Analysis of Single Product Dependency Risk and New Growth Driver Cultivation at Zuoli Pharmaceutical

According to the latest financial data, the revenue share of Zuoli Pharmaceutical’s Wuling series products (mainly Wuling Capsule) shows a downward trend:

Indicator	2023	2024	Change
Revenue Share of Wuling Capsule	52.4%	49.5%	-2.9pp
Sales Volume Growth Rate of Wuling Capsule	-	+22.62%	-
Sales Revenue Growth Rate of Wuling Capsule	-	+15.96%	-
Number of Covered Medical Institutions	-	15,000 institutions	Continuous increase

: Although the Wuling series still contributes nearly half of the revenue, the company has successfully reduced its single product dependency from over 52% to close to 50%. Under the centralized procurement strategy of ‘volume for price’, the sales volume growth rate is significantly higher than the sales revenue growth rate (22.62% vs 15.96%), indicating continuous improvement in market penetration [0][1].

: The company is building it into a large product with 2 billion RMB scale via three paths

• Secondary Development
  : Expanding new indications for Alzheimer’s Disease (AD) and Mild Cognitive Impairment (MCI)
• Channel Sinking
  : Leveraging centralized procurement winning opportunities to rapidly develop primary medical institutions
• Off-Hospital Expansion
  : Strengthening OTC and online platform sales to cover pharmacy channels

: As a national essential drug variety for treating frequent nocturia, it targets a 1 billion RMB scale

• In 2024, its sales volume increased by 23.17% YoY and sales revenue by 22.64% YoY
• Accelerating the development of high-quality hospitals and collaborating with Western medicines to rapidly increase sales volume

: Leveraging the opportunity of winning national Chinese patent medicine centralized procurement, it targets a 1 billion RMB scale

• Sales started at the end of December 2024, and listing in 28 provinces has been completed
• In Q1 2025, the sales volume and revenue of Bailing Tablet increased by 15.72% and 11.20% YoY respectively

Business Segment	2024 Revenue Growth Rate	Growth Drivers
Chinese Herbal Decoction Pieces	+45.82%	Expansion of sales channels; over 1,000 product specifications
Chinese Medicine Formula Granules	+145.34%	Increase in national and provincial standard registrations (401 cumulative)
Subsidiary Zuoli Pharmaceutical	Added 158 million RMB	Independent operation to expand market

The combined revenue share of new businesses increased from 19% in 2023 to 23.7% in 2024, becoming an important source of performance growth [2][3].

: Actively enrich product lines via external mergers and acquisitions
: Focus on cultivating new potential varieties such as Polycarbophil Calcium Tablets
: Net profit growth targets for 2025-2027 are 30%, 66%, and 110% respectively, with a compound growth rate of approximately 30%

Indicator	2024 (Actual)	2025 (Target)	2026 (Target)
Operating Revenue	2.58 billion RMB	3.061 billion RMB	3.575 billion RMB
Net Profit Attributable to Parent Company	505 million RMB	653 million RMB	817 million RMB
Net Profit Growth Rate	31.79%	30%+	25%+

The company expects net profit attributable to parent company to be 178-189 million RMB in Q1 2025, an increase of 24.99%-32.71% YoY, continuing the growth trend [4].

1. Continuous Price Cut Risk from Centralized Procurement
   : Although the volume-for-price strategy is effective, gross margin is under pressure
2. Single Product Dependency Still Needs Reduction
   : A 49.5% share is still close to the 50% warning line
3. Profitability of New Businesses to Be Verified
   : The gross margin of decoction pieces and formula granule businesses is relatively low
4. Intensified Market Competition
   : Expansion of centralized procurement scope for Chinese patent medicines leads to intensified industry competition

###5. Conclusion and Outlook

Zuoli Pharmaceutical has initially achieved its transformation from ‘single product dependency’ to ‘diversified development’ via the ‘One Body, Two Wings’ strategy:

• Short-term
  : Rely on centralized procurement volume expansion of Wuling Capsule and synergistic growth of Lingze Tablet and Bailing Tablet
• Mid-term
  : Chinese herbal decoction pieces and formula granule businesses contribute larger growth increments
• Long-term
  : Build product matrix via R&D innovation and M&A integration

Against the backdrop of national traditional Chinese medicine innovation policies and the ‘Healthy China’ strategy, the company is expected to reduce the revenue share of Wuling Capsule to below 40% within 3-5 years, achieving a more balanced and sustainable development model.

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[0] Soochow Securities - Zuoli Pharmaceutical (300181) In-depth Report: Wuling Capsule Benefits Significantly from Centralized Procurement Volume Growth (https://pdf.dfcfw.com/pdf/H3_AP202406121635994475_1.PDF)
[1] Zuoli Pharmaceutical 2024 Annual Performance Briefing (https://file.finance.qq.com/finance/hs/pdf/2025/04/30/1223452501.PDF)
[2] Soochow Securities - Zuoli Pharmaceutical 2024 Interim Report Comment (https://pdf.dfcfw.com/pdf/H3_AP202407301638486566_1.pdf)
[3] Three Core Essential Drug Varieties Grow Steadily; Formula Granules & Decoction Pieces New Businesses Drive Growth (https://pdf.dfcfw.com/pdf/H3_AP202503111644256752_1.PDF)
[4] Zuoli Pharmaceutical 2025 Q1 Performance Forecast (https://money.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=300181&id=10966198)