Events:

On August 30, the company released its semi-annual report of 2021, showing that its operating income in the first half of 2021 was HK $1.48 billion, an increase of 65.1% over the same period last year and 24.3% over the same period in 2019. The gross profit was HK $780 million, an increase of 88.5% over the same period last year and 36.9% over the same period in 2019. The net profit of the core business was HK $240 million, an increase of 1553.2% and 171.0% over the same period in 2019. The overall performance of the company increased steadily in the first half of the year, and Q2 achieved operating income of HK $780 million in the single quarter of 2021, an increase of 111.4% over the same period last year.

Comments:

More blossoms in the global market, digital cases reach a new high

The company's revenue reached a record high in the first half of 2021, with many blossoms in the global market, including HK $640 million in Europe, an increase of 66.9% over the same period last year, HK $330 million in Greater China, an increase of 74.5% (the mainland market grew by 113.2%), and revenue in Australia and New Zealand reached HK $130 million, an increase of 71.4% over the same period last year. North America reached HK $360 million, an increase of 50.5 per cent over the same period last year.

The COVID-19 epidemic accelerated the elimination of small denture processing enterprises and greatly increased the application of oral internal scanners. The number of digital cases in the company reached 118000 in the first half of 2021, an increase of 200.7% over the same period last year. As an industry leader, the company is expected to seize the opportunity of market integration and digital development to further enhance market share and customer stickiness.

Capacity expansion opens room for growth, and operating capacity continues to improve.

The first phase of the company's Dongguan production base project has been officially put into production in 2019, covering an area of 16000 square meters, the production capacity has been further expanded and the operating capacity has been continuously improved. In the first half of 2021, the company's overall gross profit margin reached 52.7%, an increase of 6.6 percentage points over the same period last year, of which the gross profit margin of fixed denture equipment reached 54%, an increase of 6.2% over the same period last year, and that of removable denture equipment reached 53.1%, an increase of 6.4% over the same period last year. Other products gross profit margin reached 46.9%, an increase of 11.2% over the same period last year. The company achieved a net interest rate of 16.2%, an increase of 14.6 percentage points over the same period last year and an increase of 8.8 percentage points over the same period in 2019.

After the completion of the company's Dongguan Phase II and Vietnam base, the production capacity is expected to double, the order-taking capacity will be significantly improved, the scale effect will be further expanded, and the company's operating capacity is expected to continue to improve.

Entering the stealth correction market, the exclusive advantage helps TrioClear to rapidly increase the volume of the company's stealth correction product TrioClear in Hong Kong, China, Australia and Europe.

TrioClear adopts a unique three-step correction method to replace three layers of gradually thick braces during the treatment of patients, making the teeth move in a gradual and predictable way, making the wearing experience more comfortable, combined with the company's exclusive TrioDim Force technology, reducing the use of accessories, and saving dentists' diagnosis and treatment time. In the first half of 2021, TrioClear sales reached 10 million Hong Kong dollars, an increase of about 14 times compared with the same period last year. With the help of the company's dentist channels covering more than 20, 000 people worldwide, TrioClear is expected to continue to grow rapidly.

Profit forecast and valuation

The company's performance growth is in line with expectations and is expected to seize the opportunity of digital development in the industry. It is expected that the company's operating income will maintain HK $29.90 million in 2021-2023, and its net profit will maintain HK $4.54 billion and HK $5.63 / 706 million, with a "buy" rating.

Risk tips: global economic and transnational operational risks; merger and acquisition risks; production facility concentration risks; exchange rate risks