Policy boost! Traditional Chinese medicine stocks collectively strengthen; expected to bottom out and rebound by 2026?

The Chinese medicine sector performed strongly in the early trading session on February 6, with Tedi Pharmaceutical and Hansoh Pharmaceutical hitting the daily limit; BioValley, Enwei Medical, Datang Pharmaceutical, and Yue Wannianqing also saw significant gains.

Continuous Support for Chinese Medicine Policies

On the news front, the Ministry of Industry and Information Technology and seven other departments issued the “Implementation Plan for High-Quality Development of the Chinese Medicine Industry (2026–2030)” (hereinafter referred to as the “Implementation Plan”) on February 5. It mentions that by 2030, a group of leading Chinese medicine companies with strong driving capabilities will be cultivated, and 60 high-standard Chinese medicine raw material production bases will be established. The plan also aims to promote the approval and listing of a batch of innovative Chinese medicine drugs, cultivate 10 new traditional Chinese medicine major varieties, and facilitate the transformation of Chinese medicine formulations in medical institutions into innovative Chinese medicine drugs.

On January 27, the “Regulations for the Implementation of the Drug Administration Law of the People’s Republic of China” were officially announced, which explicitly states “Guidance by Traditional Chinese Medicine Theory” as a legal requirement for Chinese medicine research and development, strengthening the “three-in-one” review logic, encouraging the transformation of classic famous prescriptions and the development of innovative drugs, and consolidating the legal foundation for Chinese medicine innovation.

Performance Pressure on the Chinese Medicine Sector

It should be noted that the overall performance of the Chinese medicine sector remains under pressure. According to Wanlian Securities, the revenue of the Chinese medicine sector in the first three quarters of 2025 decreased by 4.28% year-on-year, with a 1.57% decline in the third quarter. The decline in revenue for the first three quarters of 2025 has been narrowing.

Image source: Wanlian Securities

Looking at net profit attributable to the parent company, the Chinese medicine sector’s net profit growth rate in the first three quarters of 2025 was -1.23% year-on-year, with a -5.25% decline in the third quarter.

Image source: Wanlian Securities

From the currently disclosed performance forecasts for 2025, among 32 Chinese medicine stocks, only 9 are expected to have positive earnings, with an optimistic rate of about 28%. Conversely, 20 stocks are projected to incur losses in 2025. Zhenbaodao is expected to lose up to 1.173 billion yuan, and the largest losses among ST Xiangxue, *ST Changyao, Zhongheng Group, and Kuaishou Pharmaceutical are also significant.

Wanlian Securities stated that the performance pressure on the sector is mainly due to policy, market, and cost factors. On the policy side, the expansion of alliance procurement varieties across provinces has led to a decrease in Chinese medicine prices, affecting revenue and gross profit margins. Sales in pharmacy channels have declined due to sluggish consumption, and hospital market demand for high-margin products has weakened due to medical insurance payment reforms. The reduction in sales across these two channels has dragged down the performance of the Chinese medicine sector.

Valuations in the Sector Are Relatively Low

In terms of valuation, data from Eastmoney Choice shows that the latest PE (TTM) for the Shenwan Secondary Chinese Medicine Sector is 22.42 times, with a percentile of 16.5% over the past ten years, indicating a relatively low position.

Bottoming Out and Rebound in 2026?

Wanlian Securities believes that under the background of medical insurance reform, the Chinese medicine industry is experiencing a painful transition in its development model. In the future, diversified channels, strong brand power, and high clinical value will be key. In the long term, policies will guide the industry toward high-quality and standardized development. It is recommended to focus on OTC leading companies with strong brand moat, as brand strength can offset policy pressures and enhance cost control. Companies with integrated supply chains and those making breakthroughs in innovative Chinese medicine are also worth attention.

Pacific Securities thinks that the Chinese medicine market is growing rapidly, with new products accumulating growth momentum. Under policy guidance, measures benefiting the supply side, payment side, and demand side of the Chinese medicine industry are continuously introduced, covering Chinese medicine registration, review and approval, quality control, medical insurance payment, and the promotion of Chinese medicine culture, comprehensively promoting the prosperity and development of the industry. China is one of the countries with the richest resources of Chinese medicinal materials and the largest output, with steadily increasing market demand.

Looking ahead to 2026, Guojin Securities states that after continuous destocking and performance digestion in 2024-2025, and with the approaching peak of delivery deadlines, coupled with a significant rise in influenza cases in Q4 2025, there is potential for further channel inventory digestion. The Chinese medicine sector is expected to bottom out and rebound in 2026.

(Source: Eastmoney Research Center)