Yunnan Baiyao's 2025 results met expectations, with core pharmaceutical products becoming a growth highlight

Overview

This report is UBS's commentary on Yunnan Baiyao's 2025 results. It concludes that the company's 2025 performance broadly met market expectations, with revenue and profit continuing to grow. Core Baiyao series products stood out within the pharmaceutical division, while dividend payouts remained at a high level. The company is one of the leading players in China's traditional Chinese medicine industry, with businesses spanning pharmaceuticals, consumer products, traditional Chinese medicine resources, and pharmaceutical distribution. It was listed on the Shenzhen Stock Exchange main board in 1993 and is headquartered in Kunming, Yunnan.

Core views

UBS's core views are: first, in 2025 the company's revenue grew 2.9% year on year and net profit attributable to shareholders rose 8.5% year on year, with overall results meeting expectations; second, the pharmaceutical business, especially core products such as Baiyao aerosol and Baiyao plaster, grew quickly and was a highlight of the results; third, a higher manufacturing mix lifted gross margin and operating margin by 1.6 and 0.3 percentage points year on year, respectively; fourth, the company maintained a high dividend payout, with the 2025 payout ratio expected to reach 90.1%; fifth, looking ahead to 2026, the company may continue to tap pharmaceutical growth through key product redevelopment, evidence-based medicine, and full-channel coverage, while using new product launches and operational optimization to support stable growth in other segments.

Analysis framework

The report combines earnings decomposition, segment revenue analysis, margin change analysis, cash flow observation, and valuation revision. After the results, UBS made a minor -1% to 0% adjustment to 2026-28E earnings forecasts and raised the target price to Rmb67.80 on the basis of a higher valuation contribution assumption for the pharmaceutical business.

Methodology notes

• Valuation methodSOTP

  sum-of-the-parts valuation

  UBS values Yunnan Baiyao using an SOTP approach, summing the different business segments based on their respective earnings contributions and valuation assumptions; the higher valuation contribution assumed for the pharmaceutical business is one of the main reasons for the target price increase.

• Growth analysisProduct and segment breakdown

  Observe revenue growth by business segment and core products

  The report focuses on comparing segment revenue across pharmaceuticals, health products, traditional Chinese medicine resources, and pharmaceutical distribution, while highlighting year-on-year growth in core products such as Baiyao aerosol and Baiyao plaster.

Asset mapping & comparison

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

• Yunnan Baiyao Group / 000538.SZ

  The report covers this company, which operates in China's traditional Chinese medicine and healthcare sector.

  Strengths

  Core Baiyao series products grew quickly, with Pharmaceutical Division revenue up 12.5% year on year; a higher manufacturing mix improved margins; the dividend payout ratio remained high; and the company has net cash and a relatively high expected dividend yield.

  Weaknesses

  2025 revenue growth was only in low single digits, and Q4 net profit attributable to shareholders declined 11% year on year; growth in some non-pharmaceutical segments was relatively stable or under pressure, and pharmaceutical distribution revenue fell versus 2024.

  Comparison

  UBS forecasts 2026E EPS of Rmb3.13, below consensus of Rmb3.28; 2027E EPS of Rmb3.33, below consensus of Rmb3.60.

  Risks

  A macro and consumer demand recovery that falls short of expectations, slower growth in core pharmaceutical products, declining toothpaste market share, intensifying competition in scalp care and innovation businesses, deterioration in accounts receivable and inventory turnover, and persistent losses from secondary market investments weighing on net profit.

Key data

• 2025 revenueRmb41.2bnUp 2.9% year on year.
• 2025 net profit attributable to shareholdersRmb5.15bnUp 8.5% year on year; recurring net profit attributable to shareholders was Rmb4.87bn, up 7.6% year on year.
• 2025 pharmaceutical division revenueRmb8.32bnUp 12.5% year on year.
• Core Baiyao series product salesOver Rmb5.5bnUp more than 18% year on year.
• Baiyao aerosol / plaster salesOver Rmb2.5bn / Rmb1.2bnUp more than 22% and 26% year on year, respectively.
• 2025 gross margin / operating margin29.5% / 12.0%Up 1.6 / 0.3 percentage points year on year, respectively.
• 2025 operating cash flowRmb4.6bnUp 7.04% year on year.
• 2025 dividend payout ratio90.1%Includes a cash dividend of Rmb15.83 per 10 shares and a special mid-year dividend of Rmb10.19 per 10 shares.
• Target priceRmb67.80Raised from Rmb66.50, with Buy rating maintained.
• Forecast total shareholder return27.0%Includes 22.0% forecast price upside and 5.0% forecast dividend yield.

Impact & implications

The report is positive for Yunnan Baiyao from an investment perspective: growth in core pharmaceutical products and a high dividend payout together support the Buy rating, while a higher pharmaceutical mix should help improve margins and the valuation structure. However, near-term catalysts are not clear; in the quantitative issue table, the catalyst over the next three months is marked as No Catalyst, and the views on industry, regulation, and earnings surprise are all neutral.

Risks

• Macroeconomic recovery falls short of expectations and consumer demand remains weak.
• Core Baiyao series products in the pharmaceutical segment slow materially, and sales and promotion of common medicines and other products disappoint.
• In the health products segment, Yunnan Baiyao toothpaste market share declines sharply, while competition intensifies in scalp care products and innovation businesses.
• Slower hospital collections and inventory levels above expectations lead to longer accounts receivable and inventory turnover days.
• Persistent losses from secondary market investments negatively affect net profit.

What to watch

• Progress in 2026 on the redevelopment and full-channel coverage of core Baiyao series products.
• Whether core products such as Baiyao aerosol and Baiyao plaster can sustain high growth.
• New product launches and operational optimization in health products, traditional Chinese medicine resources, and pharmaceutical distribution.
• Whether the dividend policy remains elevated and the contribution of dividend yield to total return.
• Accounts receivable, inventory turnover, and hospital collection trends.
• The impact of gains and losses from secondary market investments on net profit.