How did third-quarter results compare with expectations?

  • Dong-E-E-Jiao’s revenue in the third quarter of 2026 was 1.785 billion yuan, up 4.1% year on year and 0.3% above Morgan Stanley’s forecast. Profit was 469 million yuan, up 2.9% year on year and 7% below the bank’s forecast.
  • Excluding non-recurring items, third-quarter profit was 439 million yuan, up 19.4% year on year. Management is targeting double-digit profit growth for full-year 2026.

Why are investors focused on end-market sales?

  • Operating cash flow fell 69.5% year on year in the first nine months of 2026, while accounts receivable at the end of the third quarter rose 575.3% from the end of 2025. These two changes have drawn investors’ attention to product sales in the end market; management expects both metrics to return to normal by year-end.
  • Management said sales of its core ejiao products—ejiao blocks and ejiao syrup—were weaker than expected. The company is strengthening its channel-specific sales and marketing strategies to improve end-market sales through targeted product promotion.

Which products are providing new sources of growth?

  • Sales trends for other consumer health products were favorable: in the first nine months of 2026, sales of ejiao cake, ejiao powder and ejiao red dates rose 10%, 30% and 60% year on year, respectively.
  • The company regards its men’s product line and cistanche products as a second growth engine, targeting sales of 350 million yuan in 2026 and expecting double-digit growth in 2027.

How do raw material costs and valuation influence the bank’s assessment?

  • Management believes donkey-hide prices will trend higher over the long term due to supply constraints and rising breeding costs, although the company’s current procurement costs remain stable. The company is strengthening breeding resources in multiple locations across China while exploring overseas supply.
  • Morgan Stanley has an overweight rating on Dong-E-E-Jiao and a price target of 73 yuan. The bank believes that a forward price-to-earnings ratio of about 14 times for 2027 and a dividend yield of about 5% make it a defensive alternative to growth stocks.