Analysis of Inventory and Inventory Turnover of Buchang Pharmaceuticals (603858)

Based on the latest financial data and public information, I have conducted a comprehensive analysis of Buchang Pharmaceuticals’ inventory turnover. The detailed report is as follows:

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According to Buchang Pharmaceuticals’ 2024 annual report [1] and 2025 semi-annual report [2] data:

Time Point	Inventory Balance	YoY Change
End of 2023	RMB 4.93 billion	—
End of 2024	RMB 4.517 billion	-8.38%
End of June 2025	RMB 4.661 billion	+3.19% vs. beginning of the year

The inventory balance in 2024 was , a decrease of 8.38% compared to the end of 2023. This is the first decline in recent years, indicating that the company has begun to address the inventory overstock issue [1].

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Fiscal Year	Inventory Turnover Ratio	Industry Comparison
2020	2.52 times/year	Close to industry average
2021	2.21 times/year	Below industry average
2022	1.62 times/year	Significant decline
2023	1.08 times/year	Seriously low
2024	0.86 times/year	Far below industry average (approx. 3.0 times/year)

• The inventory turnover ratio has continued to decline from 2.52 times in 2020 to 0.86 times in 2024, representing a
  65.9% decrease over five years
  [3]
• The 2024 inventory turnover ratio was only 0.86 times/year, a
  gap of 2.14 times
  compared to the pharmaceutical industry average of 3.0 times/year
• This means Buchang Pharmaceuticals’ inventory turnover speed is only about
  29% of the industry average

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Fiscal Year	Inventory Turnover Days	Notes
2020	145 days	Approx. 4.8 months
2021	165 days	Approx. 5.5 months
2022	225 days	Approx. 7.5 months
2023	338 days	Approx. 11.3 months
2024	424 days	Approx. 14.1 months

• Inventory turnover days have surged from 145 days in 2020 to 424 days in 2024, an
  increase of 192.4%
  [3]
• Inventory turnover in 2024 took approximately
  14 months
  , indicating that inventory is stored in warehouses for more than a year on average before being sold
• This reflects a serious insufficiency in the company’s inventory liquidity

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According to the 2024 annual report, the inventory composition is as follows [1][2]:

Inventory Category	Ending Balance	Proportion	Inventory Write-Down Reserve
Raw Materials	RMB 2.735 billion	62.0%	RMB 2,418,784
Finished Goods	RMB 1.598 billion	36.2%	RMB 69,257,658
Work in Progress	RMB 190 million	0.4%	RMB 26.49 million
Packaging Materials	RMB 390 million	0.9%	RMB 1.1596 million
Total	RMB 4.362 billion	100%	RMB 99.32 million

1. Raw materials account for the highest proportion (62%)
   : Indicates that the company has stockpiled a large amount of raw materials such as Chinese herbal medicines, possibly in response to raw material price fluctuations or supply chain stability concerns
2. Finished goods account for 36.2%
   : The problem of finished goods overstock is prominent
3. Total inventory write-down reserve is approximately RMB 100 million
   : The company has accrued write-down reserves for some inventory

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Assessment Dimension	Indicator Performance	Rating
Inventory Turnover Ratio	0.86 times/year (industry average 3.0 times)	❌ Seriously Low
Inventory Turnover Days	424 days (industry average approx. 120 days)	❌ Seriously High
Inventory Amount Trend	First decline in 2024	⚠️ Initial Improvement
Inventory Write-Down Reserve	RMB 99.32 million	⚠️ Impairment Risk Exists

Buchang Pharmaceuticals’ inventory turnover status is at an level, with the following risks:

• Serious fund occupation
  : RMB 4.5 billion in inventory occupies a large amount of working capital
• Inventory write-down risk
  : Chinese herbal medicines and finished pharmaceuticals face risks of expiration or price reduction
• Low asset turnover efficiency
  : Impacts the company’s overall profitability

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Based on public information, the main reasons for the slowdown in Buchang Pharmaceuticals’ inventory turnover include [1][2]:

1. Sustained revenue decline
   :
   • 2024 operating revenue was RMB 11.006 billion, a year-on-year decrease of 16.91%
   • The contraction of revenue scale has reduced the base for inventory turnover

2. Slowing sales of core products
   :
   • Core products such as Danhong Injection and Naoxintong Capsule are facing market pressures
   • The pharmaceutical sector’s revenue decreased by 17.04% year-on-year in 2024

3. Strategic reserve of raw materials
   :
   • The company has made strategic reserves to cope with price fluctuations of Chinese herbal medicines
   • Resulting in a high proportion of raw material inventory

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• The first-ever decline in inventory balance in 2024 (-8.38%) indicates that the company has begun to take measures
• The net cash flow from operating activities turned positive to RMB 940 million in the first half of 2025 [1]

• The inventory turnover ratio is still declining, requiring further strengthening of inventory management
• Recovery of core product sales
• Impact of raw material price fluctuations on inventory value

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[1] 2024 Annual Report Summary of Shandong Buchang Pharmaceutical Co., Ltd. - Sina Finance
(https://money.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=603858&id=11002602)

[2] 2025 Semi-Annual Report of Shandong Buchang Pharmaceutical Co., Ltd. - Xueqiu
(https://stockmc.xueqiu.com/202508/603858_20250828_YYBD.pdf)

[3] Inventory Turnover Ratio Data Chart of Buchang Pharmaceuticals - Tencent News
(https://inews.gtimg.com/om_bt/O_PJqfD5JBgB3KRIsJdKfca0dsOXCVc8OurCyvQRmVgUAAA/641)

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The chart above shows the changing trends of Buchang Pharmaceuticals’ inventory amount, inventory turnover ratio, and inventory turnover days from 2020 to 2024. It is clear from the chart that the inventory turnover ratio has continued to decline, while turnover days have continued to increase. Although the inventory amount decreased in 2024, the turnover efficiency is still far below the industry average.