CR Sanjiu has reported 9M26 revenue/attributable net profit (NP)/recurring attributable NP of RMB21.41/2.16/2.07bn (-3/-8/-5% YoY). Amid pressure in retail and medical volume-based procurement (VBP) headwinds, the company’s revenue and profit declined. However, we expect the company to further refine its ‘One Core, Two Wings’ strategy. The core headquarters maintains relative operational resilience backed by brand strength and channel support, Tasly’s industrial doubling plan is driving the prescription drug segment, and KPC Pharma is getting back on track after leadership reform to focus on the silver economy. Maintain OVERWEIGHT.
CHC under pressure, prescription drugs growing
We estimate that the 9M26 CHC revenue declined significantly YoY, primarily due to KPC’s drag, although full-year decline is likely to narrow. 1) Sanjiu Headquarters: Respiratory category sales fell slightly due to industry headwinds (mainly lower respiratory incidence rate), while dermatology and gastrointestinal categories performed well, and vitamin/mineral categories maintained rapid growth; we expect the full-year CHC revenue decline at headquarters to narrow or turn positive. 2) KPC Pharma: Revenue plummeted due to channel adjustments (9M26 total revenue fell by c. RMB3.9bn YoY, c. 43% YoY); as KPC clears channel inventory and restructures marketing, we look forward to growth recovery in 2027. We estimate that the 9M26 prescription drug revenue grew rapidly YoY, primarily due to a low base as Tasly was not consolidated for the full period last year (Tasly consolidated in March 2025), and full-year growth is likely to remain rapid. 1) We are bullish on Tasly Industrial’s ‘15th Five-Year Plan (FYP)’ doubling initiative, benefiting from Pro-UK’s cerebral infarction indication and Jinghua Weikang entering the new nEML, alongside retail focus on brands/channels/Sanjiu commercial channel network/online; we project its industrial revenue to maintain rapid growth; 2) Sanjiu’s prescription drug segment is gradually digesting VBP impacts with revenue stabilizing; we expect steady revenue growth going forward.
Consolidation of Tasly elevates gross margin
1) CR Sanjiu’s 9M26 gross margin was 56.0% (+2.5pp YoY), mainly boosted by the M&A of Tasly. The sales/administrative/R&D expense ratios were 27.6/6.5/4.3% (-0.3/+0.6/+0.5pp YoY), remaining relatively stable. 2) For 9M26, cash received from sales was RMB22.6bn (c. 106% of revenue), demonstrating strong cash flow; net operating cash flow reached RMB2.3bn (c. 106% of net profit), despite pressure on KPC during the same period (for 9M26, net cash flow decreased by RMB860mn YoY).
Maintain OVERWEIGHT
Considering industry pressures weighing on company revenue, we lower our earnings forecasts and project 2026/2027/2028 attributable NP at RMB3.44/3.82/ 4.19bn (-8.5/-7.5/-7.4% vs. our previous estimates). We value the stock at 15x 2027E PE (referencing the company’s 10-year average PE TTM of 18x, discounted for current overall industry downward pressure), for our target price of RMB34.45 (previous: RMB33.92, based on RMB3.76bn 2026E profit and 15x PE). The target price increase is primarily driven by the valuation rolling forward to 2027.
Risks: a pharmacy business climate downturn; VBP policies falling short of our expectations; disappointing M&A.