A leading company in the traditional Chinese medicine sector has reported its first annual loss in ten years. On January 27, TRAD CHI MED issued a rare profit warning, forecasting a shift from profit to a net loss ranging between 350 million and 500 million yuan for the 2025 fiscal year. This represents a staggering year-on-year decline in net profit of 1785% to 2507%. Even after excluding factors such as goodwill impairment, the company's profit still fell by 45% to 55%, indicating that the profitability of its core operations was nearly halved.
For the past decade, TRAD CHI MED had benefited from policy support and high growth in the Chinese medicine formula granules segment, consistently reporting profits. Between 2017 and 2021, the company achieved a compound annual revenue growth rate of 22.95%. This profit warning now signals a potential shake-up in the growth and valuation models that have long supported leading TCM companies.
The core issue lies with the Chinese medicine formula granules business, which has been the company's mainstay. TRAD CHI MED is a dominant player in this market, with a presence in over 60% of graded medical institutions and a market share of 53%. This segment accounts for nearly half of the company's total revenue. However, its performance has been declining. Revenue from this segment was approximately 6.97 billion yuan in 2024, down 23.5% year-on-year, and fell further to about 2.99 billion yuan in the first half of 2025, a decrease of 14.1%.
The company attributed the expected annual loss primarily to two factors: a decline in the revenue scale and profitability of its formula granules business due to the increasing proportion of volume-based procurement and intensified market competition, alongside impairments of goodwill and related asset groups. The goodwill impairment is directly linked to the underperformance of the formula granules unit. In the first half of 2025 alone, the company recorded a goodwill impairment of 242 million yuan, mainly related to its subsidiary, Jiangyin Tianjiang.
The formula granules sector itself is undergoing significant changes. These granules are a modern, standardized form of traditional herbal decoctions, offering convenience and higher utilization rates of active ingredients compared to traditional brewing methods. Once considered a "golden track," the market for these granules peaked at 24 billion yuan in 2021 but has since stabilized at around 16-17 billion yuan. The landscape shifted dramatically with the implementation of volume-based procurement. In late 2023, a coalition of 15 provinces led by Shandong initiated a group purchasing program for formula granules, resulting in an average price reduction of 50.77%. By June 30, 2025, this procurement policy was fully implemented across 22 provinces.
The price compression from procurement, combined with rising costs and competition, has severely impacted the revenue and profit levels of TRAD CHI MED's formula granules division. The company is not alone in facing these challenges; another major player, Hongri Pharmaceutical, also reported its worst performance in a decade, with significant declines in revenue and net profit for 2024 and the first half of 2025.
Beyond the formula granules segment, TRAD CHI MED's other core businesses—including the production and trading of Chinese medicinal herbs, prepared herbal slices, proprietary Chinese medicines, and TCM-based health products—also faced pressure in the first half of 2025. The most significant decline was seen in the medicinal herbs segment, where revenue fell by 40.9% to 446 million yuan, attributed to high market price volatility affecting procurement costs and sales orders. Revenue from the TCM health products segment also decreased by 21.8% to 122 million yuan, due to insufficient market expansion and reduced product sales amid fierce competition.
In response, TRAD CHI MED is focusing on transformation, emphasizing the development of innovative TCM drugs and the secondary development of existing proprietary medicines. In 2025, the company expanded its reach to over 1,750 secondary and higher-level medical institutions, and key products like Xianling Gubao and Jinye Baidu Granules achieved sales exceeding 100 million yuan, showing positive growth. The company also established a new research center in Guangdong aimed at innovation in prepared herbal slices.
The question of privatization for TRAD CHI MED remains unresolved. As part of the state-owned China National Pharmaceutical Group Corp., there has been longstanding market speculation about a potential privatization to resolve business overlaps with another group subsidiary, Taiji Group. A formal privatization offer was made in February 2024 at HK$4.60 per share but was later withdrawn in October 2024 after certain preconditions were not met. The deadline for resolving the competition issue between the two companies was October 2025, a period during which both reported declining results. TRAD CHI MED recorded its decade-first loss, while Taiji Group also saw significant drops in revenue and net profit.
Despite the lack of a strategic reorganization, both companies have experienced frequent management changes. Some industry observers suggest that the probability of a reorganization may now increase. A privatization of TRAD CHI MED, followed by asset integration, could potentially create a stronger combined entity for the group's TCM operations.
The performance downturn at TRAD CHI MED reflects broader challenges within the TCM sector. Its loss is not merely a company-specific issue but may signal an industry entering a phase of deep consolidation and value reassessment. The key test for TRAD CHI MED will be finding a new strategic foothold and maintaining its leadership position amidst this industry reshuffle.