Image source @ Visual China
Text | The author | Xiong Sheng, Executive Producer | Yoda
In the new year, how to "arm to the teeth"?
As the year draws to a close, dental care has ushered in a wave of traditional outbreaks!
Previously, the prohibitive implants due to their high prices also ushered in good news at the end of the year and the beginning of the year.
On January 10, the National Standing Committee decided to "collect orthopedic consumables, drug balloons, dental implants, etc. that are of concern to the masses at the national and provincial levels."
For Chinese who love food, dental health problems have always been a big problem for Chinese people. According to china's dental service data, the market size of China's oral service market increased from 92.3 billion yuan in 2015 to 162.8 billion yuan in 2020, with a compound growth rate of 12%; it is expected to reach about 526.2 billion yuan by 2030, with a compound annual growth rate of 11.8%.
According to public data, there were 85 investment and financing incidents in China's dental industry in 2021, with more than 30 cases of single financing exceeding 100 million yuan, and the maximum single financing amount reached 200 million US dollars, with a total financing of more than 13 billion yuan.
In 2021, three companies submitted prospectuses on the Hong Kong Stock Exchange, namely Rare Group, Dr. Dentistry (hereinafter referred to as "Dr. Dental") and China Oral Medical Group (hereinafter referred to as "China Stomatological Medical").
The "No.2 Study" found that in the rapid development of the dental track, they each face different problems: Arrail Group focuses on general dentistry and expands to the whole country, although the largest scale, but the profitability is the lowest; Dr. Dentistry is based in East China, the business focuses on orthodontic implantation, although the gross profit is high, but the geographical competition is fierce and the expansion is difficult; China's oral medical treatment is partial to Wenzhou, only Wenzhou Hospital supports its performance, and the other three hospitals are far from the ideal operating state.
In 2022, the much-watched "implant collection" has become unstoppable, and the dental track is also being accelerated by capital. Rare Group, Dr. Dentistry, China Dental Medicine, who will pull the first stock of Hong Kong Dental in 2022?
Just like the usual promotional pictures of dentistry, smiles will show neat teeth; the investigation of Hong Kong stock IPOs will eventually fall on the "teeth".
Perhaps, only if you are really "armed to the teeth" can you laugh to the end.
Performance: Profit expansion VS substantial loss
In the rapidly developing dental track, the performance of Rare Group, Dr. Dentistry and China Dental Medicine shows different trends.
According to the prospectus, as of March 31, the 2019 fiscal year, fiscal year 2020 and fiscal year 2021 achieved revenue of 1.080 billion yuan, 1.100 billion yuan and 1.515 billion yuan, respectively, and fiscal years 2020 and 2021 increased by 1.82% and 37.76% year-on-year, respectively.
However, Dr. Dentistry and China Oral Health have shown the opposite revenue growth trend. From 2018 to 2020, Dr. Dentistry achieved revenue of 632 million yuan, 871 million yuan and 835 million yuan; in the same period, China Oral Medicine achieved revenue of 74 million yuan, 0.83 billion yuan and 0.85 billion yuan. In 2019 and 2020, Dr. Dentistry's revenue increased by 37.88% and -4.16% year-on-year; in the same period, China's oral medical revenue increased by 12.94% and 1.75% year-on-year.
Subsequently, Dr. Dental and China Stomatological Medicine also quickly got rid of the impact of the epidemic in 2021, according to the prospectus, Dr. Dental achieved revenue of 507 million yuan in 2021H1, an increase of 63.64% year-on-year, while China Stomatological Medical achieved revenue of 0.34 billion yuan in the five months ending May 31, 2021, an increase of 47.83%; Rare Group did not disclose the performance after fiscal 2021.
However, unlike the revenue performance, Rare Group's net profit has suffered a significant loss. According to the prospectus, Rare Achieved Net Profit of -304 Million Yuan, -326 Million Yuan and -598 Million Yuan in the 2019-2021 fiscal year, respectively, with a trend of continuous expansion of losses.
Although China's oral health care has not lost money, it has fallen into a whirlpool of increasing revenue and not increasing profits. According to its prospectus, from 2018 to 2020, China's oral medical reached a net profit of 0.23 billion yuan, 0.15 billion yuan and 0.15 billion yuan; in 2019 and 2020, it increased by -31.53% and -5.94% respectively, and the net profit continued to decline. In the five months ended May 31, 2021, it achieved a net profit of 0.08 billion yuan, but it is still unknown whether the annual performance can surpass the previous year.
Dr. D.D. is the only company among the three to achieve a continuous increase in net profit. According to its prospectus, in 2018-2020, Dr. Dental's net profit was -0.09 billion yuan, 0.16 billion yuan, 0.28 billion yuan, and in the first half of 2021, it achieved a net profit of 0.59 billion yuan, and after turning around in 2019, the net profit accelerated.
From the perspective of performance, Rare Group's revenue volume is large, and the revenue growth is rapid, but it is also suffering huge losses; while Dr. Dentist's post-epidemic repair ability is remarkable, and the net profit is also growing; China's oral medical revenue is the smallest, although there is a repair after the epidemic, but it is caught in the vortex of increasing revenue and not increasing profits.
According to the "No Two Study", the significant difference between the performance trends of the three is their business focus and the deviation of their expansion models.
Business: General Dentistry vs Orthodontic Implants
The main business of the dental hospital has three parts: general dentistry, implantation, and orthodontics.
According to the prospectus of Dr. Dentistry, the gross profit margins of general dentistry, implantology and orthodontics in 2020 were 48.4%, 61.5% and 54.3% respectively.
Gross margins in the Orthodontics and Implantology sections were significantly higher than those of general dentistry. Therefore, different business priorities will be one of the main factors determining the gross profit margin of each company.
China Stomatology and Rare Group are more focused on general dentistry, while Dr. Dentistry is more focused on orthodontics and implants.
According to the prospectuses, as of the 2019-2021 fiscal year ended March 31, The revenue of Rare Group's general dental business accounted for 55.9%, 54.0% and 54.7% respectively; from 2018 to 2020, the revenue of General Dental of China Stomatological Medical accounted for 56.1%, 56.8% and 58.8% respectively; In the same period, the proportion of general dental revenue of Dr. Dentistry was 34.1%, 33.5% and 32.5%, respectively. Dr. Dentistry's share of revenue in general dentistry is significantly lower than that of Rare Group and China Dental Healthcare.
Dr. Dentistry has a greater focus on orthodontics and implants. According to the prospectuses, from 2018 to 2020, the revenue of Dr. Dental Orthodontic Implant Business accounted for 65.9%, 66.5% and 67.5% respectively; in the same period, the revenue of China's Oral Medical Orthodontic Implant Business accounted for 36.9%, 36.6% and 29.2% respectively; in the 2019-2021 fiscal year, the income of Arrail Group's orthodontic implant business accounted for 42.0%, 43.8% and 42.4%, respectively.
Different business focuses have affected the gross profit margins of Rare Group, Dr. Dentistry and China Dental Healthcare to a certain extent. According to the prospectus, the gross profit margin of Rare Group in the fiscal years 2019-2021 was 15.2%, 10.1% and 24.1%; from 2018 to 2020, the gross profit margin of Dr. Dentistry was 52.7%, 53.8% and 55.5%; in the same period, the gross profit margin of China Stomatological Medical was 56.2%, 54.4% and 59.9%.
Dr. Dental's gross profit margin, which focuses on orthodontic implants, is significantly at a high level. However, the "No.2 Study" found that the gross profit margin of Chinese stomatologists focusing on general dentistry is also at a high level, indicating that the business focus is not the only factor in the profitability of dental hospitals, but also another important factor, that is, the scale and expansion model.
Scale: A corner of the security vs the national expansion
From the perspective of scale, Aryl Group, Dr. Dentistry, and China Stomatology can be divided into national, regional, and municipal levels, and different scales and expansion models have brought them different problems.
First look at Rare Group, according to the prospectus, Rare Group adopts the dual brand strategy of Rare Dental and Rite-Hite Dental, intending to spread the territory throughout the first and second-tier cities across the country, as of March 31, 2021, Rare Group has set up 107 clinics in 15 cities.
The first problem with the nationwide expansion model is that new stores are difficult to penetrate quickly and average incomes are too low. According to Rare's prospectus, the average annual revenue of a single clinic in the expansion phase is 8.944 million, which is less than 50% of the clinics in the mature stage.
The second key problem is that employee costs remain high under the highly dependent model of dentists. According to its prospectus, in the 2019-2021 fiscal year, the sales cost of Rare Group was 917 million yuan, 988 million yuan and 1.151 billion yuan respectively, accounting for 84.8%, 89.9% and 75.9% of revenue, respectively. Among them, employee costs accounted for 61.8%, 62.3% and 62.3% of the cost of sales in the same period.
These two key issues, combined with Rare Healthcare's business model of focusing on general dentistry, have led directly to Rare Healthcare's low gross margins.
Looking at Dr. Dentistry, according to the prospectus, Dr. Dentistry is mainly laid out in East China, and as of June 30, 2021, Dr. Dentistry operates 31 dental service agencies in East China, including 19 in Suzhou.
Dr. Dentist, who is the base of expansion in East China, mainly in Jiangsu and Zhejiang, is facing the biggest problem of competitors, and more than 90% of the income of Tongce Medical, one of the leading dental enterprises, also comes from Jiangsu and Zhejiang regions. In the face of pressure from competitors, Dr. Dental has invested heavily in advertising, and the sales expense ratio has exceeded 25% since 2018, which is already among the highest levels in the industry.
Finally, looking at China's oral medicine, according to the prospectus, China's oral medicine is rooted in Wenzhou City, and there are only 4 dental hospitals in Wenzhou City.
The problem with China's oral health care is that the other three except Wenzhou Hospital were newly founded after 2016 for "business expansion needs", and none of them have recovered their investment at present, and the overall revenue situation has not reached the ideal level.
According to the "No. 2 Study", the operational capacity of China's oral health care is obviously insufficient, and if it expands outward, it may be difficult to achieve profitability.
In the view of "No Two Research", the different scales and expansion models of Aryl Group, Dr. Dentistry and China Stomatology have brought different problems to them. On the road to development, each has its own difficulties, and the three companies want to win the increasingly fierce competition on the dental track, and the successful listing is just the beginning.
Who can get the top spot?
According to huajing consulting statistics, in recent years, the development trend of private stomatological hospitals in the mainland has been relatively rapid, and by 2020, the number of private stomatological hospitals in China has risen to 780, an increase of 7.88% year-on-year.
The competition among private stomatological hospitals has entered a white-hot situation, and the competition for capital has also been accelerating.
Rare Group is eager to go public, but the listing application materials of the Hong Kong Stock Exchange have become invalid, and the first sprint to the Listing of the Hong Kong Stock Exchange has declared a "folding sword". The VAM agreement with the investor to be listed before December 31, 2021 has failed, and may face the risk of redemption of preferred shares in the future.
China Dental Medical has submitted a prospectus four times and has not yet successfully passed the hearing; Dr. Dentist is the first time to submit a prospectus, and there is no result yet.
Despite the obstacles to listing, Rare Group, Dr. Dentistry, and China Dental Medical will not give up, and the success of the listing means the arrival of new funds, and more funds can help them continue to expand, laughing to the end on the highly competitive private stomatological hospital track.
Some references in this article:
1. "Dr. Dentist Impact IPO: Dental Business Is Really Good", financial internal reference
2. "China Oral Medical Group That Can't Go Out of Wenzhou", Health Bureau
3. "Rare Group's Prospectus in Hong Kong Fails: The First Sprint to List, Delayed Betting and "Default""", Bedo Finance
4. "Rare Group Sprints hong Kong Stock IPO: VAM Agreement 'Limit Is Coming' Preferred Stock Factors Causes Company to Be Insolvent on Its Books", China Net Finance