Performance Overview: The number of overseas cases increased more than expected in '23, revenue was in line with expectations, and performance is still under pressure.
In '23, the company achieved revenue of 1.48 billion yuan (+16%, year-on-year in parentheses, same below), net profit of 49 million yuan (-77%), and adjusted net profit of 180 million yuan (-16%).
The total number of domestic and international cases reached 245,000 (+33%). The revenue growth rate is slower than the number of cases, mainly due to ① the rapid pace of past shipments and a decrease in revenue that was deferred in '23. ② Sinking market expansion+changes in product structure (increase in the share of Comfos and children's products with lower ASP), ASP is expected to decline slightly.
Number of cases: The number of overseas cases exceeded 30,000 in 23, and the European, American and Australian markets exceeded expectations 1) Domestic: 212,000 cases (+15%), 23H2 added 126,000 new cases (up 18%/22% from 22H2/21H2, respectively, faster than H1), and the performance was excellent.
2) International: The number of cases was 33,000, of which 23H1 was only 0.94 million, mainly contributed by Aditek from Brazil. The European, Australian, New Zealand, and North American markets are still in the early stages of market promotion and climbing; since H2, the European, American and Australian markets have rapidly expanded, driving the number of overseas cases to exceed expectations throughout the year.
Revenue split in 23 years: International market share increased to 10%.
23 year revenue: 90% domestic market +10% international market.
1) Domestic (87% correction plan +2% mouth scanner sales +1% other services): 23 billion yuan (+5.5%) revenue, including 1.28 billion yuan (+6.0%) of invisible correction revenue, 65.7% (+1.9%), and continued cost reduction and efficiency.
2) International (sales in European, American and Australian markets, Aditek, Brazil): Revenue of 145 million.
Profitability: Domestic cost reduction and efficiency have been very effective, but overseas early investment was high. Overall performance was under pressure. Domestic market segment profits also increased by 30%. The adjusted net interest rate exceeded 19%. Thanks to improvements in production processes, the unit production cost decreased. However, in the early stages of overseas expansion, personnel costs and marketing and promotion costs are high. The scale effect has not yet been released, and overall profitability is still under pressure.
Looking at 23 years: gross profit margin 62.4% (+0.5%), net profit margin 3.3% (-13.5%). Sales expenses rate 33.4% (+9.9pcts), management expenses ratio 18.9% (+4.4 pcts), R&D expenses rate 11.8% (+0.1 pcts), financial expenses rate -5.9% (-2.7 pcts).
Adjusted net profit of 180 million yuan (-16%), adjusted net interest rate of 12.1% (-4.7pcts), mainly due to large losses from overseas early expansion. The adjustments include equity incentives ($70.47 million), investment gains and losses, amortization related to acquisitions, and exchange gains.
Segment adjusted profit of $45 million: Based on segment profit (revenue - three fees - headquarters amortization expenses), and only equity incentives are adjusted.
1) Domestic Economic Adjustment Division Revenue: 256 million (+30%) = Segment Profit of 190 million + Equity Incentives of 66 million, adjusted net interest rate of 19.3% (+3.6pcts);
2) Revenue of the International Economic Regulation Division: -211 million = segment profit - 215 million plus equity incentives of 0.04 billion.
Outlook: International+domestic two-wheel drive, the number of cases remains high, and it is expected to welcome a profit release period after the overseas scale effect is highlighted
International: Strong product strength+efficient supply chain+professional and perfect design and service system to build a moat. We are optimistic that the international market in 24 years will be the company's second growth curve, and it will continue to be implemented beautifully.
We believe that the company has smooth overseas logistics and strong overseas competitiveness, mainly from: 1) The products have been settled domestically for many years, and the multi-pipeline layout meets diverse needs and continues to innovate. A6 Advanced Mandibular Solution, Early Childhood Correction Series, Double Membrane Champion Edition, etc. have clinically differentiated functions and are well received by doctors. In addition, the company cooperated deeply with KOLs in the orthodontic industry and participated in many of the world's top academic conferences to expand brand influence and strengthen the brand's specialized image. 2) The supply chain is efficient and stable. The whole cycle takes only 8.5 working days from the doctor's confirmation plan → production → delivery. 3) The company has built a local business team with rich experience in the orthodontic industry in markets such as Europe, America, Australia, etc., and the design and service system is professional and perfect.
Looking ahead to future overseas development trends: 1) Judging from the number of cases, the number of cases in the European, American and Australian markets in '23 exceeded expectations and is still growing rapidly. We expect the number of international cases to maintain a year-on-year growth rate of more than double in '24. 2) From the revenue side, considering that the company confirms revenue in batches, the overall revenue growth rate is expected to be slower than the number of cases.
3) In terms of profitability, the number of international cases is rapidly climbing. As the scale effect becomes apparent + the intensity of discounts decreases (early promotion discounts are strong), the company's profitability is expected to be further optimized. We expect the profitability of the international market to be close to that of the domestic market in the medium term.
Domestic: The invisible correction market has had a long and heavy snowfall, and the company maintains a leading position. The company ranked first in the market share of invisible correction in the mainland for 3 consecutive years (in terms of number of cases). We believe that the core focus for 24 years still comes from the restoration of the consumer environment, the expansion of third- and fourth-tier cities, and the volume of children's series.
Profit forecast:
Considering that the company has invested heavily in overseas markets and is still climbing, we expect the overseas business to lose year-on-year losses this year and next year, and we are expected to achieve a break-even overseas business in '26. The company's 24-26 revenue is estimated to be 175/21.7/2.76 billion yuan, +19%/24%/27% year over year; net profit to mother is 0.73/1.74 billion 331 million yuan, +37%/+138%/+90% year over year, and PE corresponding to current market value is 159/67/35 times. Excluding equity incentives, acquisition and amortization, exchange earnings, etc., we expect adjusted net profit of 1.83/2.74 billion yuan for 24-26, respectively, an increase of 2%/50%/50% over the previous year. The current market value corresponding to the adjusted PE is 64/42/28 times.
The company is leading in databases, technology, products, production capacity, doctor resources and localized channel promotion. By increasing the sinking domestic market and firmly expanding overseas, it is expected that a new development curve will be created. We believe that the company will maintain the advantages of invisible orthodontic faucets and maintain the “gain” rating.
Risk warning:
Consumption recovery fell short of expectations; overseas expansion fell short of expectations; increased market competition; and exchange rate changes and other risks.