The current economic climate is presenting significant challenges for Chinese traditional medicine enterprises, revealing stark contrasts in their financial stability and profit marginsAn analysis involving thirty companies in the industry indicates that only eight anticipate a profit increase, while a concerning twenty-one are bracing for declines in their net profitsAlarmingly, fourteen of these companies are expecting a drop of over 100% in net profits, hinting at a severe downturn for many players within the market.

Among those, Jiangzhong Pharmaceutical and Pianzi Huang have recently released performance forecasts, highlighting the mixed outcomes faced by their operationsJiangzhong expects a growth in net profit attributable to shareholders despite a slight dip in total revenueConversely, Pianzi Huang is navigating a landscape where both revenue and net profits are growing, however, the pace of profit growth is markedly slowing, especially as the fourth quarter looms with expected performance declines.

The upcoming 2024 semi-annual financial reports are poised to draw attention as the traditional Chinese medicine sector is finding itself under pressure, with most publicly listed companies experiencing declines in both revenue and net profit

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This ongoing trend suggests a continuation of a downturn throughout the second half of 2024. Previously, the industry was seen as stable and resilient, often serving as a safe harbor during downturns in the broader pharmaceutical sector.

Industry analysts are starting to express concerns regarding the waning policy benefits for traditional medicine and a growing focus among patients on clinical efficacyThis evolution indicates that pharmaceutical companies could face adapting challenges and significant shifts in their operational landscape.

The profit dynamics are further complicated by pressures from centralized procurement policies and health insurance limitations leading to price reductionsInvestigative reporters have gathered insights from the thirty companies' performance forecasts, where several highlighted the impact of these external policy changesCompanies such as Zhongsheng Pharmaceutical and Yibai Pharmaceutical have directly referenced the negative effects of centralized purchasing cost reductions, while firms like Biovalle and Buchang Pharmaceutical detail the repercussions of adjusted health insurance policies.

In addition to these policy-driven pressures, fluctuations in raw material prices have also been increasingly mentioned in performance forecasts

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The prices of traditional Chinese herbal ingredients have been on a rollercoaster, witnessing a spike during the first half of 2024 before a gradual decline post-July, though still remaining elevated compared to 2022 levelsCompanies such as Kuaihua Pharmaceutical and Hongri Pharmaceutical indicated that rising raw material costs were significant contributors to declining gross profit margins.

As per the most recent forecasts from thirty traditional Chinese medicine firms, figures indicate an alarming discovery: fourteen expect to turn a profit while sixteen face potential losses, with merely eight projecting growth in net profits.

When compared to last year's data, the trajectory appears bleakIn 2023, thirty-two companies had issued earnings forecasts, with twenty-two predicting profits while only ten forecast lossesIn terms of net profit changes, a majority – twenty-four companies – anticipated profit rises, contrasting sharply with the current year's projections wherein the forecast indicates a stark reduction in net profit levels.

Among the fourteen companies expecting profitability, only seven – including Jinhua Co., Darentang, and Dong'e E-Jiao – foresee increases in net profits

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Notably, Jinhua Cohas reversed previous losses with expected profits estimated between 65 and 82 million yuan, marking an astounding year-on-year growth of between 251.55% to 291.18%. The company attributes its success primarily to a modest revenue rise and falling raw material purchasing costs, bolstering product margins, alongside non-recurring gains.

On the flip side, the sixteen companies projecting losses include seven new entrants facing their first financial downturn, while others like Zhendong Pharmaceutical and Xiangxue Pharmaceutical are experiencing continued losses from prior yearsExcept for *ST Longjin, which indicates a modest profit bump despite overall losses, the rest show signs of net profit declinesAmong those projecting losses, thirteen foresee reductions exceeding 100%, with significant hits for companies like Zhendong Pharmaceuticals witnessing net profit nosedives of as much as 1000%.

Zhendong’s financial situation is particularly dire, forecasting a staggering net loss between 1.35 billion to 1.15 billion yuan, a drop of an abnormal 2514.58% to 2969.29%. This sharp decline is attributed to various factors including deferred receivables related to trust loans and ongoing arbitration disputes, leading to significant provisions for potential asset impairments.

The ongoing ramifications of centralized procurement methods and policies are evidently reshaping the industry's financial landscape

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Investigative reports reveal multiple companies acknowledging the harmful impacts of these policies, with expectations of performance pressure continuing into 2024. Zhongsheng Pharmaceuticals has noted that following their participation in a national centralized procurement initiative, their flagship products saw significant price reductions, contributing heavily to revenue declines.

Moreover, Yibai Pharmaceutical revealed a revenue drop of approximately 190 million yuan due to price reductions on key products, while *ST Longjin confirmed a staggering 67% cut in its key injectable product prices due to participation in ongoing procurement procedures.

The landscape fosters further complications with ongoing shifts in health insurance frameworksFor instance, Biovalle indicated their operational income decreased amidst intensified price adjustments and heightened competition within the health services realm.

The persistent expansion of centralized procurement is set for significant implementation milestones, including anticipated procurement outcomes due for execution in April 2025. This environment has prompted significant competition, with some products witnessing price drops as severe as 96%, handily exceeding reductions seen in earlier procurement rounds.

In the context of elevated raw material costs pressing down on profit margins, the situation remains convoluted