Preferred Sector: Dental Implant Industry
The author is an analyst of NH Investment & Securities. He can be reached at ryan.ra@nhqv.com. – Ed.
In August, exports of medical devices and healthcare items (excluding dental implants) proved sluggish. However, based on provisional export figures from the Korea Customs Service for Sep 1~10, September exports look promising. We present the dental implant industry as our preferred sector and give a Neutral opinion on the BTX industry.
Dental devices: Dental implant exports still strong; dental imaging device exports sluggish
1. Dental implants:
In August, exports of dental implants (HS CODE: 9021.29.0000) totaled US$42.6mn (+87.6% y-y, -8.1% m-m). By region, exports divided as US$17.5mn (+66.0% y-y, -24.1% m-m) for China, US$4.7mn (+94.2% y-y, +15.5% m-m) for Russia, US$4.1mn (+141.6% y-y, -1.4% m-m) for the US, and US$1.9mn (+120.4% y-y, +7.0% m-m) for Turkey.
In August, a traditional vacation season for the medical device and healthcare industry, the number of operating days was down m-m, leading to sluggish exports across the sector, except for dental implants. Dental implant exports remained sound in August, even though exports to China slipped in the month compared to June and July.
Dental implant exports are forecast to grow strongly y-y and m-m in September as exports tend to concentrate in the last month of each quarter. Released on Sep 11, dental implant export estimates for Sep 1~10 came to US$23.21mn, which is already around half of August’s export total. Expecting structural growth over the mid/long term led by exports to EMs such as China, Russia, and Turkey, we present the dental implant industry as our preferred sector, and recommend Dentium as our top pick and Osstem Implant as a preferred play.
2. Dental imaging devices:
In August, exports of dental imaging devices (HS CODE: 9022.13.0000) came to US$18.98mn (+50.4% y-y, -25.8% m-m). By region, exports broke down as US$5.53mn (+9.4% y-y, -20.2% m-m) for China, US$5.3mn (+160.2% y-y, -8.7% m-m) for the US, US$2.02mn (+231.1% y-y, -49.6% m-m) for France, and US$0.68mn (+2.2% y-y, -62.4% m-m) for Russia. While overall exports were lackluster, the increase in exports to the US and China is encouraging.
Released on Sep 11, dental imaging device export projections for Sep 1~10 came to US$8.4mn. Based on the 10-day estimates, we expect dental imaging device exports to climb y-y and m-m in September, as should be the case with dental implant exports. Among dental imaging device companies, we recommend Vatech, which is: 1) showing stable exports to DMs such as the US and Europe; and 2) expanding its presence in both China (on growing demand for 3D equipment) and Russia (on higher demand for oral equipment). We also recommend Ray, as the firm is expected to expand its distribution networks in China by forming a JV with China’s CareCapital.
Aesthetic devices: Look to 3Q21 quarterly export data rather than August’s monthly numbers
In August, exports of aesthetic devices (HS CODE: 9018.90) reached US$50.3mn (+33.1% y-y, -15.5% m-m). Exports by region are as follows: US$8.61mn (+65.6% y-y, -3.9% m-m) to the US; US$5.75mn (-6.2% y-y, -22.3% m-m) to Japan; US$4.55mn (+46.6% y-y, -25.7% m-m) to China; US$1.97mn (+77.3% y-y, -28.5% m-m) to Germany; and US$1.76mn (+296.3% y-y, +10.0% m-m) to Brazil. Although weaker than expected (based on 2Q21 forecasts), this total represents a solid performance considering that August is traditionally sluggish.
Classys: Wait till September data is confirmed: August exports of aesthetic devices (HS CODE: 9018.90.9080) from Gangnam-gu, Seoul (data that is assumed to be Classys’s exports) dropped sharply m-m to US$2.38mn (+12.4% y-y, -69.1% m-m), as exports to major destinations (including China and Brazil, the two major export destinations for Classys) came in tepid. That said, Classys’s consumables exports (HS CODE: 9018.90.9090) increased in both y-y and m-m terms to US$1.76mn (+144.7% y-y, +12.2% m-m), with figures to Brazil and China both coming in stronger m-m. In our view, it is too hasty to conclude that Classys’s export growth momentum has peaked out based on the August figure alone, and we recommend investors to delay their judgement until September data is confirmed.
Jeisys Medical: Tepid equipment exports vs sound consumables exports: Exports of aesthetic devices (HS CODE: 9018.90.8090) from Gumcheon-gu, Seoul, data that is assumed to be Jeisys Medical’s export figure, came in at US$1.37mn (110.8% y-y, -36.4% m-m) for August. While exports to Japan remained robust, those to the US look relatively sluggish. That said, consumables exports (HS CODE: 9018.90.9090) continued to prove solid at US$3.11mn (+8.8% y-y, -2.1% m-m).
Lutronic: August exports come in sound: Based on August export data (HS CODE: 9018.90) from Goyang, Gyeonggi-do, which are assumed to be Lutronic’s exports, Lutronic’s exports of aesthetics devices stood at US$8.72mn (+30.1% y-y, +7.8% m-m) in August. The firm’s sustained m-m growth marks a clear contrast with Classys and Jeisys Medical, with exports to all regions exhibiting robust growth. We attribute Lutronic’s solid performance during the August off-season to its extensive direct marketing networks overseas.
BTX: August exports sluggish, but September looks promising
For August, exports of botulinum toxin (BTX; HS CODE: 3002.90.3090) amounted to US$13.67mn (-10.1% y-y, -17.9% m-m). By region, BTX exports broke down as US$3.51mn (-59.4% y-y, -41.7% m-m) for China, US$2.95mn (+2.8% m-m) for the US, US$2.01mn (+121.6% y-y, +84.4% m-m) for Brazil, and US$1.81mn (+202.0% y-y, +68.2% m-m) for Japan. Exports to China came in sluggish, while those to the US, Brazil, and Japan were solid.
As the Chinese government has been enhancing its regulations on illegal aesthetic practices, exports of BTX to China continue to come in sluggish. We note that trade statistics show that exports of BTX from Chuncheon (to China’s white market, presumably) declined in August, too. However, according to data released on Sep 11, BTX export estimates for Sep 1~10 amount to US$13.27mn, an encouraging development given that the 10-day export figure has already reached the August export level. As it has yet to be confirmed if the particularly strong exports to China are for the country’s white market or black market, we need to check September regional data when it is released next month.
Present Neutral rating on BTX: Volatility has recently grown in the overall toxin sector owing to a series of issues, including acquisitions, lawsuits, and the return of pipelines. Until some of these noise factors are resolved, we expect share prices to move irrespective of successful fundamental improvement. Accordingly, unlike dental implants and aesthetic devices, we present a Neutral rating on BTX.