Company Reports

We will discontinue analyst coverage of Guangzhou KingMed Diagnostics on or about Nov. 12, 2025.

Adicon's first-half revenue declined 13.3% and KingMed's declined 22.8%. Consequently, Adicon's adjusted operating margin of 7.1% and KingMed's 5.0% are both around 600 basis points less than last year due to lower average selling prices and operating leverage.

KingMed is China's largest independent clinical laboratory in terms of clinical testing revenue. From 2016 to 2023, its revenue grew at a compound annual growth rate of 14.9%. It aims to deepen its network by investing in self-operated laboratories and codeveloping labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with around 35%-65% in other established markets such as Japan, Europe, and the United States, we believe that KingMed can still enjoy the long-term secular tailwinds of increasing outsourced testing demand. Our projected five-year revenue CAGR is 6.1%.

US President Donald Trump said that the US tariffs on pharmaceutical imports may increase to 150% or even further to 250% in one to one and a half years.

KingMed is China's largest independent clinical laboratory in terms of clinical testing revenue. From 2016 to 2023, its revenue grew at a compound annual growth rate of 14.9%. It aims to deepen its network by investing in self-operated laboratories and codeveloping labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with around 35%-65% in other established markets such as Japan, Europe, and the United States, we believe that KingMed can still enjoy the long-term secular tailwinds of increasing outsourced testing demand. Our projected five-year revenue CAGR is 6.1%.

KingMed's 2024 full-year and 2025 first-quarter revenue declined 15.8% and 20.4% year on year, respectively.

We raise Adicon’s and KingMed's Morningstar Uncertainty Ratings to Very High from High to reflect more stock price volatilities. Our Uncertainty Rating is calculated based on historical share price volatility and company-specific risks. We maintain our view that Chinese independent clinical laboratories are at the early expansion stage and, therefore, have inherently greater unknowns than US ICLs under our coverage. The rating updates do not affect our fair value estimate as we have already factored in risks around accounts receivable and potential regulatory shifts in the next five years. We continue to see Adicon's share price as undervalued. We think KingMed's share price is getting expensive because of the DeepSeek-related sentiment rally (for more, please see our Feb. 19 note "DeepSeek Excitement Triggers China Healthcare Sector Flutters, but No Change to Fundamentals").

KingMed is China's largest independent clinical laboratory in terms of clinical testing revenue. From 2016 to 2023, its revenue grew at a compound annual growth rate of 14.9%. It aims to deepen its network by investing in self-operated laboratories and codeveloping labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with around 35%-65% in other established markets such as Japan, Europe, and the United States, we believe that KingMed can still enjoy the long-term secular tailwinds of increasing outsourced testing demand. Our projected five-year revenue CAGR is 10.6%.

China healthcare stocks under our coverage, with the exception of medical distributors, have surged 10% to 50% since the end of January, following excitement over DeepSeek. While artificial intelligence may help improve efficiency in the sector, we don’t know if and when the benefits will materialize, so we believe the recent share price rally reflects a shift in investor sentiment on previously oversold stocks. Namely, Sino Biopharm (up 19%), WuXi Biologics (up 34%), and KingMed (up 56%), are reaching or surpassing our fair value estimates. However, we think CSPC (up 10%), Innovent (up 16%), and Adicon (up 21%) are still attractive.

Following worse-than-expected sector-wide performance, we cut our fair value estimates for no-moat-rated independent clinical laboratories, or ICLs, KingMed and Adicon by reducing revenue growth for 2024 and 2025. We initially forecast a low-single-digit revenue decline in 2024 for KingMed and Adicon to reflect a larger covid-related revenue base in the first half of 2023. However, we underestimated the impact of anti-graft campaigns, introduced in the second half of 2023. In addition, the weak economy in China has constrained local government budgets. We now see the reduction in overall industry revenue as reflecting a new base given reduced requests for elective lab tests. As a result, we reduce KingMed's and Adicon's fair value estimates to CNY 30.80 and HKD 9.90, respectively, from CNY 32.40 and HKD 11.40. Within our ICL coverage, we prefer Adicon over KingMed. We think Adicon has more room to expand given its smaller base while its reinvestment plan reflects more caution.

KingMed is China's largest independent clinical laboratory in terms of clinical testing revenue. From 2016 to 2023, its revenue grew at a compound annual growth rate of 14.9%. It aims to deepen its network by investing in self-operated laboratories and codeveloping labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with around 35%-65% in other established markets such as Japan, Europe, and the United States, we believe that KingMed can still enjoy the long-term secular tailwinds of increasing outsourced testing demand. Our projected five-year revenue CAGR is 10.6%.

We initiate coverage on KingMed with a no-moat rating and a fair value estimate of CNY 32.40 per share, indicating an upside potential of around 10%. KingMed is China's largest independent clinical laboratory, with 49 centralized labs and over 4000 test items available as of 2023. We think KingMed’s earnings growth will be supported by the long-term secular tailwind of an underpenetrated ICL rate in China and increasing demand for outsourced testing. With this growth reflected in its share price, we prefer to wait for a more attractive valuation entry point.

KingMed is China's largest independent clinical laboratory in terms of clinical testing revenue. From 2016 to 2023, its revenue grew at a compound annual growth rate of 14.9%. It aims to deepen its network by investing in self-operated laboratories and codeveloping labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with around 35%-65% in other established markets such as Japan, Europe, and the United States, we believe that KingMed can still enjoy the long-term secular tailwinds of increasing outsourced testing demand. Our projected five-year revenue CAGR is 10.6%.