Strategic mergers and acquisitions superimposed capacity expansion to open up room for growth
Modern Dental is the world's leading supplier of denture equipment, focusing on providing customized dentures to customers, covering fixed dentures, removable dentures and other equipment. Through years of strategic mergers and acquisitions, the company has successfully established a global exclusive sales and distribution network, with more than 100 subsidiaries, more than 20 brands and more than 30000 global customers. the market share is in a leading position in Europe, North America, Greater China, Australia and other major markets.
In October 2019, the first phase of the company's Dongguan production base project was officially put into production, covering an area of 16000 square meters, with further expansion of production capacity and continuous improvement of operating capacity. As the impact of the epidemic gradually faded, 2020H2's performance ushered in a recovery of growth, with a net profit of 247 million Hong Kong dollars, a sharp increase of 236.3 percent over the same period last year. The rate of expenses decreased significantly, and the gross profit margin of 2020H2 increased to 52.2 percent, and the net profit margin increased to 16.2 percent. According to the company announcement, 2021H1 achieved an operating income of about HK $1.47 billion, an increase of 63.9% over the same period last year; the Greater China region achieved an operating income of about HK $329 million, a substantial increase of 73.1% over the same period last year; with the gradual completion and commissioning of the second phase of the Dongguan production base and the Vietnam production base, the company's production capacity will be further improved, and the momentum of performance growth is expected to continue.
The epidemic accelerated the integration of the domestic market, digital pioneers ushered in development opportunities a large number of domestic denture production enterprises, mostly regional small technicians, the industry concentration is low.
The COVID-19 epidemic has accelerated the elimination of small denture processing enterprises, and social distance measures have further raised the market's attention to digital technology. As an industry leader, modern dentistry has significant advantages in the number of technicians, technical level, digital development level and customer channels. The company began to use CAD/CAM technology in 2007. At present, it has four digital production centers, has formed a central digital process, equipment and network, and ranks first in the field of internal oral scanning applications. The company is expected to seize the opportunity of market integration and digital development. Further enhance market share and customer stickiness, enhance industry leadership.
Entering the stealth correction market, "exclusive advantage + channel resources" is expected to help the company's stealth correction product TrioClear appear on the market in Hong Kong, Australia and Europe in 2020.
TrioClear uses a unique three-step correction method to replace three layers of gradually thick braces during patient treatment, allowing teeth to move in a gradual and predictable manner, making the wearing experience more comfortable, combined with the company's exclusive TrioDim Force technology, reducing the use of accessories, saving dentists' time; at the same time, the company covers more than 20,000 dentists worldwide, and TrioClear is expected to increase volume quickly with a stable customer channel.
Profit forecast and valuation
The company's strong performance recovery is expected to seize the opportunity of accelerated market consolidation. We expect the company's operating income to be HK $29.90,37.05 and HK $4.482 billion respectively from 2021 to 2023, and the net profits attributable to shareholders of listed companies are HK $4.54,5.63 and HK $706 million respectively. With reference to the comparable company giving 40 times PE in 2021, Hyundai Dental is reasonably valued at HK $18.165 billion, corresponding to the target price of HK $18.92, giving a "buy" rating for the first time.
Risk tips: global economic and transnational operational risks; merger and acquisition risks; production facility concentration risks; differences in different market valuation systems