Rapid growth in revenue and bottom reversal in profitability

Revenue in the first half of 2021 was HK $1.481 billion (+ 65.1%), with a net profit of HK $240 million, a year-on-year return to profit. Of this total, Q1 achieved revenue of HK $701 million and Q2 achieved revenue of 780 million, an increase of 11.3% over the previous month. After COVID-19 's epidemic, the company's business was quickly repaired quarter by quarter. The gross profit margin of 2021H1 reached 52.7% (+ 6.6pp), an increase of 0.4pp compared with 2020H2. After the Dongguan factory was put into production, it continued to reduce production costs. The net interest rate reversed at the bottom, with 2021H1 reaching 16.2% (+ 14.6pp), which was flat compared with 2020H2. The management expense rate dropped sharply to 21.4%, mainly due to the turnaround of the US business and the optimization of the operating structure during the epidemic.

Fixed denture is the main source of income, growing rapidly in all regions. in terms of products, fixed dentures are still the main source of income, contributing HK $980 million (+ 57%), accounting for 66%. In terms of region, the growth of each region is relatively fast, and the income of Europe is nearly 600 million Hong Kong dollars (+ 64%), accounting for 40% of the total income. The Greater China region grew by 75% year-on-year (60.1% after deducting the impact of exchange rate), and new mid-price products and strategic cooperation with oral chains boosted product sales. The North American market grew by 49% and has returned to the pre-epidemic level.

The invisible appliance is growing rapidly, and the digital transformation is smooth.

Sales of the transparent appliance TrioClear were about HK $10.56 million, compared with HK $700000 in the same period last year, still from a small base but strong growth. Digital orders for 2021H1 production in mainland China increased to about 1.76 million units (+ 201%), accounting for 11% of all orders. More customers are using oral scanners, and 2021H1's sales in Europe are up 81%.

Risk hint: epidemic risk; digital transformation is less than expected

Investment advice: raise profit forecasts and maintain "buy"

The company is an international denture processing leader with strong fine operation ability; accelerate the elimination of small players in the industry under the epidemic, the company's market share increases steadily; launch invisible appliance business, with the help of existing doctor channels to coordinate sales. It is estimated that the net profit of homing in 2021-23 will be HK $470x568 / 667 million (the original value is HK $4.02x4x545 million), with an annual growth rate of 337%, respectively, with an annual growth rate of 337%, 21% and 17%, respectively, and the current share price corresponds to PE 17max 14max 12X. For 2022 PE 1820X, we believe that the company's one-year reasonable share price is HK $10.62 to HK $11.80, which is a 30% premium to the current share price of HK $8.17 (2021-09-13) and maintains a "buy" rating.