With the advent of the aging stage at home and abroad, the denture market has become a segment of the rapid development of the dental market, and as a leading domestic denture processing leader, MODERN DENTAL also relies on the global “denture business” to continuously earn money.

On March 11, MODERN DENTAL revealed its positive results for 2023. The company expects to achieve revenue of HK$31.25-3.225 million in 2023, an increase of 10.4%-14%; net profit of HK$39-410 million, a significant increase of 76.5% to 85.5% over the previous year. In the Yingxi announcement, the company stated that the record high net profit for the period was mainly due to the increase in the company's operating efficiency and the increase in the proportion of digital solution cases driven by the digitalization trend in the dental industry.

Looking at the secondary market, investors have given positive feedback on the continued growth of MODERN DENTAL's main denture processing business. Since hitting a phased stock price low of HK$2.19 in the intraday period on May 16 last year, MODERN DENTAL's stock price has continued to rise. As of March 13 this year, the company's stock price had reached HK$4.02, with a cumulative increase of 83.56% in the range.

According to the Zhitong Finance App, currently over 60% of the world's dentures are manufactured in China, and the number of domestic denture processing companies has exceeded 4,000. For MODERN DENTAL, breaking through increasingly heated competition by expanding market share and continuously reducing costs and increasing efficiency is the key to development.

The technological comeback of the “denture laboratory”

In fact, the market is not surprised that MODERN DENTAL achieved a net profit increase of nearly 80% in the full year of 2023. As early as last year's interim report revealed, MODERN DENTAL showed a strong level of profit growth.

Data show that in the first half of last year, MODERN DENTAL's revenue increased 12.1% year over year to HK$1.6 billion, and net profit increased 109.3% year over year to HK$210 million. The reason it was able to achieve a significant increase in net profit is also the “digital transformation” of the denture business mentioned in the announcement.

According to the Zhitong Finance App, dentures, also known as dentures, are a general term for restorations used to replace missing natural teeth after removing or falling off a single jaw, upper and lower jaw, or all of the teeth. Looking at the industrial chain, upstream raw materials for dentures include resin, metal, ceramics, titanium alloy, zirconia, etc., and the cost of raw materials accounts for about 80% of production costs.

In addition, fixed denture products require customization, and the requirements for the production process are high. For example, in the denture design and manufacturing process, the key material zirconia has a high degree of personalization and digitization due to its high hardness and high cost. The processing and preparation process requires more than ten processes such as oral scanning, data transmission, modeling, 3D printing, casting, coating, ceramics, glazing, and polishing. Therefore, for manufacturers, improving production efficiency and reducing revenue costs through technology is not an optional question but a must-answer question.

MODERN DENTAL Group began using CAD/CAM technology in 2007. Currently, it has four digital production centers, and has formed a central digital process, equipment and network. According to data, MODERN DENTAL currently ranks first in the field of intraoral scanning applications in China. Digitalization improves production efficiency, reduces MODERN DENTAL Group's production costs, is more competitive, and profits will grow more rapidly.

However, on the other hand, at a stage where digital production is not yet mature, denture processing mainly relies on the professional technical level of dentists and technicians, while digital transformation faces the problem of expanding the demand for talents from a single technician to cross-border talents. As a result, the development of the denture processing industry is still limited by a serious shortage of talents, which is reflected mainly in cost side growth in financial reports.

Therefore, it can also be seen from the key financial data disclosed by MODERN DENTAL that in the first half of 2023, the company's gross margin level increased significantly year-on-year, driven by revenue, but on the cost side, it was limited by the increase in sales and administrative expenses, and the company's net interest rate level only exceeded 10% in 2023.

However, it also shows from the side that modern dentistry, as a leading denture processing company, can use its advantages such as scale, technology, brand, and financing capacity to increase market share and revenue while raising profit levels and widening the gap with subsequent tier companies.

Refusing to go to sea and choose to go out to sea?

As mentioned above, 60% of the world's denture processing comes from China, and the number of related companies exceeds 4,000. Breaking through the heated domestic competition has become the key to the development of enterprises in this circuit. However, choosing to go overseas is an important factor in why MODERN DENTAL has been able to increase its performance and profits by double digits.

From a market perspective, the global denture market is over 30 billion US dollars, and China is a major denture exporter. The domestic market has also grown rapidly in recent years, and rigid demand for dentures can continue to increase treatment penetration rates under the aging trend. According to the data, the market size of China's denture industry grew from 5.41 billion yuan in 2015 to 10.099 billion yuan in 2021, with a compound annual growth rate of 10.96%. The market size of China's denture industry reached 10.842 billion yuan in 2022.

However, at present, MODERN DENTAL mainly focuses on overseas markets. The company continues to acquire mergers and acquisitions to achieve an international layout in Europe, North America, Australia and other regions, accounting for nearly 80% of overseas revenue.

The reason for choosing to go overseas is not only because China is a major denture exporter, but another important reason is the penetration rate of the denture market.

Because judging from the market space, the European and American markets have always been in a state of relative stability in terms of total volume. Although the market has increased to a certain extent with the development of technology, the overall increase is not obvious. For example, the US denture market grew from US$4.4 billion in 2012 to US$8.336 billion in 2019, with a compound growth rate of 9.56%, with a market size of about US$11.5 billion in 2023; while the overall market size of Europe between 2011 and 2019 rose from US$16.753 billion to US$22.176 billion, with a compound growth rate of only 4.15%.

Although the overall market is growing slowly, the high penetration rate is a major characteristic of the European and American markets. Globally, according to the number of dental implants as a proportion of the population, developed countries in Europe have a high penetration rate, with a penetration rate of about 100 pcs/10,000 people. Therefore, at present, North America and Europe are the main sales locations for domestic external denture processing companies.

At present, thanks to the stability and growth of the overseas denture repair market, the total revenue from fixed denture equipment and removable denture equipment accounts for more than 90% of the total revenue of MODERN DENTAL, which is its current core revenue source.

Although MODERN DENTAL has flourished in the main denture processing business, it is not going well on the new track. In fact, around 2020, MODERN DENTAL also entered the invisible orthodontics industry by launching a self-developed transparent orthodontic brand, TrioClear.

According to the Zhitong Finance App, the global invisible correction market grew from US$4 billion in 2015 to US$12.2 billion in 2020, with a CAGR of 25.3%. Domestic invisible correction became the second largest market in the world in 2019. The share of the total orthodontic market increased from 6.9% to 19.0% in 2020. It is estimated that the domestic invisible correction market will reach 11.9 billion US dollars in 2030, accounting for 40.3%.

However, after years of development, the domestic invisible orthodontic circuit has long become an “oligarchy track”. However, judging from the market competition pattern, according to the number of cases completed in the invisible correction market in mainland China in 2021, Invisible Beauty and Times Angel occupied more than 80% of the market share. Therefore, for new entrants, the way to quickly find breakthroughs is to seek differentiation.

Although MODERN DENTAL's layout on this track also involves Europe and Greater China, from a financial perspective, it is currently difficult for its growth in invisible orthodontics to support the company's second growth curve.