Bottoming out, Angelalign (06699), the leader of invisible appliances, has rebounded by 15% in the past two weeks and nearly 40% in the past three months.
Zhitong Financial APP learned that Angelalign is a leading provider of invisible orthodontic solutions in China, listed on the Hong Kong Stock Exchange in June 2021, but it was not welcomed by capital, and two months after listing, the stock price started to plummet, and it took 27 months to fall from a high of HK$488.1 to HK$43.7, and the market value shrank by more than 90%. However, its stock price has continued to rebound recently, attracting the attention of investment banks and the market.
In fact, since the second half of 2023, the company has seen a positive signal of "entering the market", announcing in early July that it has been approved to repurchase up to 10% of the total number of issued shares at the annual general meeting, and intends to use up to HK$100 million to repurchase the shares. Since then, the company's controlling shareholders have increased their holdings, some shareholders such as Xiaomo have increased their holdings many times, and the repurchase plan has been steadily implemented in July and August, and the stock price has begun to stabilize in October.
Born to die, has the market value of Angelalign ushered in a historical turning point?
Growth has slowed and earnings have continued to decline
Angelalign has a 20-year business history in the field of invisible orthodontic treatment, with a deep roots in the domestic brand, with a market share of more than 40% from 2021 to 2022, maintaining the first place in the industry, and in October 2022, it announced the acquisition of 51% of the shares of Aditek, a Brazilian orthodontic product manufacturer, and officially laid out the overseas market. The company's core revenue still mainly comes from China, but the overseas market is gradually increasing, and the overseas strategy is gradually showing results.
The company's core business is invisible orthodontic solutions, mainly providing champion version, classic version, children's version and COMFOS in China to meet the differentiated needs of the market, thanks to the drive of this business, revenue from 2018 to 2021 maintained a double-digit compound growth, but since 2022 has slowed down. In the first half of 2023, the revenue of this business increased by only 1.2%, but the sales of products (including Aditek's performance, which performed well overseas) increased by 220.6%, driving the revenue growth of 7.9%, and the revenue share of the above business is 89.9% and 8.8%, respectively, and the share is expected to be stable for the whole year.
In the first half of 2023, the company's invisible orthodontic treatment cases increased from about 95,400 cases, a year-on-year increase of 23.6%, of which the international business contributed about 9,400 cases, accounting for about 9.85%. However, in addition to the Brazilian market, it has further built and expanded local business teams with rich experience in the orthodontic market in the United States, Europe and Australia, and has gradually won the recognition of the company's products and brands by many orthodontic key opinion leaders (KOLs).
As far as products are concerned, Angelalign's four products are positioned in China to implement a differentiation strategy. For example, the classic version is positioned as the core product of standard treatment, focusing on a variety of malocclusion deformities at a moderate price, the champion version is positioned in the high-end market, based on masterMulti multi-modal orthodontic technology, the new "7+3" application film type is launched, the children's version covers children aged 6 to 12 years old, and COMFOS is aimed at young people and focuses on high cost performance. It can be seen that each of the company's products has a target group and pricing, covering a wide range of ages, and opening up the domestic market space in an all-round way.
In addition, the company continues to increase R&D investment, on the one hand, to increase the output of self-research results, on the other hand, industry-university-research cooperation, and has established a cooperation network with a number of universities, scientific research institutions, hospitals, etc. In the first half of 2023, it will be disclosed and launched the industry's first platform-based technology, angelLink, Angelalign interface system. The strong product strength gives it the confidence that it has the ability to penetrate the products into various cities and promote the sinking strategy of the third and fourth-tier emerging markets.
The leading position in the industry also enables Angelalign to have higher product pricing power, with high product gross profit margins and more than 60% of invisible orthodontic solutions, but various expenses have expanded, resulting in a continuous decline in net profit margin. In the first half of 2023, its net profit margin for the period was only 4.71%, down 8.08 percentage points year-on-year, and its adjusted EBITDA margin was 7.31%, down 12.3 percentage points year-on-year. It is expected that the ROE for the whole year will be less than 2%, but the company has been very generous in dividend payouts since its listing, with a payout ratio of nearly 50%, and the company's cash on hand exceeds 3 billion yuan, which is guaranteed to pay stable dividends.
The industry has considerable prospects, sinking and layout overseas markets
According to the Northeast Securities Research Report, the global market size is expected to be close to 120 billion US dollars by 2023, with a compound growth rate of 7% from 2020 to 2030, and a compound growth rate of 14.2% in China's orthodontics, far exceeding the average level of 7% in the global industry. Compared with developed countries, China's invisible appliances currently have a low penetration rate and a large growth space.
As a leader in the industry, Angelalign has a strong competitive advantage: first, the company's product matrix covers a wide range of price ranges and age groups, and constantly innovates new products to gain reputation; second, it has three major technologies and data platforms to build a solid technical barrier; third, it has long-term cooperation with a number of external manufacturers in the patient treatment stage, and its digital orthodontic solutions have been recognized by major partners, and its market share, especially in the children's invisible orthodontic market, is firmly first.
It is worth noting that the company's controlling shareholder, Songbai Investment, has a global layout of the dental industry chain, which has formed a synergistic effect with the company's business, and also helped the effective implementation of its overseas expansion strategy. For example, in 2022, Songbai Investment and the company jointly established a limited partnership to invest in innovative digital technologies and products related to global orthodontic diagnosis and treatment, and both parties have some transactions, but the proportion is not large, in the first half of 2023, related party transaction revenue accounted for only 6.4%, of which Guangzhou Hospital and Zhengzhou Smiles accounted for 76.6% of related party transactions.
However, Angelalign is also facing greater competitive pressure, and the development prospects of the industry attract more competitors to enter the market, and the company's revenue has stagnated in the past two years, and the growth is slightly tired, which also shows this. However, the company actively adjusted its market strategy to cope with competitive pressure, such as sinking the market in China and deploying overseas through acquisitions to expand its growth space. Up to now, the company has achieved a production capacity of more than 40 million units per year, and the Wuxi Chuangmei base will exceed 140 million units per year after it is put into operation.
Market confidence is rising, but the return to valuations is destined to be long and tortuous
As the industry leader, the company's product strength has always been leading the industry and building a more solid technical barrier, but in recent years, the competition has increased and the growth has stagnated, but through the market strategy to expand the space, there have also been some results. The company's biggest problem is the decline in profitability, the growth rate of sales expenses is much greater than the revenue, and the expense ratio and digital empowerment performance are not as expected.
Obviously, the decline in earnings is one of the main reasons why market funds are not optimistic about the company, of course, the market value is affected by many factors, such as the continued weakening of the market, the lack of strength in the sector, policy restrictions, and technical and trend killing. The weak market seems to be reversing, and after the company announced the repurchase plan, market funds began to enter the market actively, and the market value also improved. The focus of investment banks has also increased the market's confidence in holdings, with CITIC Securities giving the company a target price of HK$129, which is 114% higher than the current price.
However, Angelalign's overvaluation may be the biggest obstacle to the increase of its market capitalization, even if the current valuation is more than 80%, its PB value and PE (TTM) are still as high as 2.8 times and 55 times. The company's expansion in domestic low-tier cities and overseas market acquisitions, the increase in expense ratio has a certain adverse impact on earnings, and the profit inflection point has yet to be verified, and large funds remain cautious, and its valuation improvement is still a long way to go.
On the whole, Angelalign has recently received financial attention, mainly because the company announced the repurchase and generated a series of capital chain reactions, shareholders increased their holdings, investment bank research reports were active and market trading volume was enlarged, resulting in a continuous rebound in market value and a significant increase in market confidence. In addition, the company also has strong support for the bottom of the valuation, coupled with the market's confidence in the market in 2024, and the industry's leading value investment returns.
However, the company's market value has not yet reached a historic turning point, and many problems still need to be solved, such as the release of overseas market performance and the reversal of profits, etc., to return to the original high, it is destined to be a long and tortuous process.