Medical Device Industry: September Exports to Calm August-related Concerns 

The author is an analyst of NH Investment & Securities. He can be reached at ryan.ra@nhqv.com. – Ed.

Export growth in September should quell August-related concerns. In 3Q21, exports to EMs continued improving, and exports to DMs such as the US and EU entered a normalization track. We present implant as our preferred sector and aesthetic device as our second choice, with a Neutral opinion on the toxin sector.

1. Dental implants: Pay attention to strong exports to the US

In September, exports of dental implants (HS CODE: 9021.29.0000) totaled US$51.4mn (+31.6% y-y, +20.6% m-m). By region, exports divided as US$18.8mn (+20.1% y-y, +7.2% m-m) for China, US$8.9mn (+78.2% y-y, +89.3% m-m) for Russia, US$3.2mn (+3.6% y-y, -21.8% m-m) for the US, US$2.3mn (+18.4% y-y, +426.5% m-m) for Iran, and US$2.1mn (+3.6% y-y, -21.8% m-m) for Turkey.

As for the dental implant sector, exports tend to be the strongest in the last month (March, June, September, and December) of each quarter. And, this feature was also in play this September. Strong export growth led by EMs, including Russia and China, has sustained since Jun 2020. In our view, such growth momentum is attributable mainly to structural export growth led by China and Russia, going beyond deferred demand impacts. Taking this into consideration, we maintain dental implant as our most-preferred sector in light of anticipated structural export growth momentum driven by EMs such as China, Russia, and Turkey. Dentium is our sector top pick, and we recommend Osstem Implant as a promising play.

In 3Q21, dental implant exports reached a new record high of US$140.3mn (+62.8% y-y, +2.0% q-q). By region, exports divided as US$59.4mn (+71.4% y-y, +3.6% q-q) for China, US$17.6mn (+73.1% y-y, +17.2% q-q) for Russia, US$11.4mn (+66.6% y-y, +39.2% q-q) for the US, US$5.9mn (+97.3% y-y, -44.7% q-q) for Turkey, US$3.1mn (+13.7% y-y, -28.0% q-q) for Iran, and US$1.9mn (+610.0% y-y, +89.3% q-q) for India. In general, dental implant exports tend to be the strongest in the following order: 4Q, 2Q, 3Q, and 1Q, but 3Q21 exports proved exceptionally robust, thanks to healthy exports to China and Russia.

We also draw attention to strong exports to the US. While the September figure slowed to US$3.2mn (+3.6% y-y, -21.8% m-m), combined 3Q21 exports to the US came in atUS$11.4mn (+66.6% y-y, +39.2% q-q), the second highest level of all time, following the historic high set in 4Q19. Such is especially notable given the fact that while Korean dental implant plays have yet to fully resume normal operations in the US market, their sales are on a normalization track. In our view, Osstem Implant and DIO should be the primary beneficiaries of recovering exports to the US market.

2. Dental imaging devices: New quarterly-high exports reached

Exports of dental imaging devicescame in strong for all regions,excluding China In September, exports of dental imaging devices (HS CODE: 9022.13.0000) came to US$25.6mn (+51.8% y-y, +34.7% m-m). By region, exports broke down as US$8.5mn (+127.8% y-y, +60.1% m-m) for the US, US$4.6mn (-3.2% y-y, -16.3% m-m) for China, US$1.7mn (+176.6% y-y, +151.3% m-m) for Russia, US$3.2mn (+76.5% y-y, +406.2% m-m) for Japan, and US$1.4mn (+135.2% y-y, +63.4% m-m) for Germany. Exports came in strong for all regions, excluding China. Of note, exports to the US proved the second highest ever, following Oct 2019. Record-high quarterly exports achieved in 3Q21 Dental imaging device exports also shattered the previous quarterly record in 3Q21, amounting to US$70.1mn (+79.4% y-y, +7.1% q-q). By region, exports came toUS$19.6mn (+156.7% y-y, +65.3% q-q) for the US, US$17.1mn (+50.9% y-y, +26.5% q-q) for China, US$6.8mn (+97.6% y-y, -7.6% q-q) for France, US$5.0mn (+84.0% y-y, +30.5% q-q) for Japan, US$4.2mn (+127.7% y-y, -20.9% q-q) for Russia, and US$3.3mn (+239.9% y-y, -6.7% q-q) for Germany.

In 3Q21, exports of dental imaging devices to the US reached a new quarterly-high, helping to drive overall export growth. We advise investors to pay attention to strong export growth to the US, along with China and Russia, going forward. Among domestic dental imaging device companies, Vatec is noteworthy for: 1) stable exports of high ASP products to DMs, including the US and Europe; and 2) anticipated M/S expansion in China through 3D product lineup expansion. In addition, we draw attention to Ray, which should enjoy sound mid/long-term earnings growth, backed by: 1) distribution network expansion in China through a JV with a Chinese play; and 2) new business growth, including for scanner products.

3. Aesthetic devices: Solid September exports to alleviate concerns raised in August

In September, exports of aesthetic devices (HS CODE: 9018.90) reached US$62.44mn (+19.8% y-y, +24.1% m-m). Exports by region are as follows: US$10.23mn (+24.9% y-y, +19.0% m-m) to the US; US$5.7mn (-18.5% y-y, -0.8% m-m) to Japan; US$4.06mn (-19.4% y-y, -10.7% m-m) to China; US$3.62mn (+291.5% y-y, -9.0% m-m) to France; and US$2.21mn (+38.6% y-y, +25.9% m-m) to Brazil.

In a previous report on Sep 16, despite the sluggish aesthetic device exports of August, we offered a bright outlook for September, believing that it is reasonable to focus more on q-q and y-y data for 3Q21 than on August figures alone, given that the sector’s seasonality tends to be strongest in 4Q, followed by 2Q, 3Q, and 1Q. We confirm based on the September numbers that aesthetic device exports remain on the rise, coming to US$172.27mn (+33.7% y-y, -5.6% q-q). That said, as individual aesthetic device companies show different characteristics in terms of equipment sales, distribution approach, and major export destinations, it is worth looking at detailed data by region.

Classys: September exports of aesthetic devices (HS CODE: 9018.90.9080) from Gangnam-gu, Seoul (data that is assumed to be Classys’s exports) stood at US$5.11mn (+39.7% y-y, +115.1% m-m). The firm’s 3Q21 exports of aesthetic devices (HS CODE: 9018.90.9080) from Gangnam-gu totaled US$15.18mn (+82.1% y-y, -8.9% q-q), proving that exports remain on the rise. Classys’s consumables exports (HS CODE: 9018.90.9090) came in at US$1.76mn (+33.0% y-y, +0.3% m-m) in September and US$5.08mn (+56.7% y-y, +3.9% q-q) in 3Q21, indicating that the upsurge in aesthetic device exports in 2Q21 led to higher orders for consumables in 3Q21.

In 3Q21, exports of aesthetic devices from Gangnam-gu, Seoul, to China totaled US$2.38bn (W2.8bn), down from 2Q21’s US$4.94bn (W5.7bn). Meanwhile, consumables exports to China rose from US$0.29mn (W300mn) in 2Q21 to US$0.73mn (W900mn) in 3Q21. a previous report on Aug 17, we predicted that exports of aesthetic devices and consumables from Gangnam-gu to China would reach W3.0bn in3Q21. And, our prediction turned out to be correct, with 3Q21 exports arriving atUS$3.11mn (W3.7bn). While exports to China dropped in 3Q21 from the record-setting level seen in 2Q21, a growth trend appears to remain in place.

We draw attention to growth in exports to Brazil in 3Q21. Exports of aesthetic devices from Gangnam-gu to Brazil climbed from US$1.55bn (W1.8bn) in 2Q21 to US$2.24bn (W2.6bn) in 3Q21. And, consumables exports to Brazil increased from US$0.96mn (W1.1bn) in 2Q21 to US$1.67mn (W2.0bn) in 3Q21. Combined exports of aesthetic devices and consumables amounted to US$3.91mn (W4.6bn), setting a new record. While 3Q represents a slack season, thanks to ample growth of exports to Brazil, Classys’s total exports likely remained solid in 3Q21, as was the case in 2Q21. Considering its solid exports, whether the firm can reach our 3Q21 sales estimate of W25.7bn is to hinge on domestic sales. Under the circumstances, we present Classys as our top pick for the aesthetic device sector.

Jeisys Medical: Exports of aesthetic devices (HS CODE: 9018.90.8090) from Gumcheon-gu, Seoul, data that is assumed to be Medical’s export figure, came in at US$2.24mn (+69.2% y-y, +64.4% m-m) for September. We believe that exports to the US bounced back in September. Consumables exports (HS CODE: 9018.90.9090) to Japan remained solid, whereas exports to the US plummeted. In 3Q21, exports of aesthetic devices and consumables from Gumcheon-gu totaled US$5.76mn (+124.4% y-y, +2.1% q-q) and US$8.78mn (+12.6% y-y, -3.3% q-q), respectively.

Lutronic: Based on September export data (HS CODE: 9018.90) from Goyang, Gyeonggi-do, which are assumed to be Lutronic’s exports, Lutronic’s exports of aestheticdevices stood at US$9.75mn (+4.1% y-y, +11.7% m-m) in September. In 3Q21, the firm’s aesthetic device exports totaled US$26.58mn (+23.3% y-y, -13.3% q-q). While exports declined q-q owing to weak seasonality, the figure increased y-y thanks to evenly healthy growth across all regions.

4. BTX: Crucial to resolve various issues

For September, exports of botulinum toxin (BTX; HS CODE: 3002.90.3090) amounted to US$25.09mn (+17.5% y-y, +83.5% m-m). By region, BTX exports broke down as US$11.93mn (+19.7% y-y, +239.3% m-m) for China, US$2.91mn (-1.3% m-m) for the US, US$1.54mn (-51.2% y-y, +219.0% m-m) for Thailand, and US$1.48mn (-44.5% y-y, -26.2% m-m) for Brazil. Exports were sound considering weak seasonality. In 3Q21, exports totaled US$21.48mn (-24.2% y-y, -18.1% q-q) for China, US$8.73mn (+4.2% q-q) for the US, US$4.59mn (-6.9% y-y, +9.8% q-q) for Brazil, and US$3.35mn (+49.8% y-y, +41.0% q-q) for Japan.

While exports from Chuncheon to China’s registered BTX market were sluggish over July~August, exports came in sound in September. With exports to China’s black market proving difficult, toxin companies that have entered the registered BTX market in China and major markets such as the US and Europe should shine among peers. Although toxin companies now look exceedingly undervalued, we note that investor sentiment towards the sector has weakened on a variety of issues, including acquisitions, lawsuits, and controversies over toxin strains. Until these issues are resolved, we advise taking a wait-and-see approach to the sector.