Angelalign delivered a good turnaround in interim results with sales up 39.8% YoY, gross profit up 47%, operating profit turned profitable from loss, and adjusted net profit up by 96% YoY in 1H24, respectively. Number of cases rose by 60% YoY, with overseas cases accounting for 38% in 1H24. Domestic sales grew by 10% YoY, outperforming most of the consumption goods, and overseas revenue's contribution climbed to 26.5% with sales growth of 425% YoY in 1H24. Overseas breakthrough strengthens the outlook and confidence of Angelalign. We retain TP with unchanged revenue and net profit forecast. BUY rating is reiterated.

Key Factors for Rating

It is the first turn-around interim results after the operating loss in 2023 and earnings decline in 2022-23. Sales recovered in domestic market while overseas obtained great breakthrough. Revenue rose by 39.8% YoY in 1H24, of which domestic sales grew 10% YoY and overseas market jumped 425% YoY. Overseas sales accounted for 26.5% of revenue in 1H24, a big jump from 8% in 1H23. Number of cases also booked a strong growth of 60% YoY in 1H24 (10% YoY in domestic market and 425% YoY in overseas market). Overseas' portion in number of cases ramped up to 38% in 1H24. Angelalign revises the annual number of cases guidance from 310k to 338k, implying 38% YoY.

Gross margin expanded to 62.4% in 1H24 from 59.3% in 1H23. Operating profit turned positive in 1H24 from loss. Adjusted operating profit in domestic market was RMB110m but was RMB110m loss in overseas market. Adjusted net profit rose by 96% YoY in 1H24. Angelalign expects to realise breakeven in overseas leg by end of 2025 if manufacturing is all in China. The breakeven timing might be extended if the manufacturing process moves to overseas plants.

With consumption downgrade in domestic market, Angelalign benefits from kids series and economy series. In the meantime, we expect the overseas leg to contribute more than half of revenue in medium term. Although selling cost is high in overseas to gain market share, it will turn normal once the market share is solid.

Key Risks for Rating

The progress to improve the overseas margins determines the blended margins.

Valuation

We retain sales and net profit estimates unchanged. TP HK$73.6 is also retained. After struggling with sales decline for two years, Angelalign eventually delivers meaningful progress in global positioning. Targeting at developed counties is the right strategy. BUY rating is reiterated.