Key takeaway

Overall, excluding the impact of retrospective adjustments from the acquisition of the Hong Kong subsidiary, the company maintained steady growth in both revenue and profit in 2025, demonstrating operational resilience amid external pressures, with core business performance meeting expectations. In addition, the company has maintained a high dividend payout ratio over the past two years, which is expected to support its long-term healthy development and consistently strengthen market confidence. As the company focuses on the "Growth and Innovation" management theme, advances the implementation and upgrade of the "1238" strategy, accelerates the development of its second growth curve, and drives diversified growth through a dual-engine approach, we remain optimistic about the company's long-term, high-quality growth.

Event

The company releases 2025 financial results On the evening of March 19, the company released its 2025 annual report. According to preliminary data, the full-year operating revenue reached 6.7 billion yuan, representing a yearon- year increase of 13.17%; net profit attributable to shareholders was 1.739 billion yuan, up 11.67% year-on-year; adjusted net profit attributable to shareholders (excluding nonrecurring items) stood at 1.638 billion yuan, marking a 13.62% year-on-year increase. The results were in line with our previous expectations.

In July 2025, the company acquired a 100% equity stake in DEEJ International (BVI) Co., Ltd., requiring the restatement of relevant data in the consolidated financial statements. After the restatement, the year-on-year growth rates of operating revenue, net profit attributable to shareholders of the listed company, and net cash flow from operating activities showed a slight decline.

Quick Take

Core business remains stable with steady growth, full-year performance meets expectations

In 2025, the company reported revenue of RMB 6.7 billion, representing a year-on-year increase of 13.17%, with steady growth driven by core business operations. Net profit attributable to shareholders reached RMB 1.739 billion, up 11.67% year-on-year, while adjusted net profit (excluding non-recurring items) amounted to RMB 1.638 billion, reflecting a 13.62% increase. Profit growth remained largely aligned with revenue performance. To strategically plan the development of its overseas business, the company acquired DEEJ International (BVI) Co., Ltd. during the reporting period, constituting a business combination under common control. After making retrospective adjustments in accordance with accounting standards, the company's operating revenue in 2025 increased by 8.83% year-on-year, while the net profit attributable to the parent company also rose year-on-year by 11.66%, with the reported performance showing a slight decline after the restatement. In Q4, the company reported revenue of RMB1.934 billion, representing a year-on-year increase of 21.52%, and net profit attributable to the parent company's shareholders after deducting non-recurring gains and losses of RMB483 million, up 28.85% year-on-year. The peak season contributed to strong growth in core business performance. Overall, excluding the impact of retrospective adjustments from the acquisition of the Hong Kong subsidiary, the company maintained steady growth in both full-year revenue and profit, demonstrating operational resilience amid external pressures, with core business performance meeting expectations.

The Ejiao (donkey-hide gelatin) series maintained steady growth, while health consumer products achieved multiple breakthroughs

By product in 2025:

1) Donkey-hide gelatin and related products: Generated revenue of RMB6.198 billion, representing an 11.80% year-on-year increase, with a gross profit margin of 74.84%, up 1.23 percentage points year-on-year, demonstrating stable and improving profitability. Specifically: ① Donkey-hide gelatin blocks: By concentrating on key resources, the company systematically implemented precision marketing initiatives to develop resource-intensive standalone products. Sales are projected to maintain steady growth while market share remains stable. Additionally, the company actively advanced digital marketing, vigorously promoted convenient dosage forms of donkey-hide gelatin, and progressively expanded its applications. Donkey-hide gelatin powder is expected to sustain a strong sales growth trajectory. ② Compound Ejiao Syrup: The major product strategy has been fully implemented, achieving a trinity of "brand + sales activation + academic promotion," and maintaining its leading position in OTC Qi and blood tonification. It is expected to sustain steady growth despite intensified market competition. Meanwhile, the company has actively promoted evidence-based medical research, such as "Compound Ejiao Syrup for Cancer-Related Fatigue," with results gaining international recognition and inclusion in multiple domestic clinical guidelines, laying the groundwork for in-hospital marketing. ③ Taohuaji: Celebrity endorsements continue to empower the brand, with targeted efforts in sales channel expansion. Short-term pressure is expected due to factors like the restructuring of the Health Consumer Goods Division. However, as organizational optimization nears completion and the brand successfully enters Sam's Club, steady growth recovery is anticipated.

2) Other medicines and health products: Generated revenue of RMB 386 million, a year-on-year increase of 63.65%, with multiple breakthroughs in health consumer products. The company strongly promoted its "Royal Paddock 1619," Zhuangben, and Yuyuanqi product series, systematically establishing a second growth curve. It acquired a 70% stake in Maji Pharmaceutical, further enriching the "Royal Paddock 1619" product portfolio, which is projected to sustain rapid growth. Additionally, the company acquired an 80% stake in Alxa Cistanche Group, expanding its Cistanche product line and accelerating its presence in the male health and wellness sector, with plans to introduce more new products in the future. Overall, the company's product sales are progressing steadily and maintaining strong performance. At the same time, the company is actively building a second growth curve, laying a solid foundation for sustainable long-term growth.

Outlook for 2026: Focusing on the management theme of "Growth & Innovation," driving diversified growth through dual-wheel synergy

In 2026, the company will focus on the management theme of "Growth & Innovation," drive the implementation and upgrade of the "1238" strategy, and strengthen the dual-engine growth model of "pharmaceuticals + health consumer products" for diversified expansion. From a specific operational perspective, as the company's brand strength continues to rise, DEEJ's market share is expected to grow steadily, maintaining stable performance for its Ejiao block product. The rollout of the Compound Ejiao Syrup's major product strategy, gradual progress in lifting medical insurance restrictions, ongoing improvements in evidence-based medical research on cancer-related fatigue, and incremental contributions from coordinated planning are expected to sustain steady growth. Meanwhile, the brand and channel revitalization of Taohuaji Ejiao Cake is showing results, with successful entry into Sam's Club, positioning it for strong year-round growth recovery. In terms of other pharmaceuticals and health products, the company is fully promoting its "Royal Paddock 1619," Zhuangben, and Yuyuanqi product lines, systematically establishing a second growth curve that is expected to contribute incrementally to the company's performance in the coming years. In addition, the company will continue to enrich its product portfolio through investments, mergers and acquisitions, addressing capability gaps. In the pharmaceutical sector, it will expand the second growth curve and explore other health-related segments, while focusing on traditional Chinese wellness products and functional foods in the health consumer goods sector. This strategy lays a solid foundation for the company's diversified growth. Considering the company's ongoing efforts to refine cost control, the profit margin is expected to remain relatively stable despite a high base.

Operating cash flow continues to improve, while other financial indicators remain within normal ranges

In 2025, the company's overall gross profit margin reached 73.47%, representing a year-on-year increase of 1.05 percentage points, demonstrating steady improvement in profitability. The selling expense ratio was 32.00%, a year-on-year decrease of 1.32 percentage points, reflecting effective cost control; the administrative expense ratio was 7.21%, a year-on-year decrease of 0.33 percentage point, remaining relatively stable; the R&D expense ratio was 4.07%, a year-on-year increase of 1.13 percentage points, as the company continued to boost R&D investment. Net cash flows from operating activities increased by 5.45% year-on-year (on a comparable basis), showing continued improvement; net cash flows from investing activities rose by 103.24% year-on-year, primarily due to increased redemptions of wealth management products and maturing large-denomination certificates of deposit received during the current period compared to the same period last year; net cash flows from financing activities grew by 35.71% year-on-year, mainly attributable to the acquisition of 100% equity in DEEJ International (BVI) Co., Ltd. through a business combination under common control this year. Other financial indicators were generally normal.

Earnings forecast and investment rating

We believe that: 1) As the industry leader in the ejiao sector, the company possesses strong brand advantages. By actively integrating its marketing team, revitalizing brand value, and gradually expanding ejiao's applications, it is well-positioned to drive growth in traditional Chinese tonic products; 2) The company is proactively transforming its strategic approach, with innovation and reform as its key focus complemented by marketing reforms. This has led to steady improvements in operational quality, while dual-engine diversification provides a solid foundation for long-term growth. We remain optimistic about the company's sustainable and healthy development. We estimate the company's revenue for 2026-2028 to reach RMB 7.397 billion, RMB 8.220 billion, and RMB 9.208 billion, respectively, with net profit attributable to shareholders of RMB 1.952 billion, RMB 2.195 billion, and RMB 2.474 billion, respectively. The corresponding diluted EPS would be RMB 3.03, RMB 3.41, and RMB 3.84 per share, with P/E multiples of 18.4x, 16.4x, and 14.5x, respectively. We maintain "Buy" rating.

Risks:

1) Product promotion falling short of expectations: The company is increasing selling investments. If product promotion underperforms, it will impact sales revenue and consequently reduce company profits; 2) Centralized procurement price reduction risk: The company's core product lines may be included in volume-based procurement lists, leading to price reductions, profit margin compression, and ultimately affecting profit projections; 3) Rising raw material and energy costs risk: Increased raw material prices will raise cost pressures, negatively impacting the company's profitability; 4) Slower-than-expected recovery in hospital visits: With postpandemic home healthcare gaining popularity, hospital visit volumes may decline, affecting prescription drug sales and ultimately the company's overall profitability.