The authors are analysts of Shinhan Investment Corp. They can be reached at firstname.lastname@example.org and email@example.com, respectively. — Ed.
Expectations for solid 2H22 earnings vs. concerns over external risks
We retain our BUY rating and target price of KRW180,800 for Osstem Implant. Due to correction sparked by: 1) implementation of volume-based procurement (VBP) in China; 2) prolonged war in Ukraine and partial mobilization of reservists in Russia; and 3) accelerating inflation, shares are now trading at a 2022F PER of 10.2x. However, we point out that growth of the global market for dental implants is driven mainly by the value segment, in which Osstem Implant holds the largest market share thanks to its AIC (Advanced Dental Implant Research & Education Center) training courses.
Earnings will likely rebound in earnest from mid-4Q22, once risks dissipate from confirmation of VBP details for dental implants in China and military mobilization in Russia, and as the roadmap for mid/long-term growth takes shape with plans for expansion into the Chinese market for clear aligners.
3Q22 preview: Results to show steady growth in earnings
We now expect Osstem Implant to post sales of KRW276.4bn (+29.6% YoY) and operating profit of KRW55.2bn (+55.6% YoY) for 3Q22. Contrary to excessive market concerns, we believe top-line growth continued on solid performance of the Hiossen brand plus increasing sales in China and Russia.
By region, we believe sales reached KRW43.5bn (+30.0% YoY) in North America, KRW81.2bn (+28.9% YoY) in China, and KRW26.1bn (+95.5% YoY) in Russia. Operating margin should have improved by 3.4%p YoY to 20.0%.
2022 outlook: Sales of KRW1.07tr, OP of KRW226.6bn
For full-year 2022, we forecast sales at KRW1.07tr (+30.1% YoY) and operating profit at KRW226.6bn (+58.1% YoY). Key drivers of top-line growth include: 1) growing number of client clinics/hospitals in China alongside the increase in AIC training completions; 2) larger sales contribution from the Hiossen brand of premium dental implants; and 3) retail channel expansion in Russia and Europe. Operating margin should reach 21.1%, marking 3.7%p YoY improvement on operating leverage effect and favorable forex rates.