Total Dental Solutions Business to Take off from 2H22
The author is an analyst of Shinhan Investment Corp. He can be reached at mingu.jeong@shinhan.com. -- Ed.
Earnings to rebound from 4Q21 bottom
Ray reported an operating loss of KRW6.4bn (negative swing YoY) on sales of KRW26.6bn (+26.9% YoY) for 4Q21. The company saw overall top-line growth from the launch of its new dental supplies business in the domestic market and even growth in exports to major overseas markets including the US, Europe, and Japan. China sales, however, dropped 37.6% YoY to KRW5.1bn as tighter COVID-19 restrictions were implemented in the country. Big bath accounting, with a one-off inventory loss of KRW12bn booked on discontinuation of the personal protective equipment business, caused operating earnings to turn to a loss in 4Q21. Factoring out the one-off, we estimate actual operating profit at KRW5.6bn (+21.7% YoY) for the quarter.
Total dental solutions business to take off in earnest from 2H22
For 2022, we forecast sales at KRW124.3bn (+26.9% YoY) and operating profit at KRW22.8bn (positive swing YoY). This year should mark the start of visible top-line growth for Ray as it evolves into a one-stop dental solutions provider. The company plans to: 1) release its new oral scanner, a key device for digital dental solutions, in 1H22; and 2) launch its clear aligner and dental implant businesses in earnest in 2H22. Sales contribution should start from 1H22 and 2H22, respectively. Our earnings forecasts for 2022 have yet to reflect expected sales from dental service organization (DSO), dental implant and clear aligner operations, with upward revision of projections to hinge on the timing of the upcoming JV launch and capacity expansion.
Retain BUY for a revised-down target price of KRW28,300
We retain BUY on Ray, while lowering our target price to KRW28,300 based on 2022F EPS and a target PER of 23.9x. With a complete lineup from digital dental equipment to key materials in place, the company is now taking steps for expansion into a comprehensive dental solution provider through establishment of a JV with China International Capital Corporate (CICC) in 2022. Given the big bath in 4Q21 and upcoming launch of the Chinese JV in 1H22, we believe Ray’s enterprise value will rebound from the current trough.