China TCM Monthly Tracker "6M26 TCM raw material prices down 15% YoY" Zhu

Research evidence excerpt

China TCM Monthly Tracker "6M26 TCM raw material prices down 15% YoY" Zhu

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China TCM Monthly Tracker Equities

China6M26 TCM raw material prices down 15% YoY

Healthcare

Michelle Zhu

TCM raw material prices down 15% YoY in 6M26 Analyst

We believe raw material costs are the primary driver of cost inflation for finished michelle.zhu@ubs.com

traditional Chinese medicine (TCM) products, accounting for around 70% of TCM +86-21-3866 8838

companies' total COGS. Following the downward price trend in H224 (the first half-year Chen Chen, PhD

decline since 2020), the TCM Raw Materials Price Composite 200 Index was down 15% Analyst

YoY in 6M26 and down 3% MoM in June. As social inventories remain high and S1460520100001

demand remains weak, we expect the downtrend in TCM raw material prices to persist, chen-zb.chen@ubs.com

potentially benefiting TCM companies' gross margins. Factors that can affect raw +86-10-5832 8201

material prices include changes in supply-demand dynamics, weather events in places of Anita Wei

origin that may impact supply, and changing labour costs. Analyst

anita.wei@ubs.com

Limited margin pressure for e-jiao: imported donkey hide supply still sufficient +852-2971 7459

While DEEJ's management has indicated that raw material costs remain flat, we leverage

UBS Evidence Lab data to cross-check. As the majority of e-jiao's (donkey-hide gelatin)

raw material (donkey hide) is imported, we use UBS Evidence Lab's China Healthcare

Equipment and Materials Import & Export Monitor (> Access Dataset) to track imported

donkey hide supply (whole equine hide and skin imports as a proxy for donkey hide

imports) as we believe the supply data has implications for donkey hide costs. Our