The worst is over for Angelalign. There is no need for the market to worry about the centralised procurement. Instead, the domestic market is recovering while the global expansion strategy brings high growth. The number of new cases is estimated to grow by 26.5% YoY in 2024, 13.2% YoY for domestic and 112% YoY for overseas. Overseas sales contribution will climb to 22.6%, beating the expectation. Sales grew by 16.2% and adjusted net profit declined by 23% YoY on overseas loss. The number of new cases roe by 33.2% YoY in 2023 (13.5% from overseas). Results are in line with expectation but overseas expansion strongly beats. We retain BUY rating.
Key Factors for Rating
There is no need to worry about the worst scenario in domestic market. The centralised procurement doesn’t affect the ex-factory selling price and margins. Overseas markets’ achievement upbeat the expectation. Angelalign has laid out the distribution team in more than 30 counties by in 2H23, mainly in Brazil, Australia, and Europe. Overseas sales grow much faster, likely more than double in 2024, than the domestic market where the market leaders’ growth rate slows to 13.2% YoY estimated growth in 2024. Brazil could be the backup of the overseas manufacturing plant to supply overseas market. Overseas leg booked RMB210m loss in 2023 and would likely still be loss marking in 2024E but a narrowed loss.
Angelalign witnesses some recovery in domestic consumption, similar to our channel check. Domestic cases would likely grow by 10-15% YoY in the medium term while the overseas high growth help the blended sales growth rate.
Gross margin was slightly better, 62.4% in 2023 vs. 61.9% in 2022. Selling cost rose by 65% YoY in 2024, mainly caused by the overseas market expansion. Domestic adjusted net margin was 19.3% in 2023, 3.6ppt higher. It brings over 30% YoY in earning growth in domestic market in 2023. It is a strong earnings growth without the loss of overseas leg.
Key Risks for Rating
How long it takes for the overseas leg to turn profitable is uncertain.
Valuation
We cut reported net profit estimate in 2024-25 due to the loss of overseas leg while keep no big change in the adjusted net profit as some adjustment is larger than expectation. TP that was derived based on adjusted net profit remains unchanged. We retain BUY rating.