2022 Growth Outlook: Sales: +18.0% YoY, OP +25.5% YoY
The authors are analysts of Shinhan Investment Corp. They can be reached at jhwon@shinhan.com and shawn1225@shinhan.com, respectively. -- Ed.
4Q21 preview: Earnings to come in line with consensus
Dentium is expected to have secured consolidated sales of KRW79.3bn (+5.2% YoY), a new quarterly high, and operating profit of KRW17bn (-2.2% YoY, operating margin of 21.4%) in 4Q21.
China sales should come in at KRW47.5bn, extending the uptrend from the previous quarter thanks to strong seasonal demand. Russia sales temporarily fell in 3Q21 on the spread of the Delta variant, but likely rebounded to KRW7.1bn in 4Q21 on low base effect and favorable seasonality. We believe domestic sales reached KRW16.5bn in 4Q21, marking a slight YoY decline due to tighter social distancing regulations.
2022 growth outlook: Sales: +18.0% YoY, OP +25.5% YoY
For 2022, we forecast sales at KRW326.8bn (+18.0% YoY) and operating profit at KRW74.7bn (+25.5% YoY, operating margin of 22.9%). In China, sales should reach KRW200.8bn. Dentium will likely focus on expanding package sales (value segment dental implants and equipment) to newly-opening clinics this year, and increasing market share by targeting new dental clinics in second-tier cities going forward. Sales in Russia should reach KRW25.6bn. Fast-paced growth is expected with Russia's dental implant market still in its early stage of expansion and cheap prices in the country attracting dental implant patients from neighboring countries. Operating margin is forecast at 22.9% with operating leverage effect expected from growth in package sales.
Concerns remain but share price correction seen excessive
Dentium shares sharply corrected on recent news that the Chinese government plans to procure medical consumables including dental implants in large quantities for lower prices. We believe impact on earnings will be limited as the bulk purchases will be for public hospitals instead of private clinics, Dentium's main target clientele in China. Moreover, the company has built a strong presence in the value segment of the dental implant market with its high-quality products and growing brand power. Public hospitals may offer cheaper dental implants, but demand for high-quality dental care offered through private clinics should remain intact. Dentium shares are thus seen excessively undervalued at current share price levels.