When a century-old pharmaceutical company's net profit growth significantly outpaces its revenue growth, should investors celebrate or be concerned? Yunnan Baiyao Group Co.,Ltd.'s latest interim financial report for 2025 presents such a "contradictory" picture: behind a modest 3.92% revenue increase, the company achieved a robust 13.93% growth in net profit attributable to shareholders.
However, beneath this bright spot lies troubling signals—the company's profit growth increasingly relies on government subsidies and financial investment returns for support.
**The "Water Content" in Profit Growth**
A closer examination of the financial report reveals that the company's non-GAAP net profit growth of 10.40% significantly lagged behind the net profit growth rate, with this 3.53 percentage point gap stemming from 172 million yuan in non-recurring items. Among these, 202 million yuan in local government subsidies and 149 million yuan in financial asset gains collectively contributed 5% to the net profit attributable to shareholders.
More concerning is the declining growth rate. Compared to the same period in 2024, Yunnan Baiyao Group Co.,Ltd.'s non-GAAP net profit growth actually declined by 4 percentage points. This indicates that after excluding subsidies and investment returns, the company's core business profitability has weakened.
This growth model dependent on "side businesses" inevitably reminds us of the company's 2021 lesson when investment losses caused severe performance volatility.
Moreover, analyzing the composition of Yunnan Baiyao Group Co.,Ltd.'s non-recurring items in the first half of this year raises sustainability concerns. The company received 202 million yuan in government subsidies during the 2025 interim period, mainly from specialized support such as the "Digital Smart Medicine Platform" from Yunnan Provincial Department of Science and Technology. However, these have certain policy cyclical characteristics, and future dependence on local industrial policies remains uncertain, requiring continued observation.
On the other hand, Yunnan Baiyao Group Co.,Ltd. added 2 billion yuan in wealth management investments in the first half of the year, which may boost returns in the short term. However, in an industry environment where innovative pharmaceutical companies typically invest over 20% in R&D, Yunnan Baiyao Group Co.,Ltd.'s strategy of directing substantial funds toward wealth management rather than innovative research may not be sustainable.
**Business Model Questioned**
Furthermore, Yunnan Baiyao Group Co.,Ltd.'s business structure has drawn expert criticism. The financial report shows that in the first half of 2025, the company's commercial sales revenue was approximately 12.7 billion yuan, accounting for 59.78% of operating revenue and serving as the main revenue source; industrial sales revenue was 8.504 billion yuan, representing 40.01% of operating revenue.
According to Huo Hongyi, Chairman of Numandala Business Strategy Consulting, this model resembles "high volume but low earnings." Huo told reporters that Yunnan Baiyao Group Co.,Ltd.'s commercial segment generates large revenue, accounting for 60%, but with only 6% gross margin—similar to supermarket business with high turnover but thin profits. While sustainable in the short term, if the company relies on this model long-term, profit growth will be constrained.
In contrast, while Pien Tze Huang may not have the same scale, it maintains high gross margins with industrial operations accounting for over 90%, relying more on core products and brand strength. Huo believes Pien Tze Huang's experience offers Yunnan Baiyao Group Co.,Ltd. a reminder: success shouldn't depend solely on "selling more" but should focus on "earning more."
Pien Tze Huang also attempted diversification into cosmetics and health products with limited success, demonstrating that transformation shouldn't be overly ambitious but should deepen around core businesses. Yunnan Baiyao Group Co.,Ltd. should learn how to increase the proportion of high-margin businesses and strengthen value-creating areas like R&D, manufacturing, and branding rather than over-relying on low-profit distribution business.
Regarding improving company gross margins, Wang Chunjuan, Secretary-General of the Time-honored Brand Professional Committee of the China Commercial History Society and Professor at Beijing International Trade Center Research Base, believes innovation in pharmaceutical development remains key.
Wang suggests that Yunnan Baiyao Group Co.,Ltd. should increase high-margin product revenue share through innovative drug development (such as INR101 prostate cancer diagnostic drug), secondary development of traditional Chinese medicines (Qixuekang oral liquid), or expanding health products (Yangyuanqing shampoo with 30% growth). Following Pien Tze Huang's "pharmaceutical manufacturing + pharmaceutical distribution" synergistic model, the commercial segment should transform into a distribution channel for industrial products rather than simply relying on external product circulation.
**Health Products Face Growth Challenges**
In recent years, the health products business centered on toothpaste has been an important growth engine for Yunnan Baiyao Group Co.,Ltd. In the first half of 2025, the health products division achieved revenue of 3.442 billion yuan, growing 9.46% year-over-year. Toothpaste products contributed approximately 3.225 billion yuan, accounting for a staggering 93% of total revenue. This means the entire health products division's fate almost entirely depends on the single toothpaste product.
In contrast, new products cultivated as a second growth curve performed poorly. The anti-hair loss shampoo brand Yangyuanqing generated only 217 million yuan in revenue. While maintaining 11% growth, this represents a significant slowdown from 2024's 30.3% growth rate. Other categories like mouthwash and skincare generate negligible revenue, accounting for less than 1%, with minimal diversification success.
More worrying is the weak growth of new products. Yangyuanqing, as the core product in the anti-hair loss segment, saw growth rates decline from an estimated 45% in 2023 to 11% in the first half of 2025—a cliff-like drop. This reflects intense competition in the anti-hair loss market, with over 200 anti-hair loss shampoo brands on Tmall in 2024, while traditional brands like Bawang and Bee & Flower continue to exert pressure, constantly squeezing Yangyuanqing's market space.
Meanwhile, Yunnan Baiyao Group Co.,Ltd.'s expansion into non-toothpaste oral care products and skincare has fallen far short of expectations. Despite strategic plans clearly stating goals to "develop non-toothpaste oral care products and expand skin management," these new products have failed to break the 100 million yuan revenue threshold, falling well short of established targets.
Yuan Shuai, Executive Vice President of China Urban Development Research Institute and Agricultural Cultural Tourism Industry Revitalization Research Institute, notes that data already shows Yunnan Baiyao Group Co.,Ltd.'s traditional advantageous businesses lack growth momentum, making the search for a second growth curve urgent.
The company's ventures into medical aesthetics and innovative traditional Chinese medicines, while potentially promising, face numerous uncertainties. The medical aesthetics market is highly competitive with rapid technological updates and diverse consumer demands. As a new entrant, Yunnan Baiyao Group Co.,Ltd. needs substantial investment in brand building, technological R&D, and talent reserves, making rapid breakthroughs difficult in the short term.
Innovative traditional Chinese medicine development involves long cycles, large investments, high risks, and strict regulatory approval processes, making successful launch of competitive market products challenging.
Therefore, how Yunnan Baiyao Group Co.,Ltd. will break free from the growth model of "low-margin business supporting scale while non-recurring items supplement profits" and achieve substantial progress in high-margin core business breakthroughs and innovative R&D remains a key focus for continued observation.
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