State Pharma Light Entry? Shandong Pharma Glass Impairment Provisions Increased, Trade Business Adjusted, No Cash Shortage, Is the Capital Increase Liquidity Replenishment Plan Reasonable?

Issuer: Sina Finance Listed Company Research Institute

Text / Xia Chong Studio

Core Viewpoint: Shandong Medicine Glass, as China National Pharmaceutical Group prepares to take over, reports its worst performance in nearly five years, with declines in both revenue and net profit. Is this industry-wide pressure transmission or signs of artificial earnings management? Notably, there is an increase in impairment provisions and a reduction in trade business in 2025. Even more interesting is why China National Pharmaceutical Group abandoned its initial indirect control plan through capital injection into the controlling shareholder and instead chose to directly hold shares via a private placement by the listed company. What hidden motives are behind this transaction? It is also worth noting that Shandong Medicine Glass is not short of funds; the proposed restructuring plan involving a private placement for liquidity may have some uncertainties.

Recently, Shandong Medicine Glass released its 2025 annual report, showing overall performance with declines in both revenue and net profit.

The 2025 annual report indicates that Shandong Medicine Glass’s total operating revenue was 4.474 billion yuan, down 8.78% year-on-year; net profit attributable to parent was 690 million yuan, down 26.87%; and net profit after non-recurring gains and losses was 658 million yuan, down 27.13%.

Overall, the company not only faces impacts on revenue and profitability but also shows deteriorating profit quality. According to Eagle Eye warning data, the company’s operating cash flow was only 577 million yuan, a sharp drop of 50.48% year-on-year, and the cash flow to net profit ratio was only 0.837, significantly lower than previous years, indicating weakened cash generation.

China National Pharmaceutical Group “Lightening the Load”? Increased Impairment Provisions and Reduced Trade Business at Shandong Medicine Glass

On the profit side, the contrast is even more pronounced. In 2025, the company’s net profit fell nearly 30%, after a growth of over 20% in the previous year. The stark difference is evident.

We found that impairment provisions at Shandong Medicine Glass increased significantly in 2025 compared to previous years. In past years, asset impairment losses hovered around 50 million yuan, but in 2025, impairment losses reached 157 million yuan, accounting for nearly 20% of total profit in that period.

Specifically, the detailed impairment shows a substantial increase in inventory write-downs compared to the previous year. Notably, revenue declined while inventory surged to 1.696 billion yuan, a growth of over 30%. Investors should be alert to potential further impairment risks related to inventory in the future.

Meanwhile, the company also made accounting adjustments for non-compliant trade business.

The wholly owned subsidiary Yiyuan Xinkang Trading Co., Ltd. recognized some trade revenue using the gross method, considering itself as the main responsible party. After organizing relevant personnel to re-study accounting standards and review business processes, the company adopted a more rigorous judgment of the transaction substance based on the prudence principle, adjusting some trade revenue recognition from gross to net method.

This correction and retrospective adjustment involved the disclosed 2023 annual report, 2024 annual report, first quarter 2025 report, semi-annual report, and third quarter 2025 report, with overstatement of revenue by 211 million yuan in 2023, 222 million yuan in 2024, and 123 million yuan in the first half of 2025.

It is also noteworthy that Shandong Medicine Glass is about to welcome China National Pharmaceutical Group as its new actual controller.

In January 2025, the company first disclosed that Yiyuan County People’s Government was planning a restructuring with China National Pharmaceutical International, which could lead to a change in the company’s indirect controlling shareholder. In June of the same year, relevant parties signed an investment cooperation agreement, planning for China National Pharmaceutical International and its Hong Kong subsidiary to increase capital into Luzhong Investment and hold 51% of its shares. If successful, China National Pharmaceutical Group would indirectly control 19.5% of Shandong Medicine Glass through Luzhong Investment, becoming the company’s indirect actual controller.

On the evening of January 13, Shandong Medicine Glass changed its plan from capital increase to private placement.

According to the announcement, the company plans to issue no more than 199 million A-shares to China National Pharmaceutical International and its wholly owned subsidiary Shandong Yaoxin, raising no more than 3.235 billion yuan, all for working capital. The issue price will be 80% of the average trading price over the 20 trading days before the pricing date. After the private placement, China National Pharmaceutical International will become the controlling shareholder, and China National Pharmaceutical Group will be the actual controller.

Who is in a hurry to change the restructuring plan? Why does Shandong Medicine Glass frequently seek state-owned enterprise control?

After a year of planning the restructuring, why did Shandong Medicine Glass switch from capital increase to private placement? What are the underlying motives?

In fact, Shandong Medicine Glass has been seeking to transfer control rights, having previously planned an agreement transfer with KaiSheng Group, which ultimately failed.

On August 29, 2021, Yiyuan County Government signed a “Strategic Cooperation Framework Agreement” with KaiSheng Group. The agreement stipulated that after approval by relevant state-owned assets authorities, Yiyuan County would transfer 65,446,453 shares (11%) of Shandong Medicine Glass held by Luzhong Investment to KaiSheng Group free of charge. After the transfer, KaiSheng Group would hold 11% of the company and become its largest shareholder.

The company’s explanation for this transaction was to better attract external resources, leveraging local industry chains and leading enterprises to promote high-quality economic development. Attracting central enterprise investment and “central-local joint development” was an important part of Yiyuan County’s investment promotion.

However, this plan ultimately fell through. On July 19, 2022, Shandong Medicine Glass announced the termination of the proposed transfer of state-owned shares, stating that since signing the framework agreement, despite multiple communications, Yiyuan County Government and KaiSheng Group had not reached concrete arrangements for the transfer, nor had they signed any other agreements or obtained approval from their respective state-owned assets authorities.

What are the benefits of shifting from capital increase to private placement?

First, a capital increase involving multiple approvals introduces uncertainties. On one hand, local state-owned assets approval is required. Luzhong Investment is controlled by Yiyuan County Finance Bureau, and the increase by China National Pharmaceutical Group would change control of Luzhong Investment. According to laws and regulations, approval from Yiyuan County, Zibo City, and Shandong Province is needed. Such approvals are often unpredictable due to political sensitivities around state assets.

On the other hand, as an offshore entity, China National Pharmaceutical International Hong Kong’s participation involves foreign investment security review and foreign exchange approval, adding further complexity.

Second, compared to a capital increase, private placement is more market-oriented and transparent, potentially speeding up approval processes. The fairness of the valuation for the 2.449 billion yuan corresponding to 51% of Luzhong Investment is sensitive, involving potential loss of state assets. The private placement price is based on the average stock price over the 20 trading days before the pricing date, at 80%, i.e., 16.25 yuan per share, following regulations from the China Securities Regulatory Commission, making it clearer and less disputable, thus facilitating faster transaction approval.

Is a non-shortage of funds and the reasonableness of the private placement for liquidity still uncertain?

Industry insiders say that the 3.235 billion yuan raised is intended for “working capital,” not for specific projects. This approach appears conservative but is actually strategic: raising funds for liquidity is easier to approve, as it does not require detailed project feasibility assessments. It also provides China National Pharmaceutical Group flexibility to use the funds according to its strategic needs—whether for inventory digestion, expanding high-end product lines, or future M&A—without rigid restrictions on specific project use.

By using a private placement for liquidity, the company states that after the funds are in place, total share capital and net assets will increase significantly. This can help enhance R&D capabilities, increase investment in new technologies and products, and promote industry integration, building a more technologically advanced international enterprise.

However, it is puzzling that the company is not short of funds; the 2025 annual report shows nearly 3 billion yuan in cash and tradable financial assets, and a very low debt ratio of only 17%. Under this context, the reasonableness of raising funds through private placement for liquidity remains to be further observed.

The dramatic revenue changes over the past five years: Is downstream pressure being transmitted?

This is the first time in five years that Shandong Medicine Glass has reported declines in both revenue and net profit. Wind data shows that from 2021 to 2025, the year-on-year growth rates of revenue were 13.08%, 8.05%, 13.94%, 2.81%, and -8.78%. Notably, 2025 saw a sudden reversal.

Why did revenue plummet in 2025?

The company mainly develops, produces, and sells various medicinal glass bottles used for pharmaceuticals, health products, and cosmetics packaging. Its main products include molded bottles, amber bottles, ampoules, and control bottles. The product range also includes butyl rubber stoppers, aluminum-plastic caps, and plastic bottles. Over years of development, the company has formed a product portfolio covering glass bottles, rubber stoppers, aluminum-plastic combination caps, and plastic bottles.

The 2025 annual report shows that revenue from core products such as molded bottles, amber bottles, control bottles, ampoules, and rubber stoppers all declined to varying degrees, with the decline in molded and amber bottles exceeding 10%.

According to public data, Shandong Medicine Glass is one of the leading companies in China’s medicinal glass industry. Currently, major players like Grace Helm, Schott, Zhengchuan Co., Ltd., Linuo Pharmaceutical Packaging, and Cangzhou Four Star hold significant market shares. The leading effect of top companies is evident, but due to the lack of authoritative industry statistics, precise market share data is unavailable.

It is also important to note that the tenth batch of national drug procurement was implemented in April 2025, with procurement lasting until the end of 2027, significantly impacting downstream pharmaceutical companies and upstream packaging suppliers. Reports indicate that the average price reduction for 62 drugs exceeded 60%, with some injectables dropping over 90%. Such sharp price cuts could pressure downstream pharmaceutical companies to transfer costs upstream, including packaging materials. Sales data show that sales of molded bottles and amber bottles declined by 11.79% and 4.43%, respectively, suggesting that the impact of centralized procurement may be gradually affecting upstream suppliers from 2025.

The company also states that with ongoing medical reforms and centralized procurement policies, downstream pharmaceutical companies are under cost pressure and may transfer downward, intensifying competition in the pharmaceutical packaging market. Changes in medical insurance catalogues and large-volume procurement policies are altering business models, and the industry’s prosperity and demand directly influence upstream companies’ operations. As an upstream enterprise in the pharmaceutical industry, Shandong Medicine Glass’s revenue and profits are also affected.

Under this pressure, where will the company’s new growth points come from? In other words, what signals should investors watch for regarding potential turning points?

One aspect is the demand for quality upgrades driven by drug consistency evaluations and the development of biopharmaceuticals, which could expand the capacity of borosilicate molded bottles or help offset traditional business impacts. Another is the aging population and rising middle-income society, which could generate demand for health, beauty, and consumer products. The company aims to expand capacity for amber bottles and daily chemical bottles, and gradually move into mid-to-high-end markets.

The company states it will continue to deepen lean production, optimize product structure, and upgrade automation, consolidating market share for molded bottles, rubber stoppers, and expanding into markets for amber bottles, daily chemical bottles, control bottles, ampoules, and aluminum-plastic caps, thereby enhancing profitability.