Dashenlin: Supported by industry consolidation and offline demand recovery; Buy rating maintained

Overview

This report is Goldman Sachs' meeting notes following Dashenlin's participation in China Healthcare Corporate Day 2026. Martin Runshi Liang, the company's Investor Relations Director, mainly discussed industry trends and policy impacts, expansion plans, operating guidance, and earnings prospects. The report believes that, as a leading retail pharmacy chain in China, Dashenlin covers 21 provinces, with about 60% of its stores located in Guangdong, but still has room to increase share outside Guangdong in the future.

Core views

The core view is that both the industry and the company are showing signs of improvement. At the industry level, stricter medical insurance inspections and compliance requirements are compressing the gray competitive space of small chains and independent pharmacies, while tighter regulation of online prescription drug sales may redirect some demand back to offline pharmacies. At the company level, Dashenlin is expanding simultaneously through self-opening, acquisitions, and franchising, while improving the efficiency of acquired stores through supply chain, private label, digital replenishment, pricing and promotion systems, and back-end integration. Management believes profit growth of more than 20% in 2026 is fairly achievable, with net margin expected to rise from around 5% currently to slightly above 5% by the end of 2026, and to recover to 6-7% over the long term.

Analysis framework

The report is mainly based on management discussions during the meeting, combined with Goldman Sachs' views on industry consolidation, same-store sales, store expansion, M&A valuations, and margin drivers, to assess Dashenlin's growth elasticity and the reasonableness of its target price. On valuation, Goldman Sachs uses a 5-year exit P/E valuation method and provides assumptions for WACC and exit P/E.

Methodology notes

• Valuation Method5-year Exit P/E Valuation

  target price, WACC, exit P/E

  Goldman Sachs assigns Dashenlin a 12-month target price of Rmb25 based on a 5-year exit P/E valuation, assuming a WACC of 8.5% and an exit P/E of 21.2x.

• Factor FrameworkGS Factor Profile

  growth, financial returns, valuation multiples, composite factors

  The appendix explains that the Goldman Sachs Factor Profile compares individual stocks with the market and industry peers through growth, financial returns, valuation multiples, and composite metrics; this framework is used to provide investment context.

• M&A FrameworkM&A Rank

  tiering by probability of becoming an acquisition target

  The appendix explains that Goldman Sachs assesses the likelihood of covered companies becoming M&A targets using qualitative and quantitative factors and ranks them from 1 to 3; this disclosure relates to research methodology and does not mean the report explicitly assigns Dashenlin a specific M&A Rank.

Asset mapping & comparison

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

• Dashenlin (603233.SS)

  Report subject; Chinese retail pharmacy chain company

  Strengths

  Covers 21 provinces with relatively high regional density; can expand through multiple paths including self-opening, acquisitions, and franchising; supply chain, private label, and digital systems help integrate stores and improve margins.

  Weaknesses

  The revenue growth target of about 10% still faces challenges; around 60% of stores are concentrated in Guangdong, so gains in market share outside Guangdong still need validation; same-store sales were previously affected by a high base in the short term.

  Comparison

  The report considers Dashenlin a leading retail pharmacy chain in China, with valuation around its 5-year average forward P/E, but Goldman Sachs believes its leading position still supports upside.

  Risks

  E-commerce competition, pricing pressure related to medical insurance and volume-based procurement, M&A integration risks, and the difficulty of building market share in regions outside Guangdong such as Guangxi and Henan.

• China's offline pharmacy industry

  Core industry backdrop for the company's growth and valuation

  Strengths

  Tighter medical insurance inspections, stricter regulation of online prescription drug sales, and faster industry consolidation all favor compliant large chain pharmacies in gaining share.

  Weaknesses

  The industry remains affected by regulation, medical insurance payments, and pricing policies, and the pace of demand recovery may be uneven.

  Comparison

  Compared with small chains and independent pharmacies, large compliant chains are more likely to benefit from the restoration of a fair competitive environment and procurement scale advantages.

  Risks

  If regulation further suppresses drug prices or competition from online channels exceeds expectations, industry earnings elasticity may come in below expectations.

Key data

• Report Date2026-06-29 2:53PM CSTDisclosed on the report cover page.
• RatingBuyThe report states that Goldman Sachs maintains a Buy rating on Dashenlin.
• 12-month Target PriceRmb25The target price comes from the Price Target Risks & Methodology section.
• Disclosed Current PriceRmb14.80Dashenlin's price is listed in the company-specific disclosures section.
• Implied Upsideapproximately 69%Roughly calculated based on the Rmb25 target price and the current price of Rmb14.80.
• 2026 Revenue Growth Targetapproximately 10%Management said this target still carries some challenges.
• 2026 Profit Growth Targetmore than 20%Management believes this is achievable with a fairly high probability.
• 2026 Store Expansion Planaround 500 self-opened, 400-500 acquired, more than 2,000 franchisedProgress across business lines is broadly in line with plan.
• M&A Valuationapproximately 0.4-0.5x P/S, approximately 8-10x P/EThe P/E conversion is based on the company's roughly 5% net margin.
• Net Margin Outlookcurrently around 5%, slightly above 5% by end-2026, 6-7% long termManagement expects margin expansion to be driven by lower rents, higher gross margin, larger procurement scale, and efficiency improvements from digitalization/AI.
• 2023-2028E Earnings CAGR7%Goldman Sachs expects industry consolidation to support compounded earnings growth.
• Store Regional Distributioncoverage across 21 provinces, around 60% of pharmacies located in GuangdongThe company still plans to continue increasing share in markets outside Guangdong.

Impact & implications

If management's view materializes, Dashenlin could benefit simultaneously from industry formalization, the return of demand to offline pharmacies, low-valuation acquisitions, and efficiency gains from scaled operations. For investors, short-term focus points are same-store sales recovery, consolidation of acquired assets, and margin improvement; medium- to long-term focus points are whether the company can replicate its regional density advantage outside Guangdong and gradually raise acquired stores to the company's average net margin level.

Risks

• E-commerce competition is stronger than expected.
• Medical insurance reimbursement policies or regulatory changes such as VBP may create pricing pressure.
• M&A-related risks, including acquisition prices, integration progress, and weaker-than-expected profit improvement at acquired stores.
• There may be difficulties in establishing or increasing market share outside Guangdong, especially in markets such as Guangxi and Henan.
• The roughly 10% revenue growth target for 2026 still faces some challenges, and the pace of same-store sales and store expansion requires continued validation.

What to watch

• Progress in industry consolidation and the pace of small pharmacy closures.
• Whether retail sales recovery and same-store sales continue to improve in subsequent quarters.
• Execution progress of the 2026 plans for self-opened, acquired, and franchised stores.
• Revenue and profit contribution from acquired assets after consolidation starting in June-July.
• The actual contribution of lower rents, promotional strategies, procurement scale effects, and digitalization and AI efficiency improvements to net margin.
• Progress in regulation of online prescription drugs, medical insurance inspections, liberalization of outpatient reimbursement eligibility, and Shanghai's pilot program for unified reimbursement pricing by generic name.