Morgan Stanley: Pien Tze Huang’s third-quarter profit falls sharply as channel destocking continues

How much weaker than expected were third-quarter results?

Pien Tze Huang’s revenue in the third quarter of 2026 was 1.777 billion yuan, down 13.9% year over year; profit was 195 million yuan, down 71.7% year over year. The figures were 18.8% and 73.6% below Morgan Stanley’s expectations, respectively, with a larger shortfall in profit.
Excluding non-recurring items, third-quarter profit was 251 million yuan, down 42.7% year over year. The decline was smaller than that in reported profit, but operating performance remained under pressure.

Morgan Stanley believes demand for premium traditional Chinese medicine products is weak. In the first three quarters of 2026, the company’s sales of liver disease medicines fell 20.0% year over year. By business, pharmaceutical manufacturing and distribution sales fell 19.4% and 11.2% respectively, while cosmetics sales were flat.
As sales of liver disease medicines declined, the segment’s gross margin for the first three quarters rose 1.4 percentage points year over year to 62.5%. The retail price of its exclusive liver disease medicine remains 760 yuan per pill, more than three years after the last retail price increase.

Operating cash flow in the first three quarters of 2026 was 2.317 billion yuan, compared with 487 million yuan a year earlier. The improvement mainly came from a year-over-year reduction of 2.799 billion yuan in cash paid for goods and services; Morgan Stanley interprets this as a more cautious company stance on the sales outlook.
Inventory destocking continues. Morgan Stanley believes a disciplined pace of factory shipments helps ease inventory pressure on distributors and supports retail price stability.

Bezoar prices fell sharply in 2026. Morgan Stanley believes lower bezoar prices and a government import pilot program could further reduce procurement costs, but inventory previously purchased at high prices must first be consumed before the cost benefits gradually appear in reported gross margin.
To expand its sales coverage, the company is moving from its home market in southeastern China into the northwest and other lower-tier markets. Overseas, it is targeting Chinese communities in North America and Southeast Asia.
Morgan Stanley assigns the company an Underweight rating and a target price of 106.50 yuan. The bank says sales growth above 25%, further price increases for Pien Tze Huang, or a significant increase in the contribution from online sales could provide upside; consumer resistance to price increases, continued increases in musk costs, or online sales falling short of expectations could create downside.