The current situation of the company
On September 5, 2022, the company announced that it had adopted the 2022 restricted share unit plan. In addition, on Sept. 8, National Healthcare Security Administration issued the notice on the Special treatment of Medical fees for Oral Implant and the Price of consumable Materials 1.
Comment
We have a positive view of the plan. As of March 31, 2022, the company has 105 oral clinics and 7 hospitals, of which Ruier Dentistry has 51 clinics, Ruitai Stomatology has 54 clinics and the company has about 883 doctors. We believe that the scheme is expected to attract and motivate directors and employees, further stimulate staff potential and maintain profitable growth.
The company is actively laying out new markets. In July 2022, the company announced that Shanghai Ruibin, a wholly-owned subsidiary, intends to acquire 51% of Wuxi Tongshan Stomatological Hospital. Since 2017, Wuxi Tongshan Stomatological Hospital currently operates as a "Tongshan Stomatology" firm. Since 2001, it has provided dental services to different firms in Wuxi and adjacent areas of Jiangsu Province. After decades of investment and efforts in the dental market, it has become a leading dental group in Wuxi and a market participant in East China.
Operating indicators improved in fiscal year 2022 compared with fiscal year 2021. According to the company announcement, in fiscal year 2022, the total number of visits was 1.559 million, an increase of 13.7% over the same period last year, and the number of dental chairs was 1214, an increase of 3.9% over the same period last year. The income of each dental chair was 1.311 million yuan, an increase of 4.2% over the same period last year.
The dental implant industry has been standardized, and we believe that the market will be gradually standardized in the future. In fiscal year 2022, the company's planting business income was 353 million yuan, an increase of 17.9% over the same period last year, accounting for 21.7% of the total revenue. We believe that in the long run, the company is expected to benefit from the future volume of dental implants.
Profit forecast and valuation
We kept our adjusted net profit unchanged for fiscal years 2023 and 2024, at 170 million yuan and 205 million yuan respectively, up 158.4% and 20.7% respectively over the same period last year. We maintain our outperform industry rating and target price of HK $15.44 (based on DCF valuation), with 28.7% upside compared to the current share price.
Risk
Outbreaks of pandemics; better-than-expected regulatory and payment policies; lower-than-expected performance of new hospitals and clinics; better-than-expected outflow of dentists; and damage to brand image.