Lao Bai Xing’s third-quarter profit growth outpaces revenue as store expansion slows
A recovery in customer traffic and faster same-store sales growth supported a rebound in revenue, while improvements in gross margin and the selling expense ratio pushed profit above Bloomberg consensus. Meanwhile, net store additions fell markedly from the previous quarter.
Original source：Nomura International (Hong Kong) Ltd.First published on Unhidea：Original source date：
Key takeaway
Nomura is positive on the twin drivers of faster revenue growth and margin expansion at Lao Bai Xing, although the company has slowed store expansion in a weak market.
Where did third-quarter results differ from expectations?
In the third quarter of 2026, Lao Bai Xing generated revenue of approximately 5.7 billion yuan, up 6.7% year on year and slightly below the Bloomberg consensus of 5.8 billion yuan. Net profit attributable to the parent was 171 million yuan, up 30.7% year on year and above the consensus estimate of 141 million yuan.
Management attributed revenue growth to recovering customer traffic and faster same-store sales growth. By comparison, revenue for the first three quarters of 2026 was approximately 16.7 billion yuan, up 3.6% year on year, while net profit attributable to the parent was 618 million yuan, up 16.8% year on year.
Why did profit grow faster than revenue?
The third-quarter gross margin was 31.7%, up 0.3 percentage points year on year and above the second-quarter level of 31.4%. Nomura views economies of scale and efficiency gains as the main drivers, with gross margins improving for both traditional Chinese medicines and non-pharmaceutical products.
The selling expense ratio fell 0.9 percentage points year on year to 20.9%, helping lift the operating margin by 1.3 percentage points to 5.2%. Improved gross margin combined with a lower expense ratio allowed more revenue growth to translate into operating profit.
How does slower store expansion affect Nomura’s assessment?
In the third quarter, the company opened 379 stores and closed 334, for a net addition of 45. In the second quarter, it opened 443 and closed 257, for a net addition of 176. Nomura believes the increase in franchise store closures reflects management’s cautious strategy of prioritizing efficiency in a weak market.
Nomura maintained its buy rating and target price of 21.58 yuan, implying approximately 48% upside from the closing price of 14.58 yuan on 26 October 2026. Downside risks to the target price identified by the bank include pressure on margins, slower-than-expected new store expansion, and continued implementation of reforms to individual medical insurance accounts.
