Kingmed is recovering from the bottom, but the pace of recovery is slower than expected

Overview

This report is Goldman Sachs' earnings review of Kingmed (603882.SS). FY25 and 1Q26 results show that the business has rebounded from its low point, but both revenue growth and profit recovery were slower than expected. Goldman Sachs therefore lowered its 2026E-2028E forecasts and target price, but maintained its Buy rating, based on the view that Kingmed remains the leader in China's independent clinical laboratory industry, and that supply-side clearing, tighter compliance, and DRG/DIP reform are likely to drive easing competition and greater market share concentration.

Core views

Goldman Sachs believes Kingmed's near-term issues are weak demand in consumer healthcare, especially self-pay physical examinations, softer high-end testing demand, and upfront costs associated with AI applications and efficiency improvements; but in the medium term, the company is expected to benefit from rising outsourcing penetration, market share gains from industry consolidation, and improvements in gross margin and net margin as AI applications mature. The report emphasizes that the company has bottomed out and started to recover in terms of both diagnostic volume and net profit, but the recovery slope is less steep than previously expected.

Analysis framework

Starting from the disclosed FY25 and 1Q26 results, the report revises revenue, net profit, expense ratios, gross margin, and three-year forecasts, and assesses investment attractiveness in conjunction with the industry competitive landscape, outsourcing demand, high-end testing demand, accounts receivable collection, and policy-related pricing pressure. Valuation uses a 5-year exit P/E method and references global peer P/E levels.

Methodology notes

• Valuation method5-year exit P/E valuation method

  Evaluate the 12-month target price by discounting future earnings and the exit P/E multiple.

  Goldman Sachs' 12-month target price for Kingmed is Rmb36, based on a 5-year exit P/E method, using a 9.5% discount rate and referencing global peers at 21.8x P/E.

• Factor frameworkGS Factor Profile

  Compare stock attributes across growth, financial returns, valuation multiples, and composite indicators.

  Using Goldman Sachs forecast data, this framework standardizes and ranks metrics including sales, EBITDA, and EPS growth, ROE, ROCE, CROCI, as well as P/E, P/B, dividend yield, and EV/EBITDA, to provide investment context.

• M&A frameworkM&A Rank

  Use a rating from 1 to 3 to measure the likelihood of a company becoming an acquisition target.

  Kingmed's M&A Rank is 3, representing a low probability, and it is typically not included in the M&A premium component of the target price.

Asset mapping & comparison

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

• Kingmed (603882.SS)

  Core covered name

  Strengths

  Leader in China's ICL industry, with potential for market share gains during industry consolidation; gross margin has already shown signs of improvement; mature AI applications may bring efficiency and margin gains.

  Weaknesses

  FY25 and 1Q26 results were below expectations; demand in consumer healthcare and high-end testing is weak; AI applications are bringing upfront expense pressure.

  Comparison

  Goldman Sachs believes it has the potential to outperform the industry average during industry consolidation; valuation references global peers at 21.8x P/E.

  Risks

  Slower-than-expected recovery in outsourcing demand, persistently weak high-end testing demand, pricing pressure from VBP and local procurement, and slower-than-expected industry consolidation.

• China A-share healthcare sector

  Industry and coverage universe

  Strengths

  Tighter compliance, DRG/DIP reform, and supply-side clearing may help ease industry competition.

  Weaknesses

  Weak consumer healthcare demand, along with policy cost-control and procurement pressure, may continue to weigh on prices and margins.

  Comparison

  Kingmed is assessed on a relative basis within the China A-share healthcare coverage universe.

  Risks

  Insufficient industry demand recovery, policy disruptions, intensified competition, or consolidation falling short of expectations.

Key data

• FY25 revenueRmb6,030mn，-16% yoyBroadly in line with Goldman Sachs expectations of Rmb6,130mn.
• FY25 net profitRmb-173mnThe loss was larger than Goldman Sachs expectations of Rmb-143mn, but narrower than the FY24 net loss of Rmb381mn.
• 1Q26 revenueRmb1,351mn，-8% yoyBelow Goldman Sachs expectations of Rmb1,562mn.
• 1Q26 net profitRmb43mnTurned positive from a net loss of Rmb28mn in 1Q25, but below Goldman Sachs expectations of Rmb169mn.
• 1Q26 gross margin34.9%Above 33.2% in 1Q25 and 34.5% in 4Q25, indicating margin improvement.
• 2026E revenue forecastRmb6,526mnCut by 7.8% from the previous forecast of Rmb7,076mn.
• 2026E net profit forecastRmb329mnCut by 34.0% from the previous forecast of Rmb499mn.
• 2027E net profit forecastRmb498mnCut by 30.1% from the previous forecast of Rmb713mn.
• 2028E net profit forecastRmb690mnCut by 25.9% from the previous forecast of Rmb930mn.
• 12-month target priceRmb36The previous target price was Rmb38.
• Current priceRmb28.28Corresponding to 27.3% upside.
• Market capitalizationRmb13.1bn / $1.9bnFrom the report valuation table.

Impact & implications

For investors, the report sends the signal of "near-term earnings downgrades but the medium-term inflection point remains intact." The stock price may face near-term pressure from weaker-than-expected results, rising expense ratios, and the target price cut; however, if industry consolidation accelerates, outsourcing demand recovers, accounts receivable improve, and AI applications gradually deliver efficiency gains, Kingmed may still achieve outperformance relative to the industry.

Risks

• Recovery in industry outsourcing demand is slower than expected.
• Demand for high-end testing remains weak.
• Pricing pressure from VBP and local procurement policies intensifies.
• Industry consolidation progresses more slowly than expected, and market share gains fall short of expectations.
• Upfront costs related to AI applications and efficiency improvements may continue to weigh on short-term profits.
• Accounts receivable collection progresses more slowly than expected.

What to watch

• The pace of industry consolidation and Kingmed's market share gains.
• The recovery path of gross margin and net margin, especially efficiency improvements after AI applications mature.
• Whether demand for consumer healthcare and self-pay physical examinations recovers.
• Whether demand for high-end testing stabilizes.
• Progress in accounts receivable collection.
• Whether revenue growth, expense ratios, and net profit in subsequent quarters move back toward Goldman Sachs forecasts.