China National Accord 2025 Results Call Takeaways: Seeking quality improvement after retail contraction, while distribution remains under pressure

Overview

This report is a takeaways summary of Morgan Stanley's 2025 results briefing for China National Accord Medicines Corp Ltd. It focuses on the company's two core businesses: the Guoda Pharmacy retail chain and the pharmaceutical distribution business in Guangdong and Guangxi. Revenue declined slightly in 2025, but net profit rose sharply year on year, driven by inefficient store closures, improved operating quality, and business mix adjustments. Management believes there will be no large-scale store closures in 2026, but there is also no clear M&A plan at present.

Core views

The core view is that the closure of inefficient stores on the retail side is basically complete, and the next stage will shift from scale expansion to quality improvement, higher non-drug revenue, and transformation into community health centers; the distribution side still faces pressure from hospital procurement, pricing, and collections, which will need to be offset by channel optimization, a higher share of immediately settled products, and development of specialty pharmacies. The overall tone is not outright bullish: earnings repair is a positive signal, but hospital market pressure, potential acquisition impairments, and traffic fluctuations still keep the investment view cautious.

Analysis framework

The report uses a combination of earnings-call takeaways and segment-by-segment analysis to assess retail pharmacy store adjustments, same-store sales trends, private-label contribution, distribution-side headwinds, and specialty pharmacy deployment. The valuation section discloses a discounted cash flow model, with key assumptions including a 9.5% cost of equity, 12.0% long-term ROE, attainment of steady state in 20 years, and a 3.0% perpetual growth rate.

Methodology notes

• Valuation methodDiscounted cash flow model

  DCF valuation

  The report says it uses discounted cash flow to value the stock, with assumptions including a 9.5% cost of equity, 12.0% long-term ROE, steady state in 20 years, and a 3.0% perpetual growth rate.

• Performance analysisSegment-level operating breakdown

  Retail pharmacy and distribution business split

  The report splits China National Accord into the Guoda Pharmacy retail chain and the distribution businesses in Guangdong and Guangxi, and separately analyzes store adjustments, traffic, non-drug revenue, hospital procurement pressure, and collection improvement pathways.

Asset mapping & comparison

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

• China National Accord Medicines Corp Ltd A-share 000028.SZ

  Covered company stock in the report

  Strengths

  2025 net profit rose sharply year on year, inefficient store closures are basically complete, private-label sales were about RMB 2.0 billion, and the specialty pharmacy and dual-channel pharmacy networks have the ability to capture prescription outflow.

  Weaknesses

  Revenue still edged down year on year, the self-operated store base contracted by 14%, hospital market margins and days sales outstanding remain under pressure, and there is no clear large-scale M&A plan for 2026.

  Comparison

  The report notes that the company currently has no specific M&A plan, which contrasts with some private-sector peers; Guoda Pharmacy remains one of the largest pharmacy chains in China.

  Risks

  Prescription drug price cuts, weaker traffic due to the economy, intensifying competition, short-term margin compression from acquiring low-profit pharmacies, and additional impairment from the Northeast China acquisition.

Key data

• 2025 revenueRMB 73.4 billionDown 1.3% year on year.
• 2025 net profitRMB 1.136 billionUp 76.8% year on year.
• Number of inefficient pharmacies closed1,140Non-profitable or inefficient pharmacies closed in 2025.
• Number of new pharmacies opened61New stores added in 2025.
• Self-operated pharmacy network6,691Down from 7,770, representing a 14% year-on-year decline.
• Private-label salesabout RMB 2.0 billionRoughly 10% of Guoda Pharmacy revenue.
• Number of specialty pharmacies157Mainly located in Guangdong and Guangxi.
• Number of dual-channel pharmacies277As an extension of the hospital network.
• Community health center transformation targetabout 1,000 pharmaciesTargeted to be transformed into comprehensive community health centers in the first half of 2026.
• DCF cost of equity assumption9.5%Key assumption disclosed in the valuation method.
• Long-term ROE assumption12.0%Key assumption disclosed in the valuation method.
• Perpetual growth rate assumption3.0%Key assumption disclosed in the valuation method.

Impact & implications

For investors, the focus for China National Accord is shifting from pure store count to operating quality, cash collection, and product mix. Closing inefficient stores should help improve margins and resource allocation, but network contraction also means short-term pressure on revenue. If prescription outflow accelerates, the community health center transformation proceeds smoothly, and the share of private-label and consumer health products rises, the retail business could form a new growth support; otherwise, if hospital procurement pricing pressure, days sales outstanding, and the Northeast China acquisition impairment continue to worsen, the sustainability of earnings repair will be challenged.

Risks

• Hospital procurement continues to be affected by medical insurance cost controls, price cuts and compliance audits.
• Hospital market margins and days sales outstanding remain under pressure.
• The macro environment, competition and prescription drug price cuts may reduce traffic and weigh on earnings growth.
• Acquiring low-profit pharmacies may cause short-term margin compression.
• Acquired assets in Northeast China may generate additional impairment.
• The report discloses that Morgan Stanley may have business relationships with the covered company, so investors should be aware of potential conflicts of interest.

What to watch

• Whether there are no large-scale store closures in 2026 and whether the store network remains stable.
• The progress of transforming about 1,000 pharmacies into comprehensive community health centers.
• Whether prescription outflow drives an improvement in retail traffic.
• Changes in the revenue mix of private-label products, non-drug categories, TCM decoction pieces, nutritional supplements, and prevention and rehabilitation products.
• Whether specialty pharmacies and dual-channel pharmacies can improve innovative drug dispensing and immediate cash collection.
• Changes in hospital procurement pricing pressure, compliance audits, and days sales outstanding.
• Whether any new M&A plan or SOE reform incentive program emerges.