Weigao's 1H26 Revenue Met Expectations and Earnings Recovered Sequentially; Full-Year Revenue Growth Guidance of 3%-5% Unchanged

Overview

The report assesses Weigao's 1H26 results, performance across its business segments, and recovery path for the second half. Overall revenue was in line with expectations, while earnings remained constrained by a high base, volume-based procurement, and rising costs. However, improvements in product mix, operating leverage, and expense control drove a significant margin recovery versus 2H25. Management maintained its full-year revenue growth guidance, while Goldman Sachs retained its Neutral rating and slightly lowered its target price.

Core views

1H26 revenue reached RMB6.85 billion, up 3.1% year over year and in line with Goldman Sachs' expectations. Domestic revenue grew 2.1%, reflecting gradually stabilizing clinical demand, although a broad-based recovery has yet to emerge; overseas revenue still increased 6.2% despite some shipment delays caused by geopolitical factors. Reported net profit declined 23.2% year over year to RMB774 million, 1.8% below Goldman Sachs' expectations, mainly due to the high base in 1H25 and residual pricing pressure from volume-based procurement (VBP). Excluding foreign-exchange effects and share-based payments, adjusted net profit was RMB890 million, down 11.7% year over year but up 45.3% versus 2H25; adjusted net margin recovered from 9% in 2H25 to approximately 13%. Goldman Sachs believes the more favorable product mix, improved operating leverage, and tighter cost control indicate that the earnings pressure caused by VBP is gradually easing. Management maintained its FY26 revenue growth guidance of 3%-5%, excluding consolidation effects, and expects the earnings recovery to accelerate in 2H26. Its guidance implies improved net profit in the second half and full-year earnings ranging from a slight decline to broadly flat. Greater operating efficiency, product-mix optimization, and expense control are expected to partially offset residual VBP pricing pressure and higher raw material costs. Full-year capital expenditure guidance remains RMB600 million to RMB800 million; free cash flow remained positive in 1H26, and the company maintained a 50% dividend payout ratio, supporting sustained shareholder returns. Overseas expansion, acquisition integration, and product innovation are key medium-term strategic priorities. Overseas revenue accounted for 25.2% of group sales in 1H26, with Asia, Europe, the Middle East, and Africa all recording double-digit growth. The Indonesian indwelling-needle plant is scheduled to begin trial production in 3Q26, while the company is also building local manufacturing and commercial infrastructure in Africa. The acquisition of dialysis assets has been completed, and management is advancing platform integration and the realization of synergies while continuing to integrate acquired assets in areas such as general surgery. The perioperative equipment business is expected to establish a complete product portfolio over the next 1 to 2 years; the orthopedics business continues to expand in minimally invasive technologies, intelligent solutions, and bioactive materials. Segment performance was mixed. Medical devices revenue increased 5.4% year over year to RMB3.48 billion, accounting for 50.8% of group revenue, but operating profit declined 9.4% to RMB467 million, with an operating margin of 13.4%; raw material inflation and VBP remained sources of pressure, and management expects the full-year operating margin to remain above 10%. Orthopedics revenue declined 4.7% to RMB698 million, accounting for 10.2% of group revenue, mainly due to short-term fluctuations in surgical volumes and disruption from the renewal of spinal VBP tenders; operating profit nevertheless increased 1.6% to RMB163 million, with an operating margin of 23.4%. Management expects implementation of the new tenders and sales ramp-up of new products to improve growth in 2H26. Pharmaceutical packaging revenue increased 7.5% to RMB1.25 billion, with an operating margin of 38.2%. Prefilled and flushing syringes continued to face pricing pressure caused by policy changes and industry competition, while geopolitical factors also raised upstream costs; management expects nationwide free influenza vaccination programs and commercialization of autoinjector pens driven by rising GLP-1 drug volumes to support demand in the second half. Interventional products revenue declined 2.7% to RMB963 million but increased 2.4% at constant exchange rates; the operating loss was approximately RMB68 million, mainly due to continued investment in new products such as the Cleaner Vac thrombectomy platform. If exchange rates remain stable in the second half, reported growth is expected to benefit. Blood management revenue was broadly flat at RMB454 million, while operating profit increased by more than 70% year over year to RMB53 million, with an operating margin of 11.7%, mainly benefiting from RadSource's turnaround from a loss in 1H25. Management maintained its full-year revenue growth target of 0%-5% and believes there is further room for earnings improvement. Goldman Sachs adjusted its 2026E, 2027E, and 2028E EPS forecasts by -2.5%, 0.0%, and -2.9%, respectively, to RMB0.30, RMB0.35, and RMB0.38, because foreign-exchange losses and raw material costs were higher than previously expected, partially offset by tighter cost controls. Revenue forecasts for the same periods are RMB13.8410 billion, RMB14.6838 billion, and RMB15.4375 billion, respectively, while net profit forecasts are RMB1.3588 billion, RMB1.5868 billion, and RMB1.7222 billion; the corresponding P/E multiples are 10.0x, 8.5x, and 7.9x. The 12-month target price was lowered from HK$3.91 to HK$3.86, continuing to apply an unchanged 10x 12-month forward P/E, while the rating remains Neutral. The company's M&A score is 3, corresponding to a low acquisition probability of 0%-15%. Goldman Sachs considers the impact immaterial and therefore did not include an M&A premium in the target price.

Analysis framework

Goldman Sachs first compares actual 1H26 revenue and profit against year-earlier levels, 2H25 sequential levels, and its own expectations, and then explains margin changes through product mix, operating leverage, expenses, VBP, and raw material costs. It subsequently breaks down revenue, operating profit, and growth drivers across five business segments and assesses the recovery path for the second half based on management's full-year guidance, overseas capacity, acquisition integration, and new-product progress. Finally, it adjusts its 2026E-2028E earnings forecasts and derives the target price using a 10x 12-month forward P/E.

Methodology notes

• Valuation MethodPE/PEG valuation

  12-month forward P/E valuation

  The report calculates the target price based on expected earnings over the next 12 months using an unchanged 10x P/E multiple; following the earnings forecast revisions, the target price was lowered from HK$3.91 to HK$3.86.

• (Out-of-vocabulary Method)

  Adjusted profit excluding foreign exchange and share-based payments

  The report excludes foreign-exchange effects and share-based payments from profit to assess underlying operating performance; this measure shows that 1H26 adjusted net profit increased 45.3% versus 2H25 and that adjusted net margin recovered to approximately 13%.

• (Out-of-vocabulary Method)

  Constant-currency growth

  The report presents both reported and constant-currency growth for the interventional business to distinguish underlying operating growth from currency translation effects; reported revenue for the business declined 2.7%, while it increased 2.4% at constant exchange rates.

• (Out-of-vocabulary Method)

  Goldman Sachs M&A scoring framework

  Goldman Sachs uses a scale of 1 to 3 to assess the likelihood of a company becoming an acquisition target; Weigao is rated Level 3, corresponding to a low probability of 0%-15%, so M&A factors were not incorporated into the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Weigao (01066.HK)

  The report's primary covered company; 1H26 revenue met expectations and earnings recovered sequentially, but year-over-year performance remained constrained by a high base, VBP, and rising costs.

  Strengths

  Overseas revenue growth, positive free cash flow, improved product mix and expense control, a return to profitability in blood management, and multiple new products and overseas capacity projects provide growth support.

  Weaknesses

  Reported net profit declined year over year, domestic demand has not yet fully recovered, medical devices profitability is under pressure, and the interventional business remains loss-making.

  Comparison

  Goldman Sachs assigns the stock a Neutral rating based on its return potential relative to the China and Korea medical technology and services companies under its coverage.

  Risks

  VBP pricing pressure may persist, raw material costs and foreign-exchange losses may exceed expectations, and it may take longer for new growth drivers to scale up.

Key data

• 1H26 RevenueRMB6.85 billionUp 3.1% year over year and in line with Goldman Sachs' expectations
• 1H26 Reported Net ProfitRMB774 millionDown 23.2% year over year and 1.8% below Goldman Sachs' expectations
• 1H26 Adjusted Net ProfitRMB890 millionDown 11.7% year over year and up 45.3% versus 2H25
• Adjusted Net MarginApproximately 13%9% in 2H25
• FY26 Revenue GuidanceGrowth of 3%-5%Excludes consolidation effects; management maintained its original guidance
• Overseas RevenueUp 6.2% year over yearAccounted for 25.2% of total 1H26 revenue
• FY26 Capital Expenditure GuidanceRMB600 million to RMB800 millionUnchanged
• Dividend Payout Ratio50%The company maintained this target
• 2026E-2028E EPSRMB0.30/RMB0.35/RMB0.38Forecast revisions of -2.5%/0.0%/-2.9%, respectively
• Valuation Benchmark10x 12-month forward P/EThe valuation multiple remains unchanged
• 12-Month Target PriceHK$3.86Previously HK$3.91; implies 10.9% upside relative to the current price of HK$3.48

Impact & implications

The report believes that Weigao's revenue has gradually stabilized and that the sequential recovery in adjusted margins indicates the impact of VBP may be diminishing. However, domestic demand has not yet fully recovered, and raw material costs and pricing pressure will continue to affect near-term earnings. Medium-term growth will depend more heavily on overseas localization, synergies from acquired assets, and the sales ramp-up of new perioperative, orthopedic, and interventional products. Goldman Sachs therefore maintains its Neutral view after lowering some earnings forecasts and the target price.

Risks

• Upside risk: Residual VBP effects dissipate faster than expected.
• Upside risk: Execution in perioperative equipment and overseas expansion is stronger than expected.
• Downside risk: VBP-related pricing pressure persists longer than expected.
• Downside risk: New growth drivers may take longer than expected to make a meaningful contribution at scale.

What to watch

• Monitor whether earnings recovery accelerates in 2H26 as management expects and whether full-year earnings range from a slight decline to broadly flat.
• Monitor the net impact of VBP pricing pressure, raw material costs, and expense control on margins.
• Monitor whether the Indonesian indwelling-needle plant begins trial production in 3Q26.
• Monitor the integration of acquired dialysis and general surgery assets and the progress of synergy realization.
• Monitor the sales ramp-up of influenza vaccines, GLP-1 autoinjector pens, Cleaner Vac, and new orthopedic products.
• Monitor overseas revenue growth and progress in building local manufacturing and commercial infrastructure in Africa.