A leading private dental service company, with a dual brand strategy benefiting more patient groups, Riel Group was founded in 1999 and is a leading private dental care service group in China. The company provides differentiated pricing by deploying complementary brands Rhyl Dental and Ruitai Dental. As of March 31, 2023, the company has 114 dental clinics and 9 hospitals in 15 cities in China, 914 senior dentists, and has served about 9.4 million patients over the past ten years. The company's revenue increased from 1100 billion yuan in fiscal year 2020 to 1,474 billion yuan (RMB) in fiscal year 2023. Revenue for fiscal year 2023 fell 9.23% year on year, mainly due to the temporary closure of some clinic stores in 2022 due to external factors. The company's adjusted net loss for fiscal year 2023 was 29.23 million yuan.

The scale of the private dental care service market continues to expand, and the penetration rate of collection has increased rapidly. Driven by consumption upgrades and policies, the private dental services market in China has shown a rapid growth trend. Among them, markets for high value-added services such as dental implants and orthodontic services are developing rapidly. The implant collection policy regulates the development of the dental implant industry and effectively reduces the price of consumables, which is expected to promote rapid market expansion and increase penetration. The private dental care market in China is characterized by regionalization and fragmentation of competition, and there is plenty of room for development of a nationwide chain of dental medical institutions. As a national chain of dental medical institutions, Rhyl Group has strong competitiveness in the future market with its advanced strategy and nationwide coverage. The company formulates a dual brand strategy and uses brand complementarity and price differentiation to increase market share.

Among them, the Ruitai brand used the self-build+acquisition model to efficiently expand its chain across the country, successfully opening up the second growth curve. Furthermore, the number of stores in the “mature” stage of the company is increasing year by year, promoting both business and financial growth, and is expected to develop steadily in the future.

The talent development framework is complete, and the follow-up rate of loyal customers is high

The company currently has 914 dentists in reserve, of which 46.4% of full-time dentists have a master's degree or above, with an average of 11.2 years of industry experience. The company has a complete training system, and the retention rate of high-quality doctors is high.

The company's complete incentive system, extensive medical platform, positive culture, and broad employment opportunities are important factors in medical treatment. Thanks to the high level of medical resources and high quality services, the company's single-name dentists have maintained a high level of income generation in the industry. As of March 31, 2023, the average performance of the company's full-time dentists was 1.16 million yuan/year. In 2022, the company's patient follow-up rate reached 48.1%, and the steady flow of visitors led to an increase in revenue. Furthermore, by improving service quality, increasing user stickiness, and reducing sales expenses, the company helps reduce costs and increase efficiency.

The business is spread all over the country. Based on standardized operation and strong digital systems, the company is rapidly expanding. The company operates 123 hospitals and clinics in 15 major Tier 1 and 2 cities in China, and its business covers the whole country. Through standardized operating procedures and systems and digital infrastructure support, decentralized clinics are supported in all aspects of business operations: digitization of doctors' diagnosis and treatment experience, accurate treatment, and reduction of training costs; digitization of work service processes to provide personalized services; use of digital technology equipment, such as 3D printing; open up digital management systems, integrate and visualize information, and carry out refined business management. Digitalization can not only empower the entire dental care service process, but also combine the supply chain and doctor training system to create a shared service platform for FRIDAY and empower the management upgrade of the dental industry. In addition, the company lays out facial management for children, focuses on the early childhood correction market, and is committed to providing customers with one-stop, professional and high-quality dental care services covering the entire life cycle, which is expected to further establish its leading position in the industry.

Profit forecast: We forecast that the company's revenue for the 2024-2026 fiscal year will be 18.49, 22.53, and 2,739 billion yuan respectively, with year-on-year growth rates of 25.2%, 21.8%, and 21.6%, respectively; net profit of 0.34, 1.14, and 158 million yuan respectively. Among the targets in the field of medical services, four A/H stock listings, General Health, Hygea Healthcare, Jinxin Reproduction, and Gushengtang were selected, giving Rhyl Group 5 times PS in fiscal year 2024. The corresponding target price was 15.90 yuan (HK$17.00), covering the first time, and giving it a “buy” rating.

Risk warning: risk of newly opened or acquired dental hospitals and clinics not operating as expected; risk of loss of dentists; risk of complaints due to medical malpractice or misconduct; risk of cross-market valuation