Can Yunnan Baiyao, known as "quitting stocks," return to its performance peak?

“After the stock-forbearance,” Yunnan Baiyao (000538) has seen its performance return to normal. On April 1, Yunnan Baiyao released its 2025 annual report—an impressive-looking set of results. In 2025, the company’s operating revenue and non-recurring profit both hit historical highs, with attributable net profit of 5.153 billion yuan, only “a step away” from the historical best of 5.516 billion yuan. From the development plan perspective, while Yunnan Baiyao is developing its traditional Chinese medicine (TCM) core business, it is also actively laying out innovative drugs. Yunnan Baiyao is trying to prove to the market—through stronger performance and diversified business deployments—that this century-old pharmaceutical company is on the way back to the peak of performance.

But on closer reading of the financial report, behind Yunnan Baiyao’s flourishing performance, there are still issues such as a sharp increase in selling expenses and selling expenses far exceeding R&D spending. In addition, in the secondary market, this “blue-chip” stock of Yunnan Baiyao, with a market capitalization of nearly one trillion yuan, has clearly underperformed the broader market in recent years.

Revenue hits a historical high

Yunnan Baiyao’s 2025 annual report shows that in 2025, the company achieved operating revenue of 41.187 billion yuan, up 2.88%; attributable net profit of 5.153 billion yuan, up 8.51%; and non-recurring net profit of 4.865 billion yuan, up 7.55%. Among these, both operating revenue and non-recurring net profit reached historical highs.

Breaking down Yunnan Baiyao’s annual report, in 2025, Yunnan Baiyao Industrial’s sales revenue was 16.016 billion yuan, up 10.7%, and its share of revenue increased to 38.89%. Yunnan Baiyao Commercial’s sales revenue was 25.083 billion yuan, down 1.53% year over year, with its share still exceeding 60%. The gross margin of the industrial segment is far higher than that of the commercial segment—65.19% and 6.69%, respectively. Therefore, the increase in the share of industrial revenue is the key driving force behind Yunnan Baiyao’s profit growth.

By specific business lines, Yunnan Baiyao centers its operations and production around four business groups: pharmaceuticals, healthcare products, TCM resources, and the Yunnan Provincial Medical & Pharmaceutical Company. In 2025, the pharmaceuticals business group of Yunnan Baiyao achieved operating revenue of 8.318 billion yuan, up 12.53%. There were 10 single products with sales exceeding 100 million yuan, including 2 products with sales exceeding 1 billion yuan. Among them, the sales revenue of Yunnan Baiyao aerosol exceeded 2.5 billion yuan, up more than 22%; and the sales revenue of Yunnan Baiyao ointment exceeded 1.2 billion yuan, up more than 26%. In addition, the healthcare products business group achieved operating revenue of 6.745 billion yuan; the TCM resources business group achieved export sales revenue of 1.75 billion yuan; and the provincial medical & pharmaceutical company achieved operating revenue of 23.804 billion yuan.

At the performance briefing on April 1, Yunnan Baiyao’s management stated that the pharmaceuticals and healthcare products segments need to continuously replicate and promote the “big single-product” model of Xueqiang Kang to build a “big single-product system” and implement special management for big single-product growth. The pharmaceuticals big single-products include Yunnan Baiyao’s core series products, Shenling Jianpiwei granules, Pudilan Xiaoyan tablets, Xuesaitong capsules, Tongsu capsules, Xiaoer Baotai Kang granules, Fenghan Ganmao granules, and other 14 single products. Healthcare products include 12 products such as anti-allergy, whitening toothpaste, and oral care and hair care products. In addition, segments such as tonics, medical devices, and skin care will screen out products with market potential and turn them into “big single products” in segmented fields.

Yunnan Baiyao is equally firm and generous when it comes to dividends. For this annual cash dividend, the company plans to use the company’s total share capital at the end of 2025 as the basis and distribute cash dividends of 15.83 yuan per 10 shares to all shareholders (including tax). The total cash dividend amount for this distribution is 2.824 billion yuan (including tax). When combining the cash dividend proposed to be implemented with the special dividend already implemented in 2025, the company’s total cumulative cash dividends for 2025 account for 90.09% of the company’s attributable net profit for 2025.

Worth noting is that at the performance briefing, Yunnan Baiyao’s management mentioned that going forward it will comprehensively enhance its investment and M&A capability building, and effectively do a good job in investment and M&A work to ensure that investment targets can achieve functional complementarity, mutual empowerment, and strategic synergy with the existing business.

Betting on innovative drugs

In a time when innovative drugs are booming, this long-established TCM company, Yunnan Baiyao, is also vigorously developing innovative drugs.

Late on April 1, Yunnan Baiyao issued an announcement stating that the company has recently received from the National Medical Products Administration (NMPA) the “Notification of Approval for Clinical Trials of a Drug.” After review, the clinical trial application for the INB301 injection meets the relevant requirements for drug registration, and the company has been allowed to conduct clinical trials for cancer-related malignant cachexia.

The announcement shows that the drug is a Category 1 innovative biological medicine for therapeutic use developed by the company, and it is intended for treating cancer-related malignant cachexia. On February 24, the new drug clinical trial application for the INB301 injection was accepted by the NMPA and included in the 30-day expedited approval pathway for innovative drug review and approval.

In Yunnan Baiyao’s annual report, “adhering to playing both the cards of TCM and innovative drugs” is mentioned multiple times. For short-term projects, the company is fully focusing on second-innovation development of listed products and rapid development of drugs and medical devices. Currently, the company’s R&D projects involve 18 TCM big products with secondary development, with 37 projects being carried out. For mid-term projects, the company is pushing forward innovative TCM development to continuously build Yunnan Baiyao’s star product in transdermal preparations. For long-term projects, the company has laid out multiple innovative drug candidates, including the INR101 diagnostic radiopharmaceutical project, the INR102 therapeutic radiopharmaceutical project, and the aforementioned INB301 monoclonal antibody project for treating cancer-related malignant cachexia.

In its annual report, Yunnan Baiyao disclosed that the INR101 diagnostic radiopharmaceutical project has completed the initiation of the phase III clinical trial across 29 research centers (out of 32), and completed enrollment of 239 subjects. The INR102 therapeutic radiopharmaceutical project completed dosing for 3 subjects in the low-dose group and dosing for 1 subject in the medium-dose group in phase I/IIa clinical trials, and 2 subjects completed screening for INR101.

In the view of Deng Yong, Director of the Health, Law and Governance Research and Innovation Transformation Center of Beijing University of Chinese Medicine, developing innovative drugs is an inevitable choice for Yunnan Baiyao to break through the bottleneck of its traditional business. Laying out innovative pipelines such as radiopharmaceuticals and oncology monoclonal antibodies helps build a second growth curve and improve long-term competitiveness. However, innovative drug development has a long cycle, large investment, and high risk. At present, the related projects are all in the clinical trial stage, making it difficult to contribute revenue and profit in the short term. If subsequent clinical progress goes smoothly, innovative drugs may reshape the company’s growth logic and valuation system; if R&D falls short of expectations, it could lead to wasted resources.

Regarding the company’s related matters, a reporter from Beijing Business Daily sent an interview inquiry letter to Yunnan Baiyao, but as of the time of publication, the company had not responded.

Selling expenses far exceed R&D expenses

If innovative drugs represent the future, then for now Yunnan Baiyao still relies heavily on marketing-driven growth.

According to financial data, in 2025, Yunnan Baiyao’s selling expenses were 5.619 billion yuan, up 15.16%. Yunnan Baiyao said that this was mainly due to an increase in online selling expenses and an increase in the share of revenue from online sales.

Specifically, employee compensation, display fees, advertising expenses, marketing service fees, and conference fees all increased, while business promotion expenses and promotional fees decreased.

Even though Yunnan Baiyao’s management has repeatedly emphasized that the company values R&D, compared with selling expenses, the company’s R&D expense investment is not high. In 2025, Yunnan Baiyao’s R&D expenses were 351 million yuan, up 3.89%. Because there are capitalized R&D investments, compared with R&D expenses, Yunnan Baiyao’s growth in R&D investment is even more noticeable. The annual report shows that the company’s R&D investment in 2025 was 423 million yuan, up 21.51%. Although the growth rate has exceeded that of selling expenses, it still remains less than one-tenth of selling expenses.

“ This reflects that the company still relies on market promotion-driven growth and is relatively conservative in terms of long-term technical investment. In the critical period of transforming into innovative drugs, it should gradually increase the proportion of R&D, avoid over-reliance on sales, and achieve sustainable development,” said Zhang Xinyuan, head of the consulting firm Kefangde.

In addition, from the secondary market perspective, Yunnan Baiyao’s share price performance in recent years has generally been rather weak. According to Eastmoney, as of the close on April 1, since 2025, Yunnan Baiyao’s share price under the post-rights basis has inched down by 2.88%, while the broader market has cumulatively risen by 31.61% over the same period, clearly lagging the broader market.

As of the close on April 1, Yunnan Baiyao was 55.57 yuan per share, with a total market capitalization of 99.15 billion yuan.

In Deng Yong’s view, Yunnan Baiyao’s share price has substantially lagged the broader market mainly because of insufficient growth expectations and weakened valuation logic. In 2025, the company’s revenue growth rate was only 2.88%; growth in its traditional business has been lackluster; and innovative drugs have not formed clear expectations yet, so the market cannot grant a growth premium. In addition, in 2025, market capital preferences leaned toward high-growth tracks such as AI and innovative drugs, and traditional Chinese medicine consumption leaders were sidelined, ultimately leading to share performance significantly weaker than the broader market.

Deng Yong further said that for Yunnan Baiyao to return to the peak of performance, it needs to make efforts on multiple fronts. First, strengthen its core TCM and healthcare products business, optimize the product structure, increase the proportion of high-margin products, and stabilize the basic business. Second, accelerate the clinical progress of innovative drugs, enrich the pipeline layout, and realize R&D results transformation as soon as possible. Third, optimize the expense structure, reduce inefficient selling spending, and increase the scale and efficiency of R&D spending.

Beijing Business Daily reporter Ding Ning