Pientzehuang's 1H25 preliminary results missed expectations as weak retail demand and cost pressure weighed on profitability

Overview

This report is Morgan Stanley's commentary on Zhangzhou Pientzehuang Pharmaceutical (600436.SS) 1H25 preliminary results. The company's 1H25 revenue and profit both came in below the firm's expectations, and 2Q25 profit declined at a wider year-on-year pace. The report attributes the earnings shortfall to weak consumption in traditional Chinese medicine and pharmacy retail, high costs for scarce raw materials, and increased investment in expanding the northern market.

Core views

The report's core view is that Pientzehuang's near-term fundamentals remain under pressure. On the demand side, pharmacy store closures, lower foot traffic, and weaker average spending are hurting demand for premium-priced traditional Chinese medicine tonics, with Pientzehuang tablets, priced at about Rmb760, being more visibly affected. On the cost side, supply shortages during and after the pandemic, together with stronger demand, pushed up prices for animal-derived raw materials such as natural calculus bovis and musk; although there are signs of easing, prices remain above early-pandemic levels. On the expense side, the company's new Beijing center is now operating and serves as the northern market operations headquarters, adding market development costs.

Analysis framework

The report compares actual results with Morgan Stanley estimates and market consensus, breaking down the impact of revenue, earnings, consumer demand, input costs, and market development expenses on profitability, and then uses valuation multiples to assess share-price pressure. In the valuation section, it discloses a DCF approach and refers to Morgan Stanley's valuation framework for its healthcare and traditional Chinese medicine coverage.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  The report uses a discounted cash flow method, assuming a cost of equity of 8.0%, a terminal growth rate of 4%, long-term ROE of 13.0%, and stable growth reached over 20 years.

• Research modelMorgan Stanley ModelWare

  Internal institutional model framework

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

Asset mapping & comparison

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

• 600436.SS / Zhangzhou Pientzehuang Pharmaceutical

  Covered company in the report

  Strengths

  The brand is well known in southern China; the launch of the Beijing center helps northern market expansion; if online channel contribution rises materially or sales growth exceeds 25%, it could become a positive catalyst.

  Weaknesses

  1H25 and 2Q25 results were below expectations; high-ticket products are more exposed to weak consumption; raw material costs such as natural calculus bovis and musk remain elevated; increased spending on the northern market is weighing on profit.

  Comparison

  The report treats the company's valuation framework similarly to Morgan Stanley's healthcare and traditional Chinese medicine coverage and notes downside pressure at the current 2026 36x P/E.

  Risks

  Sales falling short of expectations, consumer resistance to further price hikes, rising musk costs, and online platform sales missing expectations.

Key data

• 1H25 revenueRmb5,379mn, -4.8% y/y6% below Morgan Stanley's estimate.
• 1H25 profitRmb1,442mn, -16.2% y/y18% below Morgan Stanley's estimate.
• 2Q25 revenueRmb2,237mn, -9.8% y/yInferred from 1H25 preliminary results.
• 2Q25 profitRmb443mn, -40.8% y/yIndicates intensifying quarterly profit pressure.
• Pientzehuang tablet retail priceRmb760The report says higher-ticket traditional Chinese medicine tonic products are more affected in a weak consumption environment.
• 2026 valuation multiple36x P/EThe report uses this to argue that the share price still faces persistent downside pressure.
• DCF assumptions8.0% cost of equity, 4% terminal growth rate, 13.0% long-term ROEValuation method disclosure.

Impact & implications

The report is somewhat negative on Pientzehuang's near-term investment outlook: the earnings miss weakens market confidence in earnings resilience, while weak retail demand and raw material cost pressure may continue to compress margins; if spending on northern market development is slow to translate into sales growth, the expense ratio will further drag profitability. If valuation remains elevated, earnings downgrades could weigh on the share price.

Risks

• Consumption remains weak, and lower pharmacy foot traffic and average spending hurt sales of high-ticket traditional Chinese medicine tonic products.
• Consumers resist further price increases, dampening sales performance.
• Key raw material costs such as musk and natural calculus bovis continue to rise, constraining terminal supply and compressing margins.
• Online platform sales fall short of expectations.
• Investment in northern market development fails to generate sufficient revenue contribution in the near term.

What to watch

• The subsequent full 1H25 results and management guidance on 2H25 demand.
• Pharmacy foot traffic, store closure trends, and changes in average spending on high-ticket traditional Chinese medicine consumer products.
• Price trends for animal-derived inputs such as natural calculus bovis and musk, and whether any easing of import restrictions could relieve costs.
• Sales conversion efficiency of the Beijing center and northern market expansion.
• Whether online channel sales contribution rises materially.
• Any further price increases and consumer acceptance.