Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

China’s largest domestic dental brace manufacturer, <a href="https://www.smartkarma.com/entities/angelalign-technology-inc" target="_blank" data-smartkarma-citation="entities:31480:1" rel="noopener">Angelalign Technology (6699 HK)</a>  shares surged to HKD 490 within one month from their issue price of HKD 173 (debuted in HKEX in June). Since then, shares are facing tough time and corrected more than 30%. In-line H1 results, lack of any near-term catalyst, and stagnant market share are looming on the share price. Shares are trading at a P/E of 76x 2023E EPS, which is higher than its nearest competitor Align Technology’s 36x. Although clear aligner market in China is huge and underpenetrated, we believe players have no pricing power as products offered have little or no differentiation and competition is rising. We expect Angelalign’s EPS will have a CAGR of 30% during 2020–2023, slower than 58% CAGR reported during 2018–2020, dragged by margin contraction due to faster growth in Lower ASP product line (Comfos) at the cost of higher ASP product line (Angelalign Pro) and introduction of lower margin scanner business. This does not justify the superior valuation. Angelalign needs to penetrate deeper in lower tiered cities and pursue its outside China initiatives to justify its premium valuation.

China’s largest domestic dental brace manufacturer, Angelalign Technology (6699 HK)  shares surged to HKD 490 within one month from their issue price of HKD 173 (debuted in HKEX in June). Since then, shares are facing tough time and corrected more than 30%. In-line H1 results, lack of any near-term catalyst, and stagnant market share are looming on the share price. Shares are trading at a P/E of 76x 2023E EPS, which is higher than its nearest competitor Align Technology’s 36x. Although clear aligner market in China is huge and underpenetrated, we believe players have no pricing power as products offered have little or no differentiation and competition is rising. We expect Angelalign’s EPS will have a CAGR of 30% during 2020–2023, slower than 58% CAGR reported during 2018–2020, dragged by margin contraction due to faster growth in Lower ASP product line (Comfos) at the cost of higher ASP product line (Angelalign Pro) and introduction of lower margin scanner business. This does not justify the superior valuation. Angelalign needs to penetrate deeper in lower tiered cities and pursue its outside China initiatives to justify its premium valuation.

Angelalign Technology (6699 HK): Pricey Valuation Is Clouding the Upside Potential

Shares of <a href="https://www.smartkarma.com/entities/intuitive-surgical-inc" target="_blank" data-smartkarma-citation="entities:15853:1" rel="noopener">Intuitive Surgical (ISRG US)</a> corrected ~10% from its 52-week high price of $362 achieved in early September. We believe the correction reflects investors’ fear on the pace of recovery of the elective surgeries globally, especially in the U.S. Amidst this backdrop, the company’s Q3 results announcement on October 19 will be a closely watched event. During their Q2 results announcement, management raised 2021 procedure growth (a key performance parameter) guidance to 27–30% y/y from 22–26% y/y announced during Q1 results announcement. So, outlook on procedure growth guidance for the remainder of the year and early trend into Q4 will the major catalysts for the shares.  Shares of Intuitive Surgical have historically been trading at a high multiple, at par with other high growth ideas such as <a href="https://www.smartkarma.com/entities/abiomed-inc" target="_blank" data-smartkarma-citation="entities:7767:1" rel="noopener">Abiomed Inc (ABMD US)</a>, <a href="https://www.smartkarma.com/entities/align-technology-inc" target="_blank" data-smartkarma-citation="entities:2817:1" rel="noopener">Align Technology (ALGN US)</a>, <a href="https://www.smartkarma.com/entities/idexx-laboratories-inc" target="_blank" data-smartkarma-citation="entities:14856:1" rel="noopener">IDEXX Laboratories (IDXX US)</a>, and <a href="https://www.smartkarma.com/entities/illumina-inc" target="_blank" data-smartkarma-citation="entities:8015:1" rel="noopener">Illumina Inc (ILMN US)</a>. Intuitive’s large market opportunity, especially in the international market, less than 10% penetration of its TAM, near monopolistic market positioning, and high switching cost justify its premium valuation. However, the valuation is always questioned amidst the upcoming competition. As Intuitive’s patent expired, big players including <a href="https://www.smartkarma.com/entities/medtronic-plc" target="_blank" data-smartkarma-citation="entities:14982:1" rel="noopener">Medtronic Plc (MDT US)</a> and <a href="https://www.smartkarma.com/entities/johnson-johnson" target="_blank" data-smartkarma-citation="entities:1132:1" rel="noopener">Johnson &amp; Johnson (JNJ US)</a> are vying to take some share through acquisitions of surgical robot start-up entities. This insight analyzes multiple upcoming competition in the soft tissue surgical robotic market and how Intuitive Surgical is expected to maintain its global leadership amid the competition.

Shares of Intuitive Surgical (ISRG US) corrected ~10% from its 52-week high price of $362 achieved in early September. We believe the correction reflects investors’ fear on the pace of recovery of the elective surgeries globally, especially in the U.S. Amidst this backdrop, the company’s Q3 results announcement on October 19 will be a closely watched event. During their Q2 results announcement, management raised 2021 procedure growth (a key performance parameter) guidance to 27–30% y/y from 22–26% y/y announced during Q1 results announcement. So, outlook on procedure growth guidance for the remainder of the year and early trend into Q4 will the major catalysts for the shares.  Shares of Intuitive Surgical have historically been trading at a high multiple, at par with other high growth ideas such as Abiomed Inc (ABMD US), Align Technology (ALGN US), IDEXX Laboratories (IDXX US), and Illumina Inc (ILMN US). Intuitive’s large market opportunity, especially in the international market, less than 10% penetration of its TAM, near monopolistic market positioning, and high switching cost justify its premium valuation. However, the valuation is always questioned amidst the upcoming competition. As Intuitive’s patent expired, big players including Medtronic Plc (MDT US) and Johnson &amp; Johnson (JNJ US) are vying to take some share through acquisitions of surgical robot start-up entities. This insight analyzes multiple upcoming competition in the soft tissue surgical robotic market and how Intuitive Surgical is expected to maintain its global leadership amid the competition.

Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition

Asia Pac ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

Equity Capital Markets

Angelalign Technology / Equity Capital Markets

Angelalign raised HKD 2,722 million (USD 351m) from its global offering and will list on the Hong Kong Stock Exchange on Wednesday, June 16th.
In our previous note, we discussed that the company provides the dentists its proprietary digital system that assists in planning the customized treatment for malocclusion patients and sells the clear aligners.  We think the overall story is interesting, with an under penetrated market, a foreign player side-by-side, strong growth and solid financials. While it sells medical devices, it has a consumer element in the products that is similar to aesthetic products. The company also has a long track record for more than 10 years in the market. We had also compared the company with its close peer and provided our preliminary thoughts on valuation. We also looked at the latest disclosure from the post-hearing prospectus which suggests a strong ending of 2020 with both top line growth and margin expansion.
In this note, we look at the updates since our last note. We noted that the allocation for institutional investors is highly concentrated despite the lack of cornerstone tranche. We expect a very strong debut performance.

Angelalign raised HKD 2,722 million (USD 351m) from its global offering and will list on the Hong Kong Stock Exchange on Wednesday, June 16th.
In our previous note, we discussed that the company provides the dentists its proprietary digital system that assists in planning the customized treatment for malocclusion patients and sells the clear aligners.  We think the overall story is interesting, with an under penetrated market, a foreign player side-by-side, strong growth and solid financials. While it sells medical devices, it has a consumer element in the products that is similar to aesthetic products. The company also has a long track record for more than 10 years in the market. We had also compared the company with its close peer and provided our preliminary thoughts on valuation. We also looked at the latest disclosure from the post-hearing prospectus which suggests a strong ending of 2020 with both top line growth and margin expansion.
In this note, we look at the updates since our last note. We noted that the allocation for institutional investors is highly concentrated despite the lack of cornerstone tranche. We expect a very strong debut performance. 

Angelalign (时代天使) IPO Trading: Concentrated Allocation Despite No Cornerstone

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<a href="https://www.smartkarma.com/entities/angelalign-technology-inc" target="_blank" data-smartkarma-citation="entities:31480:1" rel="noopener">Angelalign Technology (6699 HK)</a> , one of the leading clear alignment treatment solution providers in China has set the terms for its IPO. The company plans to issue approx. 16.8m shares (10% of the outstanding shares post-IPO) at an indicative price range of HK$147-173 per share. At the midpoint of the above price range of HK$160 per share, Angelalign will raise net proceeds of HK$2.5bn (US$324m) at a market capitalisation of HK$26.5bn and a post-money valuation of HK$22.9bn.<table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 225.0pt;">Angelalign Technology IPO Details</td></tr>
<tr>
<td style="width: 162.3pt;">No. of Shares Issued</td>
<td style="width: 62.7pt;">   16,829,600</td>
</tr>
<tr>
<td style="width: 162.3pt;">IPO Price per Share (HK$)</td>
<td style="width: 62.7pt;">147-173</td>
</tr>
<tr>
<td style="width: 162.3pt;">Offer as a % of Outstanding Shares</td>
<td style="width: 62.7pt;">10.2%</td>
</tr>
<tr>
<td style="width: 162.3pt;">Total Shares Outstanding (m)</td>
<td style="width: 62.7pt;">165.81</td>
</tr>
<tr>
<td style="width: 162.3pt;">Net Proceeds (HK$m)</td>
<td style="width: 62.7pt;">          2,513.0</td>
</tr>
<tr>
<td style="width: 162.3pt;">Market Capitalisation (HK$m)</td>
<td style="width: 62.7pt;">        26,529.1</td>
</tr>
<tr>
<td style="width: 162.3pt;">Enterprise Value (HK$m)</td>
<td style="width: 62.7pt;">        22,945.5</td>
</tr>
</tbody></table>Source: Company disclosures, LSR (net proceeds, market cap and EV are at the midpoint of the IPO price range)The company plans to use approx. 40% of the net proceeds from the IPO on funding the construction of new manufacturing facilities and R&amp;D center and plans to utilise another 18.3% of the net IPO proceeds on further strengthening its R&amp;D capabilities.

Angelalign Technology (6699 HK) , one of the leading clear alignment treatment solution providers in China has set the terms for its IPO. The company plans to issue approx. 16.8m shares (10% of the outstanding shares post-IPO) at an indicative price range of HK$147-173 per share. At the midpoint of the above price range of HK$160 per share, Angelalign will raise net proceeds of HK$2.5bn (US$324m) at a market capitalisation of HK$26.5bn and a post-money valuation of HK$22.9bn.
Angelalign Technology IPO Details

No. of Shares Issued
   16,829,600


IPO Price per Share (HK$)
147-173


Offer as a % of Outstanding Shares
10.2%


Total Shares Outstanding (m)
165.81


Net Proceeds (HK$m)
          2,513.0


Market Capitalisation (HK$m)
        26,529.1


Enterprise Value (HK$m)
        22,945.5

Source: Company disclosures, LSR (net proceeds, market cap and EV are at the midpoint of the IPO price range)The company plans to use approx. 40% of the net proceeds from the IPO on funding the construction of new manufacturing facilities and R&amp;D center and plans to utilise another 18.3% of the net IPO proceeds on further strengthening its R&amp;D capabilities.

Angelalign IPO Valuation: Limited Upside from the Top End

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/angelalign-technology-inc" target="_blank" data-smartkarma-citation="entities:31480:1" rel="noopener">Angelalign Technology (AAT HK)</a> is a leading clear aligner treatment solution provider in China. It is the second-largest player accounting for 41.0% market share in 2020 as measured by case shipments, according to CIC. At the proposed IPO price range of HK$147-173 per share, Angelalign will have a market cap of HK$24.4-28.7 million ($3.1-3.7 billion). At the mid-point of the IPO price range, the gross proceeds are $347 million.In <a href="https://www.smartkarma.com/insights/angelalign-ipo-initiation-if-tooth-be-told" target="_blank" data-smartkarma-citation="insights:51881" rel="noopener">Angelalign IPO Initiation: If Tooth Be Told</a>, we stated that Angelalign is ideally positioned to benefit from China's clear aligner market opportunity due to its high market share, strong growth, rising margins and prodigious cash generation. We concluded that Angelalign is worth a look.<div class="content-highlight">On a relative valuation basis, Angelalign looks attractive to its peers on a PEG basis but expensive on a P/E basis. Our base-case DCF value is HK$171.83 per share which is a 7% upside to the mid-point of the IPO price range. Due to the limited upside to our DCF valuation, we think that the IPO price range is full. Overall, while we like Angelalign's fundamentals, due to the full IPO price range and the current weak market sentiment on IPOs, we are inclined to wait on the sidelines for a more attractive entry point.   </div>

Angelalign Technology (AAT HK) is a leading clear aligner treatment solution provider in China. It is the second-largest player accounting for 41.0% market share in 2020 as measured by case shipments, according to CIC. At the proposed IPO price range of HK$147-173 per share, Angelalign will have a market cap of HK$24.4-28.7 million ($3.1-3.7 billion). At the mid-point of the IPO price range, the gross proceeds are $347 million.In Angelalign IPO Initiation: If Tooth Be Told, we stated that Angelalign is ideally positioned to benefit from China's clear aligner market opportunity due to its high market share, strong growth, rising margins and prodigious cash generation. We concluded that Angelalign is worth a look.On a relative valuation basis, Angelalign looks attractive to its peers on a PEG basis but expensive on a P/E basis. Our base-case DCF value is HK$171.83 per share which is a 7% upside to the mid-point of the IPO price range. Due to the limited upside to our DCF valuation, we think that the IPO price range is full. Overall, while we like Angelalign's fundamentals, due to the full IPO price range and the current weak market sentiment on IPOs, we are inclined to wait on the sidelines for a more attractive entry point.   

United States

Align Technology, Inc. designs, manufactures, and markets the Invisalign System, a method for treating the misalignment of teeth.  The Company's system corrects the misalignment using a series of clear, removable appliances that move teeth to a desired final position.

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Align Technology (ALGN US)

Angelalign Technology (6699 HK): Pricey Valuation Is Clouding the Upside Potential

Angelalign Technology shares are trading at a premium valuation, which is limiting its upside potential. EPS growth is expected to decelerate...

Tina Banerjee

Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition

By leveraging on first-mover advantage and huge installed base, Intuitive Surgical is expected to maintain global leadership in robotic surgery...

Tina Banerjee

Angelalign (时代天使) IPO Trading: Concentrated Allocation Despite No Cornerstone

We look at the deal pricing, valuation and allocation. We note that the allocation for institutional tranche is highly concentrated. With a strong...

Ke Yan, CFA, FRM

Angelalign IPO Valuation: Limited Upside from the Top End

We believe implied valuation multiples at the lower end of the IPO price range seems more attractive compared to peers while we think there is very...

Shifara Samsudeen, FCMA, CGMA

Angelalign IPO: Valuation Insights

While we like Angelalign's fundamentals, due to the full IPO price range and the current weak market sentiment on IPOs, we are inclined to wait on...

Arun George

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