CITIC SEC: The valuation cost-performance ratio of leading pharmacies is outstanding, maintaining the "outperform the market" rating for the chain pharmacy industry.

CITIC SEC released a research report stating that currently, leading chain pharmacies stand out in terms of valuation and cost-performance, maintaining an "outperform" rating for the chain pharmacy industry. The industry continues to see store closures, structural differentiation, and clear advantages for leading pharmacies. By 2025, the overall operational indicators of the industry are expected to improve. According to the mid-year report of listed companies for 2026, leading chains are performing well, and some companies have resumed expansion. Key points from CITIC SEC are as follows: The industry continues to see store closures, structural differentiation, and clear advantages for leading pharmacies. According to the National Bureau of Statistics, the National Medical Products Administration, and the magazine "Chinese Pharmacies", the number of retail pharmacies in China is expected to decline rapidly to 656,000 by 2025 from 683,700 in 2024. The number of chain enterprises will decrease significantly from 6,667 in 2024 to 6,416, with small and medium-sized chains being under pressure and industry leaders benefiting relatively. The magazine "Chinese Pharmacies" indicates that the growth rate of the top ten, top fifty, and top one hundred chain pharmacies in 2025 will exceed the industry average, and the industry's concentration will continue to increase with substantial room for growth. Big data empowers medical insurance inspections, which are becoming stricter and more precise. It is believed that leading listed chain companies will actively and passively integrate the market through franchising, mergers and acquisitions, and new openings, leading to an imminent increase in the concentration of industry leaders. The expansion of the outpatient market continues, making the advantages of leading pharmacies noteworthy. Key operational indicators in the industry are expected to improve by 2025. Industry metrics for store efficiency and labor efficiency have declined, while the average number of staff per store continues to rise. The average transaction value has decreased, but the price of individual products remains stable. According to the magazine "Chinese Pharmacies", the average gross margin for the industry in 2025 is projected to be 29.90%, remaining relatively stable, with a recovery in net profit margins. The average gross margin for the industry is expected to be basically flat compared to 2024, making it difficult to replicate the high-margin era. It is believed that the industry's net profit margins will undergo structural differentiation, with small businesses struggling to remain profitable, while changes in the industry's product structure and the trend of prescription outflow will continue to materialize. Summary of listed companies' mid-year reports for 2026: Performance is improving and expansion is resuming. Seven leading listed companies were selected for analysis, showing strong recovery in operational indicators for leading chain companies in 2026H1. Notably, revenue and profits in Q2 of 2026 showed significant improvements year-on-year and quarter-on-quarter, indicating that leading chain companies have reached an operational turning point. The gross margins for leading chains have remained stable, while net profits have seen significant increases. From the revenue structure of leading chains, the proportion of Western and Chinese patent medicines is steadily increasing, validating the major logic of drug outflow from hospitals. Risk factors: Mergers and acquisitions failing to meet expectations, excessive competition leading to lower gross margins, slower-than-expected progress in prescription outflow, impacts from reforms in personal medical insurance accounts, and slower-than-expected progress in outpatient coordination, among others.