UOB Kay Hian
Date of Report: Tuesday, 26 August 2025
Sinopharm Group Faces Ongoing Policy Headwinds: Margin Pressure May Ease in Second Half 2025
Sinopharm Group (1099 HK): Navigating Challenging Headwinds in China’s Evolving Healthcare Sector
Sinopharm Group, China’s largest pharmaceutical distributor, faced a challenging first half of 2025, with earnings falling short of expectations amid an increasingly complex regulatory environment. UOB Kay Hian maintains a SELL rating on the stock, reflecting ongoing policy concerns and limited visibility for a near-term recovery in both revenue and margins.
Company Overview & Shareholder Structure
- Industry: Health Care (Pharmaceutical Distribution)
- Share Price (as of report date): HK\$19.91
- Target Price: HK\$17.30 (Upside: -13.1%)
- Shares Issued: 1,341.8 million
- Market Cap: HK\$62,132.3 million (US\$7,954.7 million)
- Major Shareholder: CNPGC (57.0%)
Key Price and Performance Metrics
- 52-week High/Low: HK\$23.65/HK\$16.02
- Recent Performance:
- 1 month: +3.1%
- 3 months: +7.6%
- 6 months: +0.6%
- 1 year: +7.3%
- Year-to-date: -6.5%
1H25 Financial Performance: Revenue and Earnings Miss Expectations
Sinopharm’s results for the first half of 2025 were disappointing, with both revenue and adjusted net profit posting year-over-year declines.
| Metric |
2Q25 |
2Q24 |
YoY Change (%) |
1H25 |
1H24 |
YoY Change (%) |
| Revenue (Rmbm) |
144,381 |
147,461 |
-2.1 |
286,043 |
294,727 |
-2.9 |
| Gross Profit (Rmbm) |
10,464 |
11,368 |
-7.9 |
20,347 |
21,943 |
-7.3 |
| Net Profit Attributable (Rmbm) |
2,009 |
2,284 |
-12.0 |
3,466 |
3,704 |
-6.4 |
| EPS – Diluted (Rmb) |
0.641 |
0.727 |
-11.9 |
1.111 |
1.187 |
-6.4 |
| Gross Profit Margin (%) |
7.25 |
7.71 |
-0.46ppt |
7.11 |
7.45 |
-0.33ppt |
Segment Performance: Distribution and Devices Decline, Retail Pharmacies Resilient
Pharma Distribution: Revenue dropped 3.6% year-over-year to Rmb209.3 billion for 1H25.
Medical Devices: Revenue declined 2.4% year-over-year to Rmb56.9 billion.
Retail Pharmacy: Revenue increased 4.1% year-over-year to Rmb16.9 billion, aided by the closure of 987 loss-making Guoda and 128 specialty pharmacies.
Cost Control and Margin Trends
Despite significant gross margin pressure—down 0.33ppt to 7.11%—Sinopharm made progress in cost management:
- Selling expense/revenue fell 0.13ppt to 2.74%.
- Administrative expense/revenue dropped 0.05ppt to 1.28%.
- Net margin, however, weakened further to 1.21% (-0.05ppt).
Key Financials and Valuation Metrics
| Year to 31 Dec (Rmbm) |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net Turnover |
596,570 |
584,508 |
577,417 |
592,028 |
621,919 |
| EBITDA |
27,374 |
23,886 |
22,746 |
22,972 |
23,800 |
| Operating Profit |
22,944 |
19,152 |
18,917 |
19,502 |
20,588 |
| Net Profit (Adj.) |
9,054 |
7,047 |
6,951 |
7,201 |
7,644 |
| EPS (Fen) |
290 |
226 |
223 |
231 |
245 |
| PE (x) |
6.3 |
8.1 |
8.2 |
7.9 |
7.4 |
| P/B (x) |
0.8 |
0.7 |
0.7 |
0.6 |
0.6 |
| EV/EBITDA (x) |
4.7 |
5.4 |
5.7 |
5.6 |
5.4 |
| Dividend Yield (%) |
4.8 |
3.7 |
3.7 |
3.8 |
4.0 |
| Net Margin (%) |
1.5 |
1.2 |
1.2 |
1.2 |
1.2 |
| Net Debt/Equity (%) |
6.4 |
21.6 |
26.8 |
20.4 |
17.5 |
| ROE (%) |
12.7 |
9.2 |
8.6 |
8.3 |
8.3 |
Policy Risks and Structural Changes
Sinopharm’s revenue and profitability continue to face headwinds from:
- Group Purchasing Organisation (GPO) price pressure
- Anti-corruption campaigns in China’s healthcare sector
- Medical insurance reforms
- Expansion of volume-based procurement to medical devices, traditional Chinese medicines, and potential further expansion to biosimilars in 2025
Management Response: Cost Controls and Business Transformation
The company is actively:
- Optimizing its product and service structure
- Streamlining retail pharmacy operations (closing underperforming stores)
- Enhancing operational efficiency
- Pursuing differentiated service models for retail pharmacies to improve profitability
- Targeting new business opportunities via the Category C Catalogue, especially for innovative drugs and devices
Cash Flow, Balance Sheet, and Key Ratios
| Year to 31 Dec (Rmbm) |
2024 |
2025F |
2026F |
2027F |
| Operating Cash Flow |
11,546.0 |
3,002.1 |
13,596.7 |
11,279.1 |
| Investing Cash Flow |
(3,750.9) |
(3,831.2) |
(3,831.2) |
(3,831.2) |
| Financing Cash Flow |
(17,285.0) |
14,456.6 |
(946.2) |
(1,132.0) |
| Ending Cash & Cash Equivalents |
54,313.4 |
67,940.8 |
76,760.1 |
83,076.0 |
Risks and Outlook
No earnings revision was made in this update. The broker highlights key risks going forward:
- Further policy-driven slowdown in revenue and margin compression
- Potential for weaker operating cash flow, especially if broader economic conditions deteriorate
Valuation and Recommendation
Target Price: HK$17.30, based on 7.0x 2026F PE or 1x PEG.
Recommendation: SELL (Maintained)
Conclusion: Long-term Industry Consolidation vs. Persistent Policy Headwinds
Sinopharm remains a giant in China’s pharmaceutical distribution market, but 2025 has proven a tough year so far. Despite aggressive cost management and a strategic push to refine its business mix, ongoing policy headwinds—especially around procurement reform and healthcare anti-corruption—have clouded both revenue growth and profitability outlook. While some margin relief may be seen in the second half, investors should brace for continued uncertainty and moderate growth at best.
Disclosures
Please refer to the full report for important disclosures, analyst certifications, and disclaimers regarding conflicts of interest and jurisdictional restrictions.
