Key points of investment

Zirconia ceramic blocks are superior in performance to other dental crown manufacturing materials. The company has a wide variety of zirconium block products, leading the same in performance. Dentures are divided into porcelain teeth and all-porcelain teeth according to the different inner crown materials. All-porcelain teeth are both beautiful and biocompatible. Zirconia is the all-porcelain tooth material with the best performance and the most cost-effective. The global zirconia market for dentures continues to grow. It is expected to reach 7 billion yuan in 2022, with a compound growth rate of 8.6% in 2016-2022. The company was founded in 2007 and has been deeply involved in the dental repair materials industry for nearly 20 years. The main product, zirconia ceramics, has reached the top three brands and nearly 1,000 products. Among them, the high-end series “brilliant” performance is ahead of similar products.

Upgrade zirconia ceramic block products and expand new fields such as digital dental equipment. The dental repair materials business, which mainly focuses on zirconia tiles, is the company's core business. The business revenue in 2023 was 0.541 billion yuan, a gross profit margin of 57.62%, higher than the company's overall gross profit margin of 49.15%; of these, the revenue of zirconia ceramics was 0.45 billion yuan, accounting for 58% of the company's revenue in 2023. In 2019-2023, the price of zirconia ceramic products gradually declined. The company launched a high-end series of products to deal with it, and the share of revenue for the middle and high-end series of zirconia ceramics increased from 37% to 69%. The company continues to expand and expand new fields such as digital dental equipment. In 2023, digital dental equipment revenue was 0.204 billion yuan, accounting for 26% of revenue. It also launched products such as invisible orthodontics, oral prevention, and veneer aesthetic restoration.

The global layout opens up a ceiling for growth, and an increase in the share of export sales is conducive to increasing the company's profitability. The company's products are cost-effective. It has set up subsidiaries in the US and Germany. The products are exported to more than 120 countries, and the share of export sales revenue increased from 44.49% to 58.80% in 2021-2023. The gross margin of export sales of the company's products is higher. The gross margin of export sales in 2023 was 51.86%, higher than 45.28% of domestic sales.

The company's IPO fundraising project plans to increase the production capacity of “colorful” zirconia and glass ceramic denture materials. After completion and commissioning, the company's export sales ratio is expected to increase further, and the company's profitability is expected to increase further.

Valuation range: The valuation analysis of the company is carried out using a combination of price-earnings ratio relative valuation and cash flow discount valuation. According to the relative valuation method, we expect the reasonable market value range of the company's total equity to be 2.876 billion yuan to 3.514 billion yuan. According to the absolute valuation method, we expect the reasonable market value range of the company's total equity to be 2.507 billion yuan to 3.361 billion yuan. Taking into account the relative valuation method and the absolute valuation method, we determine that the company's forward fair value range is 2.876 billion yuan to 3.361 billion yuan, the price-earnings ratio range of 19.57-22.87 times the net profit deducted in 2023 is 19.57-22.87 times, the price-earnings ratio range corresponding to 2023 deducted net profit is 21.4-25.04 times, and the price-earnings ratio range corresponding to the 2024 forecast net profit price-earnings ratio range is 17.94-20.96 times.

Risk warning: Market competition increases risk; risk of falling gross margin of main business; risk of falling short of expected performance due to increased cost investment; potential risk of medical policy; risk of falling short of expectations in overseas business promotion; risk of failure to establish profit forecasting assumptions; international trade risk; risk of exchange rate fluctuations, etc.

Investors make their own investment decisions and bear their own investment risks.