Key takeaway

The company released its 2026 interim earnings preview, achieving operating revenue of RMB4.201bn , down YoY by 2.03% ; net profit attributable to shareholders of the parent company was RMB893mn , up 15.23% ; recurring net profit attributable to shareholders of the parent company was RMB871mn , up 36.01%. In addition, the company had 10 products, including Shaoma Zhijing Granules, Jinghua Weikang Capsules, Eszopiclone, and Temozolomide, selected into the 2026 national essential drug catalog newly added list. Looking ahead, the company will continue tofocus on three major disease areas and optimize its R&D pipeline. Together with the channel empowerment brought by China Resources Sanjiu, the company is expected to achieve considerable additional growth while maintaining steady growth in its core products.

Event

The company released its 1H26 earnings preview, with multiple products included in the 2026 national essential drug catalog.

The company released its 1H26 earnings preview, achieving operating revenue of RMB4.201bn, down YoY by 2.03%; net profit attributable to shareholders of the parent company was RMB893mn, up YoY by 15.23%; recurring net profit attributable to shareholders of the parent company was RMB871mn, up YoY by 36.01%, and profit performance was in line with our expectations. In addition, the company had 10 products, including Shaoma Zhijing Granules, Jinghua Weikang Capsules, Eszopiclone, and Temozolomide, included in the newly added list of the 2026 national essential drug catalog.

Quick Take

Q2 results were in line with expectations, with solid full-year growth outlook

In 1H26, the company's operating revenue slightly declined 2.03% YoY 2.03% , mainly due to the impact of an industry-wide decline in the traditional Chinese medicine injection business. In addition, influenza incidence was relatively high in the same period last year, leading to strong sales of cold and fever medications. The lower incidence rate in the current period put some pressure on sales scale, but the core product Compound Danshen Dripping Pills maintained relatively stable performance. 1H26, the company's net profit attributable to shareholders of the parent company increased 15.23% YoY 15.23% , net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses increased YoY 36.01%, mainly due to: 1) the company continued to promote refined expense allocation, improving quality and efficiency; 2) the higher sales contribution from core products improved profitability.

Multiple products included in the National Essential Medicines List, with growth potential accelerating.

On July 9, 2026, the National Essential Medicines List (2026 Edition) was released, with 116 newly added drug varieties, including 68 chemical drugs and biological products and 48 traditional Chinese medicines. The company had a total of 10 products selected for the newly added list, including Shaoma Zhijing Granules, Jinghua Weikang Soft Capsules, Eszopiclone, and Temozolomide, covering therapeutic areas such as pediatrics, neuropsychiatry, digestive diseases, and oncology. Prior to this, the company already had three established blockbuster products — Compound Danshen Dripping Pills, Yangxue Qingnao Granules (Pills), and Qishen Yiqi Dripping Pills — continuously included in the current National Essential Medicines List. Looking ahead, we believe the company has established a tiered portfolio of essential medicine products across multiple pipelines. Supported by the essential medicine “986” allocation policy, it is expected to gradually penetrate the grassroots terminal drug market and contribute additional growth incrementally.

15th Five-Year Plan: adhering to innovation-driven development and striving to double profit

In March 2026, the company officially released its 15th Five-Year strategic plan: from the business perspective, the company will leverage its R&D technological strengths and commercialization foundation to focus on “3+1” disease areas, namely cardiovascular and metabolism, neurology/psychiatry, and digestive diseases as the three core disease areas, while selectively developing a fourth disease area based on pipeline deployment and future market opportunities. From the business model perspective, the company adopts a closed-loop business model of “building a foundation within hospitals and enhancing efficiency outside hospitals”: within hospitals, it focuses on “high clinical-value innovation + medically led academic promotion” as the core, achieving efficient commercialization from R&D through innovative products with clear clinical advantages and professional medical research and academic promotion; outside hospitals, it focuses on “undertaking hospital prescriptions + multi-touchpoint closed-loop throughout the patient journey” as the core, effectively undertaking prescriptions extended from hospitals through diversified channels, providing patient services, and achieving long-term repeat purchases. From the perspective of strategic targets, the company proposed to pursue both endogenous growth and external expansion, striving to double industrial operating revenue (reaching RMB15bn) and profits by the end of 2030, and successfully enter the top tier of Chinese pharmaceutical companies.

Looking ahead: continue optimizing the R&D pipeline and accelerate market synergies with Sanjiu

1) R&D: focus on three core disease areas and continue optimizing the R&D pipeline. Looking ahead to 2026, key areas to focus on include: ① cardiovascular and metabolic disease area: Qingshu Granules to file for production approval; Xiangju Rupining Capsules to complete all Phase III patient exits; Qishen Yiqi Dripping Pills to accelerate Phase III enrollment for the additional indication of heart failure with reduced ejection fraction; Qiling Wenshen Xiaonang Granules to obtain EOP2 feedback; Jiashen Tablets to complete the Phase II data review meeting; B2278 human umbilical cord mesenchymal stem cell injection for heart failure treatment to accelerate Phase I enrollment; ANGPTL3 small interfering RNA to file IND. ② neurology/psychiatry disease area: Zaoren Ningxin Dripping Pills (Anshen Dripping Pills) have been approved; PXT3003 to obtain marketing approval as early as possible; antidepressant JS1-1-01 to advance Phase IIb enrollment; Yangxue Qingnao to obtain EOP2 feedback for the additional AD indication; dual-target CAR-T cell injection to complete Phase I enrollment; adipose-derived mesenchymal stem cell injection to accelerate Phase I enrollment; Recombinant Human Prourokinase for Injection (Puyouke) to obtain clinical approval for acute ischemic stroke treatment within the 4.5-24h time window. ③ gastroenterology disease area: Lianxia Xiaopi Granules to complete all Phase III patient exits and database lock; B1962 to complete second-stage subject enrollment in Phase IIa; B1344 to complete Phase Ib and initiate Phase II; Changkang Granules to accelerate Phase III enrollment; CMI2402 to obtain clinical approval。 The inclusion of guidelines and expert consensus for core products will promote clinical research and commercialization of achievements, and is expected to continuously generate incremental contributions.

2) Channels: adhere to academic marketing as the leading growth driver and promote brand building, while accelerating market synergies with Sanjiu. The company will accelerate market synergies with CR SANJIU products, strengthen cooperation on resources and channels within the China Resources system, and through internal and external integration, fully integrate resources and leverage advantages to achieve deepproduct coverage, empowering long-term sales growth. ① For mature products such as Compound Danshen Dripping Pills and the Yangxue Qingnao series: for example, Compound Danshen Dripping Pills will use the diabetic retinopathy indication as an entry point to establish itself as a first-line traditional Chinese medicine treatment for diabetic retinopathy, continuously expand new customers, improve market penetration, and continuously create room for growth; ② For growth-stage products such as Qishen Yiqi Dripping Pills, Puyouke, Shuilinjia, and Shaoma Zhijing Granules: integrate resources to achieve rapid sales volume growth and enhance the products' market positions in their respective therapeutic areas; ③ Products jointly developed with Sanjiu: the company has jointly launched products such as 999 Chuanxinlian Neizhi Dripping Pills and 999 Tankejing Dripping Pills with Sanjiu, and has selected representative products to enter Sanjiu's flagship store. Leveraging Sanjiu's channel advantages, these products are expected to continue scaling up sales in the future.

3) Focus on integration progress: synergies are expected following China Resources' controlling stake acquisition. At present, the strategic integration between the two parties is progressing smoothly, and they have successfully completed the 100-day integration and key first-year integration tasks, while gradually achieving operating results in R&D, marketing, production, and other areas. Looking ahead to 2026, the company will further deepen comprehensive synergies with China Resources, with a focus on the “deep marketing” project. It will fully integrate the resource advantages of both parties in products, channels, terminals, and branding, establish a “third-terminal” cooperation mechanism, optimize the allocation of omnichannel resources, and continuously enhance sales capabilities. We are optimistic that deeper synergies will empower the company’s long-term operations.

Earnings forecast and investment rating

Looking ahead, empowered by the China Resources system, the company has clear strategic targets for the 15th Five-Year Plan period. With continued growth of mature products, rapid volume expansion of new indications for Puyouke, and the gradual commercialization of the innovative drug pipeline, the company is expected to enter a new round of high-quality growth. We project that in 2026–2028, the company’s revenue will reach RMB9.112bn, RMB10.132bn, and RMB11.332bn, representing YoY growth of 10.6%, 11.2%, and 11.8%, respectively. Net profit attributable to shareholders of the parent company will reach RMB1.274bn, RMB1.484bn, and RMB1.746bn, representing YoY growth of 15.3%, 16.5%, and 17.6%, respectively. EPS is expected to reach RMB0.85/share, RMB0.99/share, and RMB1.17/share, respectively. We maintain the “buy” rating.

Risks

1) Worse-than-expected product promotion: the company has increased investment in sales. If product promotion fails to meet expectations, it will affect sales revenue and further affect the company's profits; 2) Risk of product price reduction (inter-provincial centralized procurement alliances may lead to greater-thanexpected price cuts): product price reductions caused by centralized procurement, along with direct declines in hospital-end market share, may directly affect the company’s overall operations and profit level; 3) Price hike of raw materials and labor costs: the planting cycle of traditional Chinese medicine is long. The price fluctuations of raw materials will lead to an increase in costs, which will affect the company's overall profit; 4) Changing policyenvironment for traditional Chinese medicine: The current regulatory environment for traditional Chinese medicine is not fully stable. If relevant policies are introduced in the future, they could create market disruption and impact the company’s operations.