SPH Exits After Earning RMB 400 Million in Ten Years

On September 29, 2026, Shanghai Pharmaceuticals Holding Co., Ltd. (SPH) announced that it plans to sell the entire equity interest in Zeus Investment Limited (“ZIL”) and its subsidiaries through its wholly-owned subsidiary, SIIC Medical Science, in joint cooperation with Primavera Capital. Following competitive bidding and multiple rounds of negotiations, an investment entity under DCP Capital has become the intended transferee, with the overall enterprise value of the target company determined at USD 397 million.

Based on shareholding ratios, SPH holds a 56.85% equity stake in ZIL and is expected to receive proceeds from the transfer of no less than $199 million (approximately RMB 1.336 billion) on the anticipated closing date. Compared to the initial acquisition cost of RMB 948 million in 2016, this overseas equity investment, held over a ten-year period, has realized a paper gain of approximately RMB 400 million.

Following the listing for transfer of controlling interest in Xinte Dong'an Pharmacy in August 2026, this marks another asset optimization initiative implemented by SPH within the year. This move underscores the company's strategic push to focus on its core pharmaceutical business and reflects the broader industry trend of state-owned pharmaceutical platforms in China collectively transitioning toward value-driven operations.

In 2016, the domestic health consumer goods sector was at a peak of popularity. Consumption upgrading drove rapid expansion in categories such as dietary supplements and sports nutrition, prompting many pharmaceutical companies to strategically enter the health consumer goods market.

It is against this backdrop that Shanghai Pharmaceuticals (SPH), in partnership with Primavera Capital, completed the privatization of the Australian listed company Vitaco through its Hong Kong holding platform, ZIL, thereby entering the mature health consumer markets in Australia and New Zealand.

As per the plan at that time, SPH aimed to leverage its industrial resources, distribution networks, and localized operational capabilities in the Chinese market, combined with Vitaco’s established health brands and product portfolio, to build a health consumer goods platform covering the Australia-New Zealand and Chinese markets. This strategy sought to realize the synergistic effect of “high-quality overseas brands + local Chinese channels” and capitalize on the growth dividends of China’s big health industry.

However, the implementation of cross-border collaboration proved far more challenging than anticipated. Impacted by a confluence of factors—including tightening regulatory policies for health supplements in China, adjustments to cross-border retail channel rules, and stricter oversight of overseas purchasing agents—Vitaco’s expansion in the Chinese market consistently fell short of expectations. Consequently, the company gradually shifted its business focus back to its home markets in Australia and New Zealand, concentrating on the sports nutrition category with core products such as protein powders, protein bars, and sports supplements.

Following the business contraction, the relevance of this asset to SPH's core main business has continued to weaken.

As a leading enterprise in China driven by the dual engines of "pharmaceutical manufacturing and pharmaceutical distribution," SPH concentrates its core resources on drug R&D, production, and a nationwide distribution network. The local sports nutrition consumer business in Australia and New Zealand can neither leverage SPH's domestic channels for growth nor achieve industrial chain synergy with its core pharmaceutical operations; instead, it continues to divert management attention and resource allocation.

Additionally, from a financial performance perspective, the target assets as a whole remain profitable but lack growth momentum.

Audit data shows that the shareholding platform ZIL generated operating revenue of AUD 359 million and a net profit of AUD 16.562 million in 2025; its Australian operating entity, Zeus One, maintained stable profitability with a net profit of AUD 19.144 million in 2025; meanwhile, its New Zealand operating entity, Zeus Two, continued to face pressure due to local market competition and cost constraints, reporting a net loss of NZD 3.383 million in 2025.

The transaction adopts a "two-step" structural design, balancing the core interests of both buyers and sellers: In the first step, the Australian local entities under DCP Capital separately acquire 100% of the equity interests in Zeus One and Zeus Two, enabling the buyer to directly control the operating entities and optimize subsequent capital structure and management efficiency; in the second step, the British Virgin Islands (BVI) entity under DCP Capital acquires 100% of the equity interests in ZIL, the upper-tier holding platform, thereby completing the sellers' full exit. The agreements for both steps are signed simultaneously, with closings executed consecutively.

In terms of pricing, the enterprise value of the target company was finally determined at USD 397 million after multiple rounds of negotiations. Based on conservative assumptions, the equity value of the target company at the closing date is no less than USD 350 million, corresponding to a P/E ratio of 29.47x based on the net profit for 2025. This exceeds the valuation provided by the asset appraisal agency, thereby fully safeguarding the interests of state-owned assets.

For SPH, against the backdrop of shifting market conditions and a lack of synergies, choosing to exit at the current window not only locks in the returns on its decade-long investment but also avoids future operational uncertainties.

In fact, the divestiture of these overseas assets is not a one-off capital operation by SPH, but rather the latest move in its systematic asset optimization in recent years.

In August 2026, Shanghai Pharmaceuticals Holding Co., Ltd. (SPH), through the Shanghai United Assets and Equity Exchange, publicly listed for transfer a 51% equity stake in Shanghai SPH Xinte Dong'an Pharmacy, with a minimum listing price of RMB 178.5 million. A review of SPH’s previous announcements reveals that within the past 12 months, the SPH group has disclosed approximately 30 pharmacy equity transfer projects, covering more than ten provinces and municipalities across China.

From the streamlining of retail pharmacy assets to the comprehensive divestiture of overseas health consumer platforms, SPH's asset optimization logic is highly consistent: centering on its core businesses of "pharmaceutical manufacturing + pharmaceutical distribution," it divests non-core assets with weak synergies, high resource consumption, and low strategic alignment, thereby recapturing capital and concentrating management resources on core sectors to enhance overall operational efficiency and return on capital.

This strategic choice of subtraction is not unique to Shanghai Pharmaceuticals (SPH), but a common choice for the entire state-owned pharmaceutical system during the industry transformation period. Leading platforms such as China Resources and Sinopharm are also accelerating similar asset adjustments.

The divestiture path of the China Resources group is highly representative.

In May 2025, China Resources Sanjiu listed for transfer its 49.9% equity stake in Sanjiu (Anguo) Modern Chinese Medicine Development Co., Ltd. This traditional Chinese medicine decoction pieces enterprise, which had reported zero revenue for consecutive years and sustained continuous losses, was completely divested as a non-core asset, thereby enabling China Resources Sanjiu to focus on its core businesses in CHC health consumer products and prescription drugs.

In the same year, China Resources Boya Bio-pharmaceutical Group advanced the transfer of an 80% equity stake in Boya Xinhe on multiple occasions. This chemical pharmaceutical enterprise, which had incurred substantial consecutive losses due to its core products failing to win bids in centralized procurement and insufficient production line utilization, was gradually divested, thereby enabling Boya Bio-pharmaceuticals to fully focus on its core blood products business. Furthermore, by the end of 2025, Golden Seed Liquor, also under the China Resources umbrella, transferred a 92% equity stake in Golden Sun Pharmaceutical. Despite the target pharmaceutical company remaining profitable, it was entirely carved out due to strategic misalignment with the core baijiu (Chinese liquor) business, allowing the group to refocus on its primary sector.

The Sinopharm group is also advancing asset optimization across its entire system. Centered on core business segments such as pharmaceutical distribution, biopharmaceuticals, and medical devices, it is gradually divesting peripheral businesses with low synergy and weak profitability, clearing out inefficient assets, and enhancing overall asset quality and operational efficiency.

Behind this wave of industry-wide asset divestitures lies a fundamental shift in the development logic of the pharmaceutical industry.

Over the past decade, driven by the expansion of medical insurance coverage and market deregulation, the pharmaceutical industry has undergone a period of rapid growth. Leading enterprises have rapidly scaled up through diversified mergers and acquisitions, continuously extending their business boundaries and accumulating a significant portfolio of cross-industry, non-core assets.

However, with the normalization of healthcare insurance cost containment, the comprehensive expansion of centralized procurement, and sustained downward pressure on drug prices, the overall growth rate of the industry has slowed significantly. The dividends from extensive, scale-driven expansion are gradually fading, making high-quality development and improvements in quality and efficiency the core themes of the industry.

For state-owned pharmaceutical enterprises, many non-core assets accumulated through past diversification strategies have become profit burdens or efficiency laggards. Divesting these non-core businesses is an inevitable choice during the industry’s transition period: on one hand, it frees up capital for reinvestment in areas with greater long-term value, such as innovative R&D and core channel development; on the other hand, it optimizes asset structure, reduces management costs, and enhances overall return on capital and operational efficiency.