[Summary]
The conclusion is neutral. In China's pharmacy industry, small and medium-sized stores are weeding out and consolidating into large companies due to stricter regulations, the spread of online sales, and rising fixed costs.
This change will not be a uniform tailwind for Japanese drugstore companies. However, for companies like Matsuki Yokokokara, which have a set of overseas stores, private brands, cosmetics, and digital member contact points, there is room for evaluations other than just "domestic retail stocks."
On the other hand, large-scale expansion in mainland China cannot be confirmed at this time, and in order to reevaluate the stock price, it is necessary to confirm that the brand is firmly established in Hong Kong and that overseas sales will lead to profits.
What's happening?
In China's pharmacy market, restructuring pressures are increasing recently.
The background is not just a simple economic slowdown.
The four major points are:
- Stricter compliance with the medical insurance system and drug management
- Penetration of online medical care and pharmaceutical EC
- Rising rent and labor costs in urban areas
- Widening gap in physical strength between major chains and small and medium-sized pharmacies
In other words, what is happening in China is that the store expansion model has stalled, and the pharmacy industry has entered a phase of selection rather than quantity.
This change also changes the way Japanese investors view China-related drugstore stocks.
The focus is not on ``Can we increase the number of stores in China?'' but ``Can we deliver Japanese health and beauty brands to Chinese consumers?''
Why is it related to Japanese drugstore stocks?
Given China's institutional environment, it is not easy for Japanese companies to stand on the same playing field as local pharmacies in mainland China.
Pharmaceutical retail requires not only product sales ability, but also operational ability as a system industry, such as licensing, system support, procurement management, pharmacist assignment, and insurance support.
Therefore, the realistic strategy for Japanese companies is not to reproduce the typical pharmacy chains on the mainland, but to use Hong Kong and cross-border demand as a starting point to gain recognition as a health and beauty brand.
Seen in this context, industry consolidation is not a blanket headwind.
The more small stores that rely solely on price competition are weeded out, the more companies with quality, PB, and brand experience may become more likely to be chosen.
Current location of Matsuki Yokokokara
The connection with this theme is relatively clear in Matsuki Yokokokara's recent disclosure.
In the financial results briefing for the third quarter of the fiscal year ending March 2026, sales increased 4.7% year on year to 839.3 billion yen, and operating income increased 4.2% year on year to 64.2 billion yen. The company cited an increase in the number of people, strong sales of cosmetics, and the ``consolidation of Hong Kong and Shinseido Pharmacy'' as factors for the increase in sales.
This is important.
At least based on company disclosure, the Hong Kong business is not a peripheral story, but is recognized as one of the factors contributing to the recent increase in sales.
Furthermore, the same document discloses that the number of overseas stores as of the end of December 2025 is 98, of which 17 are in Hong Kong. There are 24 stores in Taiwan, 37 stores in Thailand, 18 stores in Vietnam, 17 stores in Hong Kong, 1 store in Guam, and 1 store in Malaysia.
We are also making progress on the PB front.
In the same third quarter briefing material, the sales composition of private brand products rose to 14.5% for the group. It is 14.7% for Matsumotokiyoshi Group business and 14.1% for Cocokara Fine Group business. Driven by cosmetics, the sales composition of the "Beauty and Health" category has also expanded to 72.3%.
This is an advantageous factor for Matsuki Yokokokara if the evaluation axis in China shifts from ``Can we sell medicine'' to ``Will it be bought as a Japanese health and beauty brand?''
The number of overseas SNS contacts has also increased to 1.76 million as of the end of December 2025. Although the sales volume itself is still mainly domestic, it is a number that is difficult to ignore as a leading indicator of brand contact.
What to look for in the last 3 months of materials
There are three points that can be confirmed from the disclosure for the most recent three months.
1. Hong Kong is already a performance factor
In the third quarter financial results briefing material dated February 13, 2026, the contribution from Hong Kong was clearly identified as a factor in the increase in sales.
This means that we have moved beyond the stage where overseas expansion is still a matter of the future and are now being treated as a factor in explaining consolidated sales.
2. Existing domestic stores have not collapsed.
In the monthly sales information for March updated on April 15, 2026, same-store sales increased by 2.5% compared to the same month last year. Even though the number of customers is down compared to the same month last year, the average spend per customer has increased by 3.1%, which shows the ability to maintain sales through price and product mix.
Even if the overseas theme is successful, the evaluation will not continue if the existing domestic stores are weak. First of all, the fact that we maintain our domestic base is a plus.
3. Sundrug is not in China due to recent disclosure
Sundrug's explanation materials and monthly materials for the third quarter of the fiscal year ending March 2026 highlight domestic same-store sales, store openings and closings, total number of stores, and stability of group operations. The latest official disclosures do not feature China or Hong Kong as growth drivers.
Therefore, even among drugstore stocks, Matsuki Yokokokara is currently the one that is more likely to incorporate the Chinese restructuring theme as a stock price story.
Conditions for establishing a “Japanese-style drugstore”
``Establishment'' here does not mean whether a Japanese-style pharmacy network can be brought directly to mainland China.
Rather, there are four conditions that investors should look at:
- Can the brand be replicated in Hong Kong and other Asian countries?
- Can you maintain gross profit while increasing the PB ratio?
- Is it possible to increase the composition ratio of cosmetics and health foods?
- Can you convert members and SNS contact points other than stores into sales?
Judging from Matsuki Yokokokara's disclosures, there are currently four areas in which progress is being made: PB, cosmetics, overseas stores, and overseas SNS.
On the other hand, what is not yet clear is the profitability in Greater China and the reproducibility of horizontal expansion outside of Hong Kong.
Implications for stock prices
The meaning this theme has on stock prices is different in the short and medium term.
In the short term, news of restructuring in the Chinese pharmacy industry alone will not suddenly change Matsukiyokocokara's performance. Currently, profits are still mainly based on the domestic base, and overseas is a complementary element.
However, in the medium term, the evaluation axis may change.
Until now, Japanese drugstore stocks have tended to be based on domestic demand, aging, dispensing, and defensive characteristics. However, Matsuki Yokokokara has the following elements in addition to that.
- High proportion of cosmetics
- PB growth
- Base of 98 overseas stores
- Performance of 17 stores in Hong Kong
- 1.76 million contacts on overseas SNS
This combination makes it easier to view the stock as an "Asian health and beauty consumer stock" rather than a "Japanese drugstore stock."
However, for this to truly lead to a re-evaluation of the stock price, we need to see not only an increase in overseas sales but also an improvement in profit margins and turnover ratios.
Scenario analysis
Bullish: 25% Starting from Hong Kong, the brand penetration of private brands and cosmetics progressed, and the overseas business began to have a presence in terms of profits. The market is reevaluating Matsuki Yokokokara as an Asian consumer brand rather than a domestic retailer.
Neutral: 50% Although the overseas business, including Hong Kong, will grow, the overall consolidated business will remain an extension of the domestic business. Stock valuations are likely to remain within the framework of defensive retail.
Bearish: 25% The institutional and competitive environment in Greater China is harsh, and Hong Kong's success does not translate to the mainland or other regions. Coupled with the slowdown in domestic growth, overseas themes are disappearing as stock price factors.
Risk
| Risk | Contents |
|---|---|
| China System Risk | Possibility of narrowing room for expansion due to changes in pharmaceutical and health-related sales regulations and systems |
| Intensifying competition | In China, there is strong competition from local e-commerce, beauty chains, and cross-border sales |
| Overseas profit margin | Even if the number of stores and points of contact increase, the profit margin may not increase |
| Domestic dependence | The main focus of consolidated profits is still domestic, and if existing domestic stores weaken, overseas themes alone will not be able to make up for it |
Summary
Pharmacy restructuring in China is neither a simple tailwind nor a headwind for Japanese drugstore stocks.
The idea of increasing the number of general pharmacy chains on the mainland is difficult due to the system, and the key question is whether the company will be chosen as a Japanese health and beauty brand.
From that perspective, Matsuki Yokokokara already has the materials in place: 17 stores in Hong Kong, 98 stores overseas, PB sales accounting for 14.5%, and overseas SNS of 1.76 million yen. In the latest disclosure, Hong Kong's contribution was shown as a factor in the increase in sales.
At this point, it cannot be said that Matsukiyo has already become an "Asian health brand." However, as the Chinese pharmacy market shifts from quantity to selection, it can be said that this question has become more realistic.
The next issue investors should look at is not how many pharmacies to open in China. Starting from Hong Kong, the question is how far we can turn the brand experience centered on private brands and cosmetics into profit growth for Asia as a whole.
Reference materials
- Matsuki Yokokokara & Company Financial Results Explanation Material for the Third Quarter of the Fiscal Year Ending March 2026 (February 13, 2026) *Matsuki Yokokokara & Company Monthly Sales Information Updated in March 2026 (April 15, 2026)
- Sundrug Financial Results Explanation Material for the Third Quarter of the Fiscal Year Ending March 2026 (February 12, 2026)
- Sundrug Monthly Report (Latest disclosure available as of April 2026)
- Reports on the restructuring of the Chinese pharmacy industry from overseas news outlets