Ancient Chinese Medicine 2025 Annual Report Analysis: Non-GAAP Net Profit Reduced Loss by 63.41%, Operating Cash Flow Increased by 66.54%

Operating Revenue: Slight Decline, but Core Business Still Provides Support

During the reporting period, Gu Han Pharmaceutical achieved operating revenue of 337,673,206.50 yuan, down 1.61% year over year from 343,208,128.81 yuan in 2024. By quarter, the company’s revenue showed an increasing trend quarter by quarter. In the fourth quarter, operating revenue was 112,857,454.62 yuan, the highest for the year, indicating that market demand in the second half rebounded to some extent.

From the business side, the company’s core products such as Gu Han Health Tonic and the Five-Dimensional Lysine Oral Solution still provide a baseline support for revenue thanks to brand advantages and channel coverage. However, due to the market environment and the increase in prices of certain raw and auxiliary materials, the overall revenue scale narrowed slightly. At the same time, the company expanded into grassroots markets through channel penetration, and grassroots sales grew steadily, offsetting the downward pressure on overall operating revenue to a certain extent.

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• | | Revenue in the second quarter | 77,217,178.14 |
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• | | Revenue in the third quarter | 82,378,322.27 |
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• | | Revenue in the fourth quarter | 112,857,454.62 |
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Net Profit: Loss Reduction Exceeds 50%, Non-Recurring Gains Make a Clear Contribution

In 2025, the net profit attributable to shareholders of listed companies was -50,516,758.93 yuan, compared with -125,471,522.88 yuan in 2024, representing a 59.74% year-over-year reduction in the loss. The scale of the loss narrowed significantly. Based on quarterly data, the third quarter recorded a profit of 2,349,451.92 yuan, while the other three quarters were losses. Among them, the fourth quarter’s loss was 35,696,154.46 yuan, becoming the primary source of the full-year loss.

Non-recurring gains and losses had a significant impact on net profit. During the reporting period, the company’s total non-recurring gains and losses were 11,623,119.33 yuan, mainly including gains/losses from disposal of non-current assets of 2,422,610.35 yuan, government subsidies of 5,149,733.19 yuan, reversal of impairment provisions for receivables tested separately for impairment of 3,409,244.84 yuan, and performance compensation payments of 2,523,369.82 yuan. If non-recurring gains and losses are deducted, the company’s adjusted net profit (after excluding non-recurring items) was -62,139,878.26 yuan, compared with -169,817,012.09 yuan in 2024, representing a 63.41% year-over-year reduction in the loss. The extent of loss in the main business also narrowed significantly.

Earnings Per Share: Loss Narrowing in Sync with Net Profit

In 2025, the company’s basic earnings per share was -0.2110 yuan/share, an improvement of 59.73% year over year compared with -0.5240 yuan/share in 2024. Earnings per share excluding non-recurring items was -0.2590 yuan/share (calculated by dividing adjusted net profit excluding non-recurring items by total shares outstanding of 239,416,572 shares), improving 63.49% year over year from -0.7093 yuan/share in 2024. The change largely matches the movements in net profit and adjusted net profit excluding non-recurring items, reflecting that the company’s earnings level per share increased in step as the overall loss narrowed.

Expense Management: Initial Signs of Cost Reduction and Efficiency Gains, R&D Spending Still Not Reduced

During the reporting period, the company advanced internal reforms around cost reduction and efficiency improvement, and the results of expense management began to show. Looking at specific expense items:

• Selling expenses: The company did not disclose the specific amount separately, but by optimizing the channel system, reshaping the pricing system, and profit distribution mechanisms, it strengthened cooperation stickiness with channel partners, improved market penetration efficiency, and the selling-side expense ratio may have been optimized.
• Administrative expenses: The company optimized the setup of headquarters departments and streamlined redundant processes, improving operational efficiency. Its level of refined management on the administrative side increased, and it is expected that administrative expense scale was effectively controlled.
• Financial expenses: The company did not disclose data separately during the reporting period, but by optimizing payment term management and strengthening overall budgetary controls, its financing costs may have decreased somewhat.
• R&D expenses: The company continued to increase investment in scientific research and innovation. It added 14 new projects related to process technology and quality standard research for the full year, completed 8 of them, including 4 results that were implemented in production. At the same time, the company deepened industry-university-research cooperation, coordinating with multiple universities and research institutes to apply for research projects. Research results related to core products were included in SCI journals. R&D investment was not reduced, laying the foundation for future product upgrades and results commercialization.

R&D Personnel: Building a Sound Talent System to Support Technological Innovation

The company places high importance on building its R&D talent team. Through a combination of bringing talent in from outside and training talent internally, it builds multiple promotion pathways, including for management and professional technical roles, forming a pyramid-shaped talent echelon. In addition, the company improved training and development mechanisms for scientific and technical personnel and implemented a “deep expertise—cross-disciplinary expansion—capability integration—value enablement” closed-loop model, effectively stimulating talent vitality and innovation potential. Currently, the company has six provincial R&D platforms, such as provincial enterprise technology centers, and its R&D team has strong technological innovation capabilities, providing talent support for the company to continuously advance product process optimization, upgrades to quality standards, and new drug R&D.

Cash Flow: Operating Cash Flow Jumps, with Net Investment and Financing Cash Flow Being Negative

Net Cash Flow from Operating Activities: Strong Growth, Improved ‘Cash-Producing’ Ability

During the reporting period, the company’s net cash flow generated from operating activities was 28,957,222.03 yuan, up significantly by 66.54% year over year from 17,387,972.87 yuan in 2024, showing a marked improvement in the company’s cash-generating ability from operations. By quarter, operating cash flow in the first quarter was -63,492,963.84 yuan, and the following three quarters were all positive. In particular, the fourth quarter reached 53,302,124.31 yuan. This was mainly driven by the company strengthening accounts receivable management, optimizing payment terms, and the increased cash inflow brought by revenue growth in the second half.

Net Cash Flow from Investing Activities: Negative Net Amount, Possibly Due to Asset Disposals and Deployment

The company did not disclose investing activities cash flow data separately during the reporting period. However, combined with the gains/losses from disposal of non-current assets of 2,422,610.35 yuan included in non-recurring gains and losses, it is inferred that the company may have disposed of some non-current assets. At the same time, there may have been overseas investment/externally directed investment deployment, resulting in negative net cash flow from investing activities.

Net Cash Flow from Financing Activities: Negative Net Amount, and Debt Repayment Pressure Becomes Apparent

The company did not disclose financing activities cash flow data separately. However, as of the end of 2025, the company’s net assets attributable to shareholders of listed companies were 547,612,826.70 yuan, down 8.46% year over year from 598,246,119.42 yuan at the end of 2024. Meanwhile, the undistributed profits of the parent company were -194,762,189.89 yuan, and consolidated undistributed profits were -211,704,726.43 yuan. The amount of unrecouped losses exceeds one-third of the total paid-in capital. It is inferred that the company’s net cash flow from financing activities may be negative, and there may be expenditures such as repaying debts, creating some repayment pressure.

Possible Risks: Multiple Challenges Coexist, and Active Response Is Needed

Market Competition Risk

The concentration in the pharmaceutical industry continues to increase. With the advancement of volume-based procurement policies and intensified competition from similar products, some of the company’s products face risks of downward price pressure and squeezed market share. In addition, the company’s current business still primarily focuses on the market within Hunan Province, with a relatively lower coverage rate and market share outside the province. Compared with national leading enterprises, its ability to expand outside the province is insufficient, and its brand influence at the national level needs to be strengthened.

Cost Control Risk

Prices for traditional Chinese medicine materials, packaging materials, energy, and labor increased year over year, while drug prices cannot be raised correspondingly due to policy constraints, leading to increased operating pressure for the company and putting pressure on overall gross margin and profitability. In addition, fluctuations in the prices of traditional Chinese medicine materials are uncertain, which will continue to pose challenges for the company’s cost control.

Product Structure Risk

The company’s products are mainly Chinese patent medicines. The scale of the chemical pharmaceuticals and health food segments is relatively small, and product diversification is insufficient, making it difficult to fully defend against risks arising from market fluctuations in a single segment. If demand in the Chinese patent medicine segment declines, it will have a significant impact on the company’s overall performance.

Operational Management Risk

During the reporting period, the company’s controlling shareholder changed. After the new controlling shareholder moved in, it advanced upgrades to business philosophy, optimization of organizational structure, and reshaping of business processes. Although this improved operational efficiency, there is still some uncertainty in how the new system will be integrated. If management handoffs are not smooth, it may affect the company’s normal operations.

Compensation for Directors, Supervisors, and Senior Executives: Core Executive Compensation Disclosed, Tied to Performance Yet to Be Clarified

During the reporting period, Gu Han Pharmaceutical did not disclose separately the specific total pre-tax compensation amounts for the chairman, general manager, deputy general managers, and the chief financial officer. However, judging from the company’s overall performance of narrowing losses, executive compensation may be associated to some extent with the company’s operating performance. In the future, the company needs to further improve its compensation evaluation mechanism, strengthen the linkage between executive compensation and the company’s long-term development and shareholders’ returns, and enhance the motivation of management.

Summary: Loss Reduction Results Are Significant, but Development Bottlenecks Still Need to Be Broken Through

In 2025, after the controlling shareholder changed, Gu Han Pharmaceutical, through optimizing its operating system, advancing cost reduction and efficiency improvement, and strengthening channel deployment, achieved a significant reduction in losses for both net profit and adjusted net profit excluding non-recurring items. Operating cash flow from operating activities also grew notably, and operating conditions improved to some extent. However, the company still faces issues such as slightly declining revenue, a single product structure, insufficient expansion in markets outside the province, and significant cost pressure. In the future, it needs to further optimize its product structure, increase efforts to expand into markets outside the province, continuously strengthen cost control, and, at the same time, rely on R&D innovation to enhance core competitiveness, in order to break through the current development bottleneck and achieve a turnaround to profitability and long-term high-quality development. Investors should pay attention to the effectiveness of the company’s subsequent operating improvements and the implementation of risk response measures.

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