Can Yunnan Baiyao's "stock withdrawal" return to its peak performance?

Ask AI · How do high sales expenses affect a company’s long-term competitiveness?

“Stock ban” after which Yunnan Baiyao (000538) performance returns to normal. On April 1, Yunnan Baiyao released its 2025 annual report, which looks quite impressive. In 2025, the company’s operating revenue and net profit after deducting non-recurring gains and losses both hit record highs, with net profit attributable to shareholders reaching 5.15B yuan, just “one step away” from the all-time best performance of 5.52B yuan. From a development plan perspective, Yunnan Baiyao is not only focusing on its main traditional Chinese medicine business but also actively expanding into innovative drugs. Yunnan Baiyao is trying to demonstrate to the market through growing performance and diversified business layout that this century-old pharmaceutical company is on the path to regaining its peak.

However, a close reading of the financial report reveals that behind Yunnan Baiyao’s thriving performance, there is still a significant increase in sales expenses, which far exceeds R&D investment. Additionally, in the secondary market, this nearly trillion-market-cap “white horse” stock has seen its share price clearly underperform the market in recent years.

Revenue hits record high

Yunnan Baiyao’s 2025 annual report shows that in 2025, the company achieved an operating revenue of 41.19B yuan, a year-on-year increase of 2.88%; net profit attributable to shareholders was 5.15B yuan, up 8.51%; and net profit after deducting non-recurring gains and losses was 4.87B yuan, up 7.55%. Both operating revenue and net profit after deducting non-recurring gains and losses reached record highs.

Breaking down Yunnan Baiyao’s annual report, in 2025, industrial sales revenue was 16.02B yuan, up 10.7% year-on-year, accounting for 38.89% of total revenue. Commercial sales revenue was 25.08B yuan, down 1.53%, still accounting for over 60%. The gross profit margin of the industrial sector is much higher than that of the commercial sector, at 65.19% and 6.69%, respectively. Therefore, the increase in the proportion of industrial revenue is a key driver of profit growth for Yunnan Baiyao.

Dividing by specific business segments, Yunnan Baiyao’s core operations include pharmaceuticals, health products, Chinese medicine resources, and Yunnan provincial pharmaceutical companies. In 2025, the pharmaceutical business segment achieved operating revenue of 8.32B yuan, up 12.53%. There are 10 products with sales over 6.75B yuan, including 2 products over 1 billion yuan. Notably, sales of Yunnan Baiyao aerosol products exceeded 2.5 billion yuan, an increase of over 22%; sales of Yunnan Baiyao ointment surpassed 1.2 billion yuan, up over 26%. Additionally, the health products segment achieved revenue of 23.8B yuan; the Chinese medicine resources segment had export sales of 1.75 billion yuan; and the provincial pharmaceutical company reported revenue of 2.82B yuan.

At the earnings presentation on April 1, Yunnan Baiyao management stated that the pharmaceutical and health product segments will continue to replicate and promote the “big single product” model of Qixuekang, building a “big single product system” and managing big single product growth through special projects. Big single products in pharmaceuticals include the core Yunnan Baiyao series, Shenling Jianpiwei granules, Pudi Blue anti-inflammatory tablets, Xuesaitong capsules, Tongsu capsules, Xiaobao Taikang granules, and 14 other products; health products include anti-allergy, whitening toothpaste, and personal care products, totaling 12 items. Additionally, segments such as supplements, medical devices, and skincare will select market-potential products to develop into “big single products” in niche fields.

Yunnan Baiyao is generous with dividends. This year’s annual cash dividend plan is based on the company’s total share capital at the end of 2025, distributing 15.83 yuan (including tax) cash dividend per 10 shares to all shareholders, with a total cash dividend of 5.62B yuan (including tax). The proposed cash dividend, combined with the special dividend already paid in 2025, makes the total cash dividend for 2025 account for 90.09% of the company’s attributable net profit for the year.

It is worth noting that during the earnings briefing, Yunnan Baiyao management mentioned that they will comprehensively enhance their investment and acquisition capabilities and effectively carry out M&A work to ensure that investment targets can achieve functional complementarity, mutual empowerment, and strategic synergy with existing businesses.

Betting on innovative drugs

In the current era of booming innovative drugs, this veteran traditional Chinese medicine company, Yunnan Baiyao, is also vigorously developing innovative medicines.

On the evening of April 1, Yunnan Baiyao announced that it recently received the “Drug Clinical Trial Approval Notice” issued by the National Medical Products Administration. After review, the clinical trial application for INB301 injection complies with relevant drug registration requirements, and the company is approved to conduct clinical trials for tumors and cachexia.

The announcement shows that this drug is a Class 1 innovative biological product developed by the company, intended for treating tumor cachexia. On February 24, the clinical trial application for INB301 injection was accepted by the NMPA and included in the 30-day fast-track review for innovative drugs.

In Yunnan Baiyao’s annual report, the phrase “persist in playing both the Chinese medicine and innovative drug cards” is mentioned multiple times. Short-term projects focus on secondary innovation development of listed products and rapid development of medical devices. Currently, the company has 18 major traditional Chinese medicine products involved in secondary development and 37 ongoing projects. Mid-term projects are focused on advancing innovative Chinese medicine development, continuously creating star products like Yunnan Baiyao transdermal preparations. Long-term projects include multiple innovative drugs, such as INR101 diagnostic nuclear medicine project, INR102 therapeutic nuclear medicine project, and the aforementioned INB301 monoclonal antibody project for tumor treatment.

The annual report discloses that the INR101 diagnostic nuclear medicine project has completed 29 of 32 Phase III clinical trial centers, with 239 subjects enrolled. The INR102 therapeutic nuclear medicine project has completed Phase I/IIa clinical trials, with 3 subjects in the low-dose group and 1 in the medium-dose group, and 2 subjects have completed screening for INR101.

Deng Yong, director of the Law and Innovation Center for Health and Medical Law at Beijing University of Chinese Medicine, believes that developing innovative drugs is an inevitable choice for Yunnan Baiyao to break through traditional business bottlenecks. Developing nuclear medicine, tumor monoclonal antibodies, and other innovative pipelines can help create a second growth curve and enhance long-term competitiveness. However, the R&D cycle for innovative drugs is long, requires large investments, and carries high risks. Currently, all related projects are in clinical trial stages, unlikely to generate revenue or profit in the short term. If subsequent clinical progress goes smoothly, innovative drugs could reshape the company’s growth logic and valuation system; if R&D falls short of expectations, it may lead to resource wastage.

Regarding these issues, Beijing Business Daily reporters sent interview requests to Yunnan Baiyao, but as of press time, no response has been received.

Sales expenses far exceed R&D costs

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

Financial data shows that in 2025, Yunnan Baiyao’s sales expenses were 5.619 billion yuan, up 15.16%. The company states that this increase is mainly due to higher online sales expenses, as online revenue share has increased.

Specifically, expenses for employee compensation, display fees, advertising, marketing services, conference fees, etc., increased, while expenses for business promotion and sales promotion decreased.

Even though management repeatedly emphasizes the importance of R&D, the company’s R&D investment is not high compared to sales expenses. In 2025, R&D expenses were 351 million yuan, up 3.89%. Due to capitalized R&D investments, the growth in R&D expenditure is more apparent than in R&D expenses alone. The annual report shows that in 2025, R&D investment was 423 million yuan, up 21.51%, exceeding the growth rate of sales expenses but still less than one-tenth of sales expenses.

“This reflects that the company still relies on market promotion to drive growth and is relatively conservative in long-term technological investment. During the critical period of transforming into innovative drugs, it should gradually increase R&D share to avoid over-reliance on sales, ensuring sustainable development,” said Zhang Xinyuan, head of KeFang Consulting.

Additionally, from the secondary market perspective, Yunnan Baiyao’s stock performance has been relatively weak in recent years. Eastmoney shows that as of April 1, the close, Yunnan Baiyao’s stock price in 2025, adjusted for dividends, has fallen slightly by 2.88%, while the market index has risen 31.61%, significantly underperforming the market.

As of April 1 close, Yunnan Baiyao’s stock price was 55.57 yuan per share, with a total market value of 99.15 billion yuan.

Deng Yong believes that the core reason for Yunnan Baiyao’s underperformance compared to the market is the lack of growth expectations and weakened valuation logic. In 2025, the company’s revenue growth was only 2.88%, with sluggish traditional business growth and no clear expectations for innovative drugs, making it difficult for the market to assign a growth premium. Moreover, in 2025, market funds favored high-growth sectors like AI and innovative drugs, marginalizing traditional Chinese medicine leaders, which ultimately led to the stock’s poor performance relative to the market.

Deng Yong further stated that for Yunnan Baiyao to return to its performance peak, it needs multi-dimensional efforts. First, strengthen core Chinese medicine and health products, optimize product structure, increase high-margin products, and stabilize the fundamentals. Second, accelerate clinical progress of innovative drugs, expand pipeline layout, and quickly realize R&D results. Third, optimize expense structure, reduce inefficient sales investments, and increase the scale and efficiency of R&D spending.

Beijing Business Daily reporter Ding Ning