On August 27, Zhende Medical Co.,Ltd. (603301.SH) released its 2026 semi-annual report, revealing steady revenue growth driven by its dual-engine strategy of medical and health sectors, supported by rapid expansion in the domestic hospital channel and optimized overseas supply chains. However, the company's operating cash flow experienced significant strain due to increased inventory stocking, while non-recurring items made a notable contribution to overall profitability.
According to the financial data, the company reported total revenue of RMB 2.224 billion for the reporting period, marking a year-on-year increase of 5.90%. Net profit attributable to shareholders reached RMB 144 million, up 12.53% year-on-year, while non-GAAP net profit stood at RMB 119 million, reflecting a modest growth of 0.90% compared to the prior year. Net cash flow generated from operating activities came in at RMB 44.8976 million, representing a substantial decline of 72.06% year-on-year, primarily attributed to increased cash payments for raw material inventory procurement. Although revenue and net profit grew in tandem, the growth rate of non-GAAP net profit lagged significantly behind that of reported net profit, and operating cash flow saw a sharp outflow, indicating that the quality of earnings growth was impacted by working capital occupation and non-recurring items.
From a business structure perspective, the company's core revenue is derived from surgical infection control, basic care, and ostomy and modern wound care products. During the reporting period, surgical infection control products generated revenue of RMB 994 million, up 9.95% year-on-year, emerging as the primary driver of revenue growth. Infection control and protection products contributed RMB 159 million in revenue, reflecting a 15.44% increase. In contrast, ostomy and modern wound care products recorded revenue of RMB 360 million, down 7.88% year-on-year.
In the domestic market, hospital channel revenue reached RMB 598 million, up 12.23% year-on-year, covering nearly 9,400 hospitals across the country. Retail channel revenue amounted to RMB 218 million, showing a modest 1.93% increase. In overseas markets, revenue totaled RMB 1.346 billion, up 4.18% year-on-year, benefiting from capacity release at its African base and the ongoing construction of its Mexican facility.
The performance changes were primarily driven by several factors. First, the deepening of "value co-creation" channel partnerships in the domestic hospital market boosted the penetration rate of high-value-added products such as surgical infection control, driving growth in core business revenue. Second, financial expenses increased by 108.47% year-on-year, mainly due to increased exchange losses from foreign currency fluctuations, which partially eroded operating profit. Third, investment income and gains from changes in fair value increased substantially, contributing approximately RMB 33.64 million in total, with significant gains from the disposal of Baoma Medical equity and commodity futures contracts. This was the primary reason why the growth rate of non-GAAP net profit was far lower than that of reported net profit.
Additionally, the closing balance of inventory reached RMB 899 million, up 19.14% from the end of the previous year, reflecting the company's intensified stockpiling efforts to address market demand and supply chain uncertainties. This directly led to a sharp reduction in net operating cash flow.
Looking ahead, the global medical device industry is expected to maintain steady growth, driven by aging demographics and chronic disease management needs. The normalization of centralized procurement for low-value consumables in the domestic market is accelerating industry consolidation, benefiting leading players with scale advantages and innovation capabilities. The company aims to further consolidate its competitive edge through global production layout and a joint venture with Mölnlycke to expand into the advanced wound care market.
However, the company continues to face risks from exchange rate fluctuations, rising raw material prices, and intensifying industry competition. The current high level of inventory also poses pressure on capital turnover. Key areas to monitor going forward include the pace of inventory destocking, improvements in operating cash flow, and the ongoing impact of exchange rate volatility on financial expenses.