Hisun Pharmaceutical 2025 Results: Continued Streamlining, Improving Manufacturing Gross Margin

Overview

This report is Morgan Stanley's commentary on Zhejiang Hisun Pharmaceutical Co. Ltd. (600267.SS) 2025 results. The report focuses on the company's operating performance after continued business streamlining, divestment of non-strategic assets, and redeployment of resources toward higher-margin businesses. Revenue grew modestly in 2025 and reported earnings fell, but earnings increased meaningfully after excluding special items, while manufacturing gross margin improved.

Core views

The core view is that Hisun Pharmaceutical is improving earnings quality by selling the distribution business and optimizing its business mix. In 2025, the finished-dosage, veterinary drug, oncology, and cardiovascular segments performed well, and overseas revenue growth outpaced the China market; meanwhile, the API business still faces pressure from declining global average selling prices. Future earnings leverage will depend on prescription-drug sales, API pricing, the innovative-drug pipeline, and progress toward the BioRay IPO.

Analysis framework

The report primarily uses company-disclosed data and Morgan Stanley's ModelWare framework to break down revenue, earnings, business segments, product categories, therapeutic areas, regional growth, and gross margin changes, and it explains the target price using a DCF valuation framework.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  The price target is derived from a discounted cash flow analysis, assuming a cost of equity of 8.8%, a perpetual growth rate of 3%, a long-term ROE of 10% on new investment, and a net debt-to-equity ratio of 40%.

• Research frameworkMorgan Stanley ModelWare

  Internal model framework

  Unless otherwise noted, the report's metrics are based on Morgan Stanley's ModelWare framework.

• Rating systemMorgan Stanley relative rating system

  Overweight、Equal-weight、Not-Rated、Underweight

  Morgan Stanley uses a relative rating system, which typically measures risk-adjusted total return over the next 12 to 18 months relative to the covered universe.

Asset mapping & comparison

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

• 600267.SS

  Covered name in the report

  Strengths

  The company is continuing to divest non-strategic businesses, manufacturing gross margin is improving, and earnings grew YoY after excluding special items, with finished pharmaceuticals and veterinary drugs becoming the main growth drivers in higher-margin areas.

  Weaknesses

  Reported earnings declined YoY, the API business still faces global pricing pressure and export competition, and revenue in infectious disease therapeutics fell.

  Comparison

  2025 revenue and earnings were respectively 12.9% and 28.8% above Morgan Stanley's estimates; excluding the distribution business, revenue grew 6.4% YoY, and manufacturing revenue grew 7.5% YoY.

  Risks

  API price volatility, further delays in Pfizer product supply, loss of export contracts, overseas regulatory export bans, asset impairment, and additional borrowing to support R&D.

Key data

• 2025 revenueRmb10.5bnUp 2.0% YoY and 12.9% above Morgan Stanley's estimate.
• 2025 earningsRmb541mnDown 10.1% YoY and 28.8% above Morgan Stanley's estimate.
• 2025 earnings excluding special itemsRmb586mnUp 36.1% YoY after excluding special items such as 2024 convertible bond gains.
• 4Q25 revenueRmb2,627mnUp 37.4% YoY.
• 4Q25 earningsRmb80mnDown 12.8% YoY.
• Revenue excluding the distribution business on a retrospective basisRmb7.6bnRose from Rmb7.1bn to Rmb7.6bn, up 6.4% YoY.
• Manufacturing revenue growth+7.5% YoYMainly driven by finished pharmaceuticals and veterinary drugs.
• Manufacturing gross margin61.6%Up 1.3 percentage points YoY.
• API gross margin33.0%Up 4.2 percentage points YoY as cost structure optimization offset downward pressure on global pricing.
• Finished pharmaceuticals gross margin68.4%Broadly stable YoY.
• Finished pharmaceuticals revenue growth+9.2%By product category.
• API revenue growth+0.8%By product category.
• China revenue growth+2.4%By region.
• Export revenue growth+11.6%By region.
• Therapeutic area revenue growthOncology +15.1%, infectious diseases -7.3%, cardiovascular +15.5%, antiparasitic and veterinary drugs +22.4%, endocrinology +5.5%The therapeutic-area breakdown shows a differentiated set of growth drivers.
• Distribution business saleRmb501mnOn 2026-03-03, the company completed the sale of its Zhejiang provincial distribution business to Guangzhou Pharmaceutical.

Impact & implications

Business streamlining should help improve Hisun Pharmaceutical's revenue quality and margins, especially once the distribution business is no longer consolidated, making it easier for the market to observe the real growth and profitability of the manufacturing core business. If finished pharmaceuticals, veterinary drugs, and higher-margin therapeutic areas continue to expand while API pricing pressure eases, earnings leverage could improve; conversely, lost export contracts, regulatory export bans, asset impairments, or rising funding needs for R&D could weigh on valuation.

Risks

• Further delays in Pfizer product supply.
• Loss of API export contracts due to competition.
• Export bans imposed by overseas regulators.
• Asset impairment losses.
• Additional borrowing to support ongoing R&D.
• Continued decline in global average API selling prices.

What to watch

• Whether API prices in export markets rise sharply.
• Whether prescription-drug sales in China outperform expectations.
• Progress on the innovative-drug pipeline.
• Whether the biotech subsidiary BioRay can successfully list.
• The sustainability of revenue and gross margin in the manufacturing core business after the distribution business divestment.
• Changes in API export contracts and overseas regulatory policies.