Nanchai Investment Research Highlights | Fangsheng Pharmaceutical: Rapid Performance Growth, Innovation Supports Long-term Development

Author: China Thai Securities Zhu Jiaqi, Sun Yuyao

Q3 performance was impressive, slightly above market expectations

In Q3 alone, the company achieved operating revenue of 419 million yuan, down 4.26% year over year. This was attributable to certain product price reductions, a pullback in demand for respiratory drugs, and the divestment of inefficient pharmaceutical commercial assets. In Q3, attributable net profit was 99.04 million yuan, up 8.49% year over year; non-recurring profit was 71.20 million yuan, up 36.37% year over year. For the first three quarters, the company recorded a gross margin on sales of 71.28%, down 1.58 percentage points year over year. Attributable net profit margin was 21.41%, up 4.49 percentage points year over year. On expenses, the selling expense ratio was 33.53%, down 7.09 percentage points year over year; the administrative expense ratio was 8%, up 0.31 percentage points year over year; the financial expense ratio was 0.7%, up 0.2 percentage points year over year; and the R&D expense ratio was 8.62%, up 0.95 percentage points year over year. The company’s overall profitability continues to trend upward steadily.

Impressive performance in cardiovascular and respiratory areas, with pressure on respiratory and pediatric drugs

By therapeutic area, in the first three quarters of 2025, cardiovascular and cerebrovascular revenue was 434 million yuan (+13.84%), with gross margin improving to 82.67% (+1.10 percentage points). Revenue from drugs for the musculoskeletal system was 298 million yuan (-0.07%). Pediatric drug revenue was 111 million yuan (-17.69%). Respiratory system drug revenue was 74 million yuan (-59.65%). Gynecological disease drug revenue was 49 million yuan (-24.04%). Anti-infective drug revenue was 50 million yuan (-8.88%). Revenue from other categories was 191 million yuan (+1.98%).

Actively laying out innovative R&D to strengthen the product matrix

In August 2025, the company announced plans to purchase the patent rights for the API and formulation project of the Class 1 chemical drug innovative drug IMM-H024 from China Pharmaceutical University and the Institute of Materia Medica, Chinese Academy of Medical Sciences for 80 million yuan, and to advance R&D of patent candidate drugs. This also indicates the company’s forward-looking layout in new chemical drug development. For innovative traditional Chinese medicine, Yangxue Qufeng Zhiting Pain Granules is the company’s third TCM innovative drug, following Xiao’er Jingxing Zhike Granules and Xuanqi Jiangu Tablets, and it is also the first TCM innovative drug in China that has been approved for the treatment of frequent tension-type headache. Currently, Yangxue Qufeng Zhiting Pain Granules has already passed the preliminary review by the National Healthcare Security Administration in connection with the 2025 basic medical insurance catalog adjustment. If it can be successfully included in the National Basic Medical Insurance Catalog through subsequent negotiations, it is expected to become a new growth driver for the company’s profits.

Earnings forecasts and investment advice: Based on the company’s Q3 report, we adjust our earnings forecasts. We expect the company to achieve operating revenue of 1.850 billion yuan, 2.122 billion yuan, and 2.403 billion yuan in 2025–2027, representing year-over-year growth of 4%, 15%, and 13%, respectively. We expect attributable net profit of 316 million yuan, 387 million yuan, and 467 million yuan, representing year-over-year growth of 24%, 22%, and 21%, respectively. Considering that multiple new and existing products are in a rapid volume ramp-up period, operating leverage is expected to be released under the scale effect, bringing high growth potential for performance. We maintain a “Buy” rating.

Risk warning: Risks of price cuts due to centralized procurement; risks that sales of core products will fall short of expectations; risks that R&D progress will fall short of expectations; risks that information data used in research reports will not be updated in a timely manner.

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