3Q22 Outlook Bright with Shanghai Operations to Return to Normal
The authors are analysts of Shinhan Investment Corp. They can be reached at jhwon@shinhan.com and shawn1225@shinhan.com, respectively. -- Ed.
2Q22 preview: Earnings likely better than feared
We now expect Dentium to post consolidated sales of KRW87.4bn (+20.6% YoY) and operating profit of KRW23.1bn (+37.0% YoY, operating margin of 26.5%) for 2Q22. Despite negative impact of COVID-19 lockdowns on Shanghai operations, China sales likely rose QoQ to KRW42.3bn on solid sales in other regions including Guangzhou. Russia sales should come in at KRW10.4bn, up 52% YoY with exports to the country resumed from April and sales to be booked on shipments delayed due to transportation issues in 1Q.
Operating margin is estimated at 26.5% (+3.2%p YoY) for 2Q22. Marketing spend likely rose from participation in exhibitions (Seoul International Dental Exhibition & Scientific Congress, Honam Dental Congress & Exhibition, etc.) and seminars that resumed offline events from this year. However, we believe operating margin continued steadily upwards on a QoQ basis thanks to the increase in high-ASP sales to Russia and operating leverage effect from top-line growth.
3Q22 outlook bright with Shanghai operations to return to normal
China operations should return to normal in 3Q22 on the easing of lockdowns in Shanghai. The city announced plans for a gradual reopening of businesses including department stores, drug stores and restaurants from mid-May. With the number of daily new confirmed COVID-19 cases in Shanghai down to four as of June 21, we expect reopening efforts to gather pace going forward. Strong demand for value segment dental implants and equipment from the increasing number of newly-opening clinics in China should drive steep growth in exports once normal operations resume in 3Q22.
Target price raised to KRW100,000 on solid earnings outlook
We raise our target price to KRW100,000, with earnings forecasts revised up on expectations for a gradual easing of geopolitical risks in China and Russia from 2H22. With shares currently trading at a 12-month forward PER of 10x, Dentium remains undervalued vs. global peers despite forecasts for explosive growth in demand driven by dental implant specialist shortages and low penetration rates. We find Dentium further attractive with growing fears over inflation and recession to help shift focus to the price competitiveness of the company's value segment dental implants and equipment.