Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<h2>Investment Thesis in Modern Dental</h2>
<ol>
<li>We believe that <a href="https://www.smartkarma.com/entities/modern-dental-group-ltd" target="_blank" data-smartkarma-citation="entities:21020:1" rel="noopener">Modern Dental Group (3600 HK)</a>  has been a beneficiary of Covid as it has gained market share in the last 3 quarters globally in the dental prosthetics market. Q1 2021 showed 15-20% YoY revenue growth. Management guides revenue growth of not less than 10% for FY21 (vs. normalized high single-digit revenue growth from FY17-19) which we believe is conservative.</li>
<li>The company has emerged leaner from Covid 19 as they completed a massive restructuring in 2020, resulting in EBITDA margin expansion to 25%  (from the 15-16% levels historically) in Q4 2020. We believe the company will maintain a 53%  gross profit margin and 25% EBITDA margin, and 16.5% Net profit margin through 2021, resulting in 410 mn HKD net profit for FY21. Based on this estimate, the stock trades on 9.2x PE FY21 despite the stellar run in share price in Q1 2021.</li>
<li>With improving cash flows due to low Capex requirements (~90 mn HKD in FY21e and FY22e), we see <a href="https://www.smartkarma.com/entities/modern-dental-group-ltd" target="_blank" data-smartkarma-citation="entities:21020:1" rel="noopener">Modern Dental Group (3600 HK)</a> generate a free cash flow of 330 mn HKD in FY21e and 400+mn HKD in FY22e. At the very minimum, if the company adheres to its stated 30% dividend payout ratio, it will be net cash 52 mn HKD in FY21 and 338 mn HKD in FY22 ( almost 9% of the current market capitalization) from a net debt position of 158 mn HKD in FY20. </li>
<li>The company will use the excess cash on its balance sheet to raise the dividend payout ratio beyond 30%.  We also think management will continue to buy back stock subject to management stake not increasing by more than 5% every year.  The company has actively repurchased stock in 2020 and 2021. </li>
</ol>
<p>Trading at an undemanding valuation of 9.2x/8.7x PE FY21/22, we think there is an opportunity for at least 50% upside as peers in the similar industry of dental supply trade in the 20-25x range.  With a 30% payout ratio, there is also a decent dividend yield of 3.5% on the stock.</p>

Investment Thesis in Modern Dental

We believe that Modern Dental Group (3600 HK)  has been a beneficiary of Covid as it has gained market share in the last 3 quarters globally in the dental prosthetics market. Q1 2021 showed 15-20% YoY revenue growth. Management guides revenue growth of not less than 10% for FY21 (vs. normalized high single-digit revenue growth from FY17-19) which we believe is conservative.
The company has emerged leaner from Covid 19 as they completed a massive restructuring in 2020, resulting in EBITDA margin expansion to 25%  (from the 15-16% levels historically) in Q4 2020. We believe the company will maintain a 53%  gross profit margin and 25% EBITDA margin, and 16.5% Net profit margin through 2021, resulting in 410 mn HKD net profit for FY21. Based on this estimate, the stock trades on 9.2x PE FY21 despite the stellar run in share price in Q1 2021.
With improving cash flows due to low Capex requirements (~90 mn HKD in FY21e and FY22e), we see Modern Dental Group (3600 HK) generate a free cash flow of 330 mn HKD in FY21e and 400+mn HKD in FY22e. At the very minimum, if the company adheres to its stated 30% dividend payout ratio, it will be net cash 52 mn HKD in FY21 and 338 mn HKD in FY22 ( almost 9% of the current market capitalization) from a net debt position of 158 mn HKD in FY20. 
The company will use the excess cash on its balance sheet to raise the dividend payout ratio beyond 30%.  We also think management will continue to buy back stock subject to management stake not increasing by more than 5% every year.  The company has actively repurchased stock in 2020 and 2021. 

Trading at an undemanding valuation of 9.2x/8.7x PE FY21/22, we think there is an opportunity for at least 50% upside as peers in the similar industry of dental supply trade in the 20-25x range.  With a 30% payout ratio, there is also a decent dividend yield of 3.5% on the stock.

Modern Dental: A Turnaround Story with Tremendous Upside

Global Healthcare Analyst

Tina Banerjee

<ul>
<li>
<a href="https://www.smartkarma.com/entities/modern-dental-group-ltd" target="_blank" data-smartkarma-citation="entities:21020:1" rel="noopener">Modern Dental Group (3600 HK)</a> reported strong 1H23 performance, with 12% YoY revenue growth to HK$1.6B, driven by increase in demand for its products from existing, returning, and new customers.</li>
<li>With increasing economies of scale resulting from China re-opening and global dental industry recovery and increase in the proportion of digital solution cases, net profit jumped 109% YoY to HK$210M.</li>
<li>Despite macroeconomic headwinds, the company is confident that the medium and long-term global demand for dental prosthetics is expected to continue due to key irreversible demographic factors and trends.</li>
</ul>



Modern Dental Group (3600 HK) reported strong 1H23 performance, with 12% YoY revenue growth to HK$1.6B, driven by increase in demand for its products from existing, returning, and new customers.
With increasing economies of scale resulting from China re-opening and global dental industry recovery and increase in the proportion of digital solution cases, net profit jumped 109% YoY to HK$210M.
Despite macroeconomic headwinds, the company is confident that the medium and long-term global demand for dental prosthetics is expected to continue due to key irreversible demographic factors and trends.


Modern Dental Group (3600 HK): Stellar 1H23 Result- Volume Drives Revenue Growth; Net Profit Doubled

Thematic (Sector/Industry)

<ul>
<li>Despite ongoing recovery and fading effect of the COVID-19, 2023 was not a smooth sailing for the healthcare companies. All the countries and sub-sectors did not perform equally.</li>
<li>As we are heading into 2024, let us look back on the performance of some of our global healthcare stocks recommended throughout 2023.</li>
<li>
<a href="https://www.smartkarma.com/entities/lianbio" target="_blank" data-smartkarma-citation="entities:34478:1" rel="noopener">LianBio (LIAN US)</a> remained the best performer with 93% return in nearly eight months. <a href="https://www.smartkarma.com/entities/global-health-medanta" target="_blank" data-smartkarma-citation="entities:34649:1" rel="noopener">Global Health (Medanta) (MEDANTA IN)</a>, top pick for March 2023, generated 79% return in nine months.     </li>
</ul>


Despite ongoing recovery and fading effect of the COVID-19, 2023 was not a smooth sailing for the healthcare companies. All the countries and sub-sectors did not perform equally.
As we are heading into 2024, let us look back on the performance of some of our global healthcare stocks recommended throughout 2023.

LianBio (LIAN US) remained the best performer with 93% return in nearly eight months. Global Health (Medanta) (MEDANTA IN), top pick for March 2023, generated 79% return in nine months.     


2023 in Rear Mirror View: Top Performers From My Global Healthcare Coverage Universe

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Malo Medical Management / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/malo-medical-management" target="_blank" data-smartkarma-citation="entities:40035:1" rel="noopener">Malo Medical Management (MMM HK)</a> (MMM) is looking to raise around US$100m (estimated) in its upcoming Hong Kong IPO. The deal will be run by Haitong.</li>
<li>MMM is a dental service provider in China. It ranked ninth among all private dental service providers and second among all premium dental service providers, as per F&amp;S.</li>
<li>MMM provides dental services to patients through a widespread network of Malo Clinic-branded specialty dental clinics. As of Apr 2023, it owned 29 dental clinics in 13 cities in China.</li>
</ul>



Malo Medical Management (MMM HK) (MMM) is looking to raise around US$100m (estimated) in its upcoming Hong Kong IPO. The deal will be run by Haitong.
MMM is a dental service provider in China. It ranked ninth among all private dental service providers and second among all premium dental service providers, as per F&amp;S.
MMM provides dental services to patients through a widespread network of Malo Clinic-branded specialty dental clinics. As of Apr 2023, it owned 29 dental clinics in 13 cities in China.


Malo Medical Management Pre-IPO Tearsheet

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

<ul>
<li>
<a href="https://www.smartkarma.com/entities/modern-dental-group-ltd" target="_blank" data-smartkarma-citation="entities:21020:1" rel="noopener">Modern Dental Group</a> (MDG) disclosed selected unaudited operational data for 22Q1-Q3. The negative trend on performance would continue to 22Q4. The overall 2022 performance of MDG would show a negative growth.</li>
<li>We may face a situation where both domestic and external demand would weaken in 2023. MDG’s overseas revenue is expected to see a bigger YoY decline than domestic revenue.</li>
<li>There would be strong expectations but weak realities in 2023Q1-Q2, during which MDG's share price could rally in short term, but it’s not based on the improvement of its fundamentals.</li>
</ul>



Modern Dental Group (MDG) disclosed selected unaudited operational data for 22Q1-Q3. The negative trend on performance would continue to 22Q4. The overall 2022 performance of MDG would show a negative growth.
We may face a situation where both domestic and external demand would weaken in 2023. MDG’s overseas revenue is expected to see a bigger YoY decline than domestic revenue.
There would be strong expectations but weak realities in 2023Q1-Q2, during which MDG's share price could rally in short term, but it’s not based on the improvement of its fundamentals.


Modern Dental Group (3600.HK)- 2023 Harsh Reality Is Hard to Avoid, but Short-Term Rally Is Possible

China

Modern Dental Group Ltd is a dental prosthetic device provider. The Company supplies fixed prosthetic devices, removable prosthetic devices, and others. Modern Dental serves customers worldwide.

Modern Dental Group (3600 HK)

Modern Dental: A Turnaround Story with Tremendous Upside

Modern Dental is an exciting investment opportunity. The dental prosthetic provider trades at a 9.2x PE multiple, 9% FCF yield with a 3.3% dividend...

Sameer Taneja