The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. — Ed.
Dentium delivered 3Q22 OP of W33.7bn, beating consensus. Vietnam has become a major export destination for the firm, with related exports amounting to W15bn over 1Q22~3Q22. We note that China’s VBP policy will likely be released this year. While a recent share price drop for implant firms was triggered by supply-demand issues and reduced investor sentiment, we note that industry fundamentals remain unchanged. While we still expect the VBP to positively impact Dentium, we lower our target multiple to 9.4x due to decline in global peers’ valuations.
3Q22 earnings satisfying market expectations
We maintain a Buy rating and TP of W120,000 on Dentium. The firm reported 3Q22 sales of W90.7bn (+27% y-y) and OP of W33.7bn (+123% y-y), beating consensus. By country, China sales came to W48.5bn and Russia sales reached W6bn. Vietnam has become a major export destination for Dentium, and could even leapfrog Russia in the future, with accumulated exports reaching W15bn thus far this year.
In terms of expenses, we note that an accounting change for rental fees and depreciation expenses (which saw them switch from SG&A to COGS (W2bn)), led to an increase in the firm’s COGS-to-sales ratio. While Dentium previously maintained a high provisioning ratio for accounts receivable (Dentium 33%, Osstem 19%, Dio 13% as of 1H22), it started to reduce provisioning for accounts receivable from 3Q22 in light of a high accounts receivable recovery rate. Bad debt expenses should remain lower than before going forward.
We forecast 4Q22 sales of W110.5bn (+18% y-y) and OP of W40.9bn (+50% y-y). In 3Q22, China sales were disappointing due to dealers’ inventory management amid volume-based procurement (VBP) uncertainties; however, in 4Q22, we expect to see a demand expansion thanks to peak seasonality.
VBP details to be released within the year according to Straumann’s earnings call
China’s VBP bidding results are expected to be released within the year. Although the share prices of domestic implant players have declined recently amid concerns over supply-demand issues and reduced investor sentiment, we note that there have been no changes in industry fundamentals. While we still expect China’s VBP to positively impact Dentium, we lower our target multiple to 9.4x due to a decline in global peers’ valuations.
According to Straumann’s 3Q22 earnings call, the firm will participate in China’s VBP bidding process with its four premium and mid-priced implant brands (Straumann, Anthogyr, T-Plus, etc). Straumann’s ASP is expected to fall by 50~60%, but it is likely to share the burden with dealers. Meanwhile, ASP for its low/mid-end brand (T-Plus) is expected to drop by 25~30%.