On March 21, Guangzhou Baiyunshan Pharmaceutical Group Co., Ltd. (hereinafter referred to as “Baiyunshan Group,” stock code: 600332) released its 2025 financial report. Revenue slightly increased to 77.656 billion yuan, up 3.55% from 2024, and net profit grew by 5.21% to 2.983 billion yuan. However, the profit “quality” has declined, and there are still many issues worth关注, with the brand matrix potential needing urgent activation!

Part 1: Quick Overview of Key Financial Data

This section focuses on core indicators such as revenue, profit, profitability ratios, and cash flow. By comparing the same period over three years, it visually presents Baiyunshan’s overall operational status, allowing quick grasp of financial performance.

Table 1-1: Baiyunshan Group Core Financial Indicators (2023-2025)

Overall Trend Summary:

Ø Weak revenue growth: In 2025, revenue reached 77.656 billion yuan, a 3.55% increase year-over-year, with a three-year compound growth rate of only 1.41%, indicating the company’s growth has entered a plateau phase, with market expansion lacking momentum.

Ø Declining profitability: In 2024, net profit attributable to parent dropped sharply by 30.09%. Although it slightly rebounded in 2025, it remains low compared to 2023. Non-recurring profit and loss decreased nearly 20% over three years, showing a significant weakening in core business profitability.

Ø Warning on cash-generating ability: In 2025, net cash flow from operating activities turned negative, at -2.32 billion yuan. This is a critical warning sign, indicating that cash inflows from main operations can no longer cover outflows, reflecting insufficient growth momentum, and significant pressure on profit quality and operational efficiency in a complex industry environment.

Part 2: Business Operations from Financial Indicators

1. Financial Strength and Safety

Table 2-1: Key Indicators of Financial Strength and Safety (2023-2025)

Summary: The company’s asset-liability ratio has remained between 52%-54% over the past three years. As a large group involved in both pharmaceutical distribution (high turnover, requiring certain working capital) and manufacturing, this debt level is within industry reasonable range, with overall debt repayment risk controllable. The sharp decline in ROE directly confirms a significant weakening of profitability and a decline in shareholder returns. Short-term liquidity is stable, but issues in operating cash flow pose challenges to short-term debt repayment capacity.

2. Operating Capacity and Growth Quality

(1) Revenue and Structural Analysis

Business Structure:

In 2025, the company restructured its business classification into four major segments: Modern Chinese Medicine, Chemical Medicine Technology, Natural Beverages, and Pharmaceutical Commerce.

Table 2-2: Business Structure Indicators (2023-2025)

Growth Drivers and Weaknesses:

Ø Heavy reliance on low-margin (about 6%) pharmaceutical commercial business (“big commerce”), accounting for 73.6%. High-margin chemical medicine technology and natural beverage segments together account for less than 20%, resulting in overall low profit margins.

Ø Pharmaceutical Commercial: As the main revenue driver, it maintained 6.21% growth in 2025, serving as the “ballast” for growth. But its gross margin is extremely low at only 5.87%, limiting profit contribution.

Ø Natural Beverages (mainly Wanglaoji): Revenue slightly declined, showing stable but sluggish growth. The brand’s historical advantage and potential need further activation.

Ø Modern Chinese Medicine and Chemical Medicine Technology: Both segments saw revenue decline for two consecutive years, with 2025 decreases of 6.54% and 4.13%, respectively, becoming key drag factors on overall performance.

(2) Profitability Analysis

Ø Overall profit trend: The company’s gross profit margin and net profit margin have declined for two consecutive years, indicating weakening profitability of products or services.

Ø Industrial vs. Commercial Segments: High-margin pharmaceutical industry (modern Chinese medicine + chemical medicine technology) revenue share decreased (from about 13.1% in 2024 to 12.0% in 2025), while low-margin pharmaceutical commercial share increased, directly causing overall gross margin decline. Within the industrial segment, chemical medicine technology’s gross margin increased (+7.35 percentage points), showing strong pricing or cost control under procurement pressures; modern Chinese medicine’s gross margin continued to decline.

Ø Group profit comparison with peers:

Table 2-3: Profit Comparison (2023-2025)

In 2025, Baiyunshan’s pharmaceutical industrial gross margin (big Chinese medicine segment) is comparable to Tongrentang (600085) and Fosun Pharma (600196). However, the company’s overall gross margin (16.24%) is dragged down by low-margin commercial segments, far below pure pharmaceutical companies. Adjusting the business segment structure to boost pharmaceutical industrial revenue has become a key task for Baiyunshan!

(3) Expense Analysis:

Table 2-4: Expense Item Analysis (2023-2025)

Data shows that the group’s control over selling expenses has improved, but management expenses have increased. R&D expenses, in absolute terms, decreased from 2023 to 2025, indicating the company is not R&D-driven but more focused on marketing and channel operations. For a pharmaceutical enterprise needing innovation transformation and new growth in industrial segments, this is a warning sign that must be addressed.

3. Operating Quality: Cash Flow Analysis

Ø Operating cash flow: In 2025, net cash flow from operating activities was -2.32 billion yuan, the first negative in five years. The annual report attributes this to “decreased receivables collection and increased procurement payments.” This suggests the company’s bargaining power in the supply chain may be weakening, receivables are slowing, and higher payments are required, impairing “self-sustaining” capacity.

Ø Profit “quality”: In 2024 and 2023, net profit roughly matched operating cash flow. But in 2025, despite a 5.21% increase in net profit attributable to parent to 2.983 billion yuan, operating cash flow turned negative, significantly reducing profit “quality.”

4. Brand Value and Competitiveness

Ø Brand barriers: The group owns two core brands, “Baiyunshan” and “Wanglaoji,” along with 12 Chinese time-honored brands, 10 century-old pharmaceutical companies, and 6 national intangible cultural heritage items, forming a high brand barrier. Yet, based on actual strategies and data, transforming brand advantages into product strength and growth drivers remains challenging.

Ø Brand matrix: “Wanglaoji” as the core brand of natural beverages shows aging signs. Despite category or sub-brand innovations, no new growth points have emerged, leading to sluggish revenue growth or even decline. The “Jinge” brand product in chemical medicine technology, with the highest gross margin, has experienced significant revenue decline, further reducing profit contribution.

Ø Product competitiveness: The pharmaceutical industrial segment faces ongoing policy pressures such as centralized procurement and medical insurance cost control. The core product “Jinge” faces increasing competition and price wars, with revenue declining and growth sustainability uncertain. Major Chinese medicine products like Zishen Yutai Pills and Xiao Chaihu Granules are slowing or declining, indicating product aging or market shifts.

Ø Industry chain barriers: Baiyunshan has built a full industry chain covering R&D, production, distribution, and terminal sales, with over 80 GAP medicinal herb bases ensuring raw material supply, a unified procurement platform reducing costs, and nationwide distribution networks. However, if the business structure remains unchanged, the pharmaceutical commercial segment will continue to drag down overall gross margin and net profit.

Part 3: Industry Landscape and Trend Forecast

According to data from the National Bureau of Statistics, in 2025, the revenue of China’s above-scale pharmaceutical manufacturing industry declined by 1.2% year-over-year, with total profit increasing by 2.7%. The industry is entering a period of adjustment, with slowed growth and pressure on profitability. Baiyunshan’s overall performance mirrors the industry trend, with growth slowing. Industry concentration continues to rise, resources flowing toward leading enterprises with strong R&D and cost control. Normalized drug procurement and stricter medical insurance cost controls are causing generic drugs and some Chinese patent medicines to face significant price reductions, accelerating industry reshuffling.

While industry reshuffling intensifies, policies also make competition fiercer:

Ø Policy-driven innovation: Policies like “Measures for Supporting High-Quality Development of Innovative Drugs” create space for truly valuable innovative drugs. But they also mean that products lacking innovation and with serious homogeneity will face淘汰.

Ø Traditional Chinese Medicine revival: The government continues to promote TCM development, emphasizing quality improvement and high-quality industry growth. This offers opportunities for leading companies with brand and product advantages but also demands higher quality control and development standards.

Ø Digital transformation: Smart manufacturing and “AI+” are central to high-quality manufacturing. Policies encourage pharma companies to digitize and automate, presenting both challenges and opportunities to improve efficiency and reduce costs.

In this market landscape, top-tier enterprises and large groups have clear advantages, which are also crucial for Baiyunshan’s strategic deployment. Active M&A and resource integration, such as Baiyunshan’s 2025 acquisitions of parts of Nanjing Pharmaceutical and Zhejiang Medical, reflect its growth via external expansion. Internationalization is accelerating, with domestic innovative drugs going global. Baiyunshan is expanding overseas through the internationalization of Wanglaoji and import-export of pharmaceutical business, but compared to Hengrui and Bai Ji, its international pace remains slower.

Compared to small and medium enterprises, leading companies have obvious future opportunities:

1. Innovative Drugs: Several first-class innovative drugs (e.g., BYS10 tablets, HG030 tablets) are under development; once approved, they could become new growth points.

2. Chinese Medicine Re-Development: Secondary development of key Chinese medicine products to enhance clinical value and evidence levels is vital for coping with procurement pressures and expanding markets.

3. Consumer Upgrading and Brand Innovation: In the health sector, expanding functional and health-oriented beverages around “Wanglaoji” to meet younger, personalized consumer needs is a potential opportunity. Further market expansion of sub-brands or new categories is essential to increase natural beverage share.

4. Transformation of Pharmaceutical Commerce: Expanding access to innovative drugs, developing DTP pharmacies, deepening medical alliance cooperation, and providing supply chain value-added services are key to improving profitability.

Part 4: Summary and Recommendations on Financial Report Analysis

As a leading domestic healthcare enterprise, Baiyunshan Group boasts a strong brand heritage and a complete industry chain. However, it is currently in a painful phase of transformation and upgrading, with the “big but not strong” characteristic becoming more evident. The high-margin industrial segments are sluggish or declining; the “cash cow” (pharmaceutical distribution) grows slowly and profits thin; star segments (Chinese medicine, Wanglaoji) face growth pressure and fierce competition. R&D investment is insufficient, and low-margin commercial segments grow but cannot sustain profits. Management of cash flow has raised alarms, exposing deep-rooted issues of insufficient endogenous growth.

Analysis reveals some bright spots and positive changes:

• In 2025, revenue and net profit are positive, indicating a bottoming out and recovery trend.

• Asset-liability ratio remains stable, with strong financial resilience.

• The heritage brands and full industry chain create certain moats, but the potential of old brands needs further activation, and the brand matrix’s engine requires building.

However, significant challenges remain:

• Industrial decline: The two core industrial segments—modern Chinese medicine and chemical medicine technology—have seen two-year revenue declines, eroding the company’s foundation and widening gaps with pure pharma peers.

• Aging of brands and core products: “Jinge” and other star products face fierce competition and declining sales; new blockbuster products are needed. The aging of Wanglaoji and lack of standout new brands or categories hinder growth.

• Profitability decline: Overall gross margin, net margin, and ROE are decreasing; profit quality is poor. The negative cash flow in 2025 signals rising capital risks and operational challenges.

• R&D underinvestment: R&D expenses have fallen for two years, contrary to national innovation support trends.

Based on this, the following recommendations are proposed:

For management:

1. Strategic Reflection: Quickly reverse the “heavy commercial, light industrial” trend. The industrial sector is the company’s foundation and core value. Reassess development strategies, focus resources on advantageous areas, and develop competitive flagship products.

2. Increase R&D Investment: Halt the decline in R&D spending and consider significant increases. Focus on accelerating the clinical progress of first-class innovative drugs and planning product lines for the next 5-10 years.

3. Activate Heritage Brands and Brand Matrix: Leverage the brand assets of 12 Chinese time-honored brands, combined with modern consumer needs, to innovate products and marketing. For example, develop ready-to-drink Chinese medicine health beverages appealing to young consumers, or combine traditional Chinese medicine with modern health management. Building and effectively activating the brand matrix engine is urgent.

4. Optimize Cash Management: Pay close attention to operating cash flow, strengthen receivables collection, optimize inventory management, and prudently plan capital expenditures to ensure healthy “self-sustaining” capacity to weather industry downturns.

For investors:

1. Investment Value Judgment: The company is currently in a “pain period,” with fundamentals under pressure. Long-term investors should monitor when industrial segments stabilize and whether innovative drugs in the pipeline can deliver.

2. Risk Focus: Track operating cash flow, sales data of industrial products, and clinical progress of key R&D projects. Whether R&D investment stops declining and rebounds is critical for future recovery.

3. Key Initiatives and Outcomes: (a) Whether the industrial segments (modern Chinese medicine + chemical medicine technology) can stop declining; (b) market performance and strategies of “Jinge”; © whether negative operating cash flow in 2025 can turn positive in 2026; (d) clinical data and approval prospects of first-class innovative drugs like BYS10; (e) how activation of heritage brands proceeds and its effectiveness.

As a leading domestic healthcare enterprise with deep brand heritage and a complete industry chain, Baiyunshan’s future global expansion remains an advantage. However, during the painful transformation, innovation and boldness are crucial for unlocking the full potential of its brand matrix and generating tremendous energy!