In a recent report by Jefferies, they have reaffirmed the “Buy” rating on Modern Dental (03600HK) with the target price HK$8.50. According to the report, 2023 sales of the company were HK$3.2bn (+12%YOY) thanks to the digitalization trend in dental industry with Modern Dental being one of the first movers. Gross margin was 53.6%, higher than that of 48.9% in 2022, from better utilization and increase in product mix - mainly more digital solution cases.  Net income was HK$400mn (+82%YOY), implying a net margin of 12.6% (vs. 7.8% in 2022), primarily thanks to the improvement in operational efficiency as a result of an increase in the proportion of digital solution cases, also driven by the digitalization trend. In 2023, digital cases produced domestically increased to 857k (+56%YOY) as a result of clients' increased adoption of intra-oral scanners. 2023 total sales volume was 2.1mn cases (+13%YOY), the increase in volume was mainly from the acceleration of digitalization trend.

Jefferies expects Modern Dental to grow +10%YOY top line and +14%YOY bottom line in 2024. They are excited on 1) the ongoing digitalization trend which drives sales and margin, 2) lower costs achievable from its new Vietnam site, 3) ASEAN markets including Thailand, Singapore and Malaysia which contributed to +36%YOY in the RoW business in 2023. FY2024-FY2026 revenue forecasts are HK$3,484mn/3,783mn/4,062mn, respectively; net profit forecasts are HK$453.2mn/517.1mn/577.8mn, respectively; EPS forecasts are HK$0.48/0.55/0.61, respectively. Jefferies reiterated “Buy” rating on Modern Dental, with the target price HK$8.50.

*Disclaimer: The views and recommendations given in this article are those of analysts. For details, please refer to the full report.