CITIC Securities released a research report maintaining a "Buy" rating on SINOPHARM (01099), with projected revenues of RMB 589.221 billion, RMB 619.591 billion, and RMB 651.789 billion for 2025–2027, representing year-on-year growth of 0.8%, 5.2%, and 5.2%, respectively. Net profit attributable to shareholders is expected to reach RMB 7.266 billion, RMB 7.766 billion, and RMB 8.313 billion, up 3.1%, 6.9%, and 7.0% YoY, respectively. EPS is forecasted at RMB 2.33, RMB 2.49, and RMB 2.66 per share, with corresponding P/E ratios of 7.8x, 7.3x, and 6.8x.

Key highlights from the report include: On October 27, SINOPHARM reported its Q3 2025 results, with revenue for the first nine months declining 2.47% YoY to RMB 431.479 billion, while net profit rose 0.53% to RMB 5.307 billion, aligning with previous expectations.

**Margin Pressure from Drug/Device Pricing, Cost Efficiency Measures Show Results** Revenue in Q1-Q3 2025 fell 2.47% YoY, but net profit edged up 0.53%. Q3 revenue declined 1.53% to RMB 145.436 billion, with a narrower drop due to easing hospital cost controls and stable medical equipment performance. Net profit in Q3 surged 16.9% YoY to RMB 1.84 billion, driven by cost-saving efforts, as the expense ratio dropped 0.23 percentage points while gross margin remained stable.

**Steady Growth in Key Drug Distribution Markets, Medical Equipment Segment Improves** SINOPHARM strengthened its presence in key regions like East and North China, sustaining stable growth. Adjustments in product mix and sales systems are expected to boost margins and profitability. The medical equipment segment faced pressure from centralized procurement policies, but declines were manageable. The report anticipates growth as equipment upgrades progress and SPD (supply chain management) services gain traction.

**Profitability Outlook: Steady Growth Expected in Q4 and 2026** With hospital sales normalization, medical service price reforms, and easing procurement price cuts, SINOPHARM’s drug distribution business is poised for stable growth. The company is expanding SPD services and manufacturing in the equipment segment, which may accelerate earnings. Retail operations are optimizing product and store structures to enhance profitability. Cost-saving measures continue to bear fruit, supporting margin improvement. A low base in Q4 2025 could drive faster profit growth, while the upcoming 15th Five-Year Plan may further boost valuations.

**Margin Impact from Business Mix, Other Metrics Stable** Gross margin in Q1-Q3 2025 dipped 0.23 percentage points YoY to 7.25%, mainly due to lower contributions from high-margin businesses, though the decline moderated sequentially. Sales and management expense ratios fell 0.15 and 0.08 percentage points, respectively, reflecting cost controls. The financial expense ratio rose slightly by 0.02 percentage points to 0.36%. Operating cash flow improved to -RMB 39.077 billion (vs. -RMB 47.718 billion YoY) on better receivables collection. Inventory turnover days increased marginally by 0.90 days to 43.47, while receivables turnover days rose 8.7 days to 141.03 due to delayed payments. Other financial metrics remained stable.