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

(Source: Caixin)

Expansion in scale has not fully translated into actual operational benefits.

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 but no profit growth, with net profit growth slowing down significantly for the first time in recent years. Continuous mergers and acquisitions in recent years have made integration one of the keywords for China Resources Sanjiu’s future development. At the same time, challenges are emerging due to the decline in performance of its subsidiary Kun Pharmaceutical Group (600422.SH) and changes in pharmaceutical industry policies.

According to China Resources Sanjiu’s latest annual report, the company 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%; and 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 increased revenue without profit growth: dual pressures from rising costs and merger integration

It is evident that China Resources Sanjiu’s revenue growth in 2025 outpaced its net profit growth, resulting in increased revenue but stagnant profits. Some reasons can be inferred from gross profit-related 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, 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 saw significant increases. Data shows that in 2025, sales expenses reached 8.989 billion yuan, a year-on-year increase of 25.88%, with their proportion of revenue rising by 2.62 percentage points to 28.76%.

Meanwhile, R&D expenses totaled 1.268 billion yuan, a substantial increase of 58.16%; their share of revenue grew by 1.11 percentage points to 4.01%. 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 conducted major mergers and acquisitions. Before acquiring Tasly in 2025, China Resources Sanjiu integrated Kun Pharmaceutical Group. Currently, the company positions its various segments as: China Resources Sanjiu, Tasly, and Kun Pharmaceutical Group, with core businesses focusing on CHC (Consumer Healthcare), prescription drugs, and premium traditional Chinese medicine products.

The consolidation of Tasly directly impacted the expense structure. As mentioned earlier, Tasly mainly focuses on prescription drugs and heavily invests in innovative Chinese medicine drugs, maintaining high R&D investment levels. According to Tonghuashun iFinD data, in 2024, Tasly’s R&D investment accounted for 12.23% of its operating 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, has been a drag on performance. Its traditional Chinese medicine business saw a significant revenue decline in 2025, with a year-on-year decrease of 33.68%. According to its previous annual reports, channel reforms and market segmentation in retail contributed to its performance decline in 2025.

CHC (Consumer Healthcare) remains under pressure, while prescription drugs are showing signs of recovery. For 2026, the company aims for profits that match revenue growth.

Regarding revenue, due to acquisitions, China Resources Sanjiu’s revenue structure has changed. The company’s self-diagnosis and treatment (CHC) and prescription drug segments contributed 47.82% and 38.27% of revenue, respectively. Wholesale and retail of medicines and medical devices contributed 12.33% and 1.59%.

From a business perspective, CHC (Consumer Healthcare) has always been a core segment for China Resources Sanjiu. Its health consumer products mainly cover categories such as cold, gastrointestinal, dermatology, hepatology, pediatrics, orthopedics, and gynecology. The well-known “999” flagship brand is part of this segment.

Excluding adjustments, the company’s CHC revenue in 2025 decreased by 6.75% year-on-year. A research report from Southwest Securities pointed out that the respiratory product category was affected by high base effects last year and a decline in respiratory disease incidence this year. Retail channels have experienced phased adjustments since the end of last year due to policy influences. The company also mentioned in its annual report that in 2025, it actively responded to the declining incidence of respiratory diseases in its CHC health consumer products.

The prescription drug business is 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 operating revenue will surpass the industry’s average growth rate, with profits matching revenue growth.” This indicates the company’s goal to reverse the current situation of revenue growth without profit growth, requiring improvements in both internal operations and integration.

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