, and packaging and printing contributed 12.33% and 1.59%.

From a business perspective, Consumer Healthcare (CHC) has always been a core segment. The company’s CHC health products mainly cover cold, gastrointestinal, dermatology, hepatology, pediatrics, orthopedics, gynecology, and other categories. The well-known “999” flagship brand is part of this segment.

Excluding adjustments, the company’s 2025 CHC revenue decreased by 6.75% year-on-year. According to Southwest Securities research reports, the respiratory product category was affected by high base effects last year and a decline in respiratory disease incidence this year, leading to phased adjustments in retail channels since late last year. The company also mentioned in the annual report that in 2025, it will continue to “respond to the decline in respiratory disease incidence” in its CHC health products.

Prescription drugs are showing signs of recovery. Excluding the contribution from Tasly, China Resources Sanjiu’s prescription drug revenue in 2025 increased by 7.87% year-on-year. Southwest Securities noted that the company has largely absorbed the impact of centralized procurement and is gradually recovering.

In its operational plan, China Resources Sanjiu states: “It is expected that in 2026, the company’s revenue will surpass the industry average growth rate, with profits matching revenue growth.” This indicates a need to reverse the current situation of revenue growth without profit growth, requiring improvements in both internal operations and integration.

Additionally, China Resources Sanjiu emphasizes that the above forecast does not account for potential impacts from investments, acquisitions, external environment, or other unpredictable factors, and assumes that macroeconomic changes will not significantly affect the overall health industry, that policy implementations will not severely impact sales and prices of core products, and that centralized procurement and joint procurement will proceed as expected.