Modern Dental Reports 2017 Revenue of HK$2.181 Billion, with Over 70% Market Share in Fixed Prosthetics and Europe as Its Largest Market

VCBeat (WeChat: vcbeat) has learned that Modern Dental Group (03600), a globally leading supplier of dental prosthetic devices, recently released its annual results report for the year ended December 31, 2017. The company reported revenue of approximately HK$2.181 billion (HK$1.642 billion in 2016), representing an increase of about 32.8%. Profit for the year amounted to approximately HK$157 million (HK$103 million in 2016). The sales volume and average selling price of its products were 1.738 million units and HK$1,245, respectively (compared with 1.393 million units and HK$1,167 in 2016), reflecting year-on-year increases of 24.8% and 6.7%, respectively.

Growth was primarily driven by: 1. The acquisitions of the MicroDental Group and CDI in October 2016 and February 2017, respectively; 2. Year-over-year increases in retail prices charged to dentists; and 3. Organic growth in sales volume.

The global denture industry has experienced sustained growth in recent years, driven by rising demand for cosmetic dentistry, heightened awareness of oral health, increasing disposable incomes, population growth, and an aging demographic, a trend that is expected to continue.

As a leading market participant with a global sales and distribution network and production bases in strategic locations, Modern Dental is well positioned to capitalize on the consolidation opportunities in this rapidly growing yet fragmented denture industry.

Data shows that Modern Dental focuses on providing customized dental prosthetics to customers in the rapidly growing denture industry. Its product portfolio can be broadly categorized into three product lines: fixed prosthodontic devices, such as crowns and bridges; removable prosthodontic devices, such as removable dentures; and other products, including orthodontic devices, sports mouthguards, anti-snoring appliances, raw materials, and dental equipment, as well as educational activities and lecture services. It holds the largest market share in Western Europe, Australia, China, and Hong Kong, China.

Analysis of Revenue and Sales Volume by Product Category (Image from the Fiscal Year 2017 Annual Report)

The gross profit margins of the fixed prosthodontic devices business segment, removable prosthodontic devices business segment, and other devices business segment were approximately 48.7%, 48.1%, and 49.8%, respectively.

Sales Volume, Revenue, and Average Selling Price of Various Products (Image Source: Fiscal Year 2017 Financial Report)

Gross Profit and Gross Margin by Product Category (Image Source: FY2017 Financial Report)

Additionally, the gross profit for 2017 was approximately HK$1.061 billion, representing a year-on-year increase of about 20.5%. The gross profit margin declined by approximately 4.9 percentage points, primarily due to the lower gross margin and dilutive impact of MicroDental Group’s local product sales in North America.

The report indicates that the European market remains the primary driver of the Group’s revenue and profit, with North America ranking as the second-largest market. The Group is fully leveraging its production capacity both domestically and internationally, including but not limited to optimizing procurement arrangements and reducing domestic costs through outsourcing and cross-selling new products. In particular, Modern Dental has entered into a strategic distribution agreement with Oventus Medical Limited (ASX: OVN), an innovator in anti-snoring devices, aiming to generate additional revenue streams in the U.S. market and offer new products to global customers.

North America, as the world’s largest denture market, offers significant market opportunities. In October 2016, Modern Dental acquired MicroDental Group, followed by ongoing integration in 2017.

Despite intense market competition, the Group continued to achieve positive organic sales growth in the mainland China market, driven by strengthened sales and marketing efforts. Currently, the Group is actively seeking investment and joint venture opportunities in the Chinese market. Additionally, the investment in the Dongguan production base is expected to significantly enhance production capacity.

To expand its coverage in the Chinese market, the Group has also partnered with Straumann Group to establish STM Digital, aiming to tap into high-quality dental prosthetic products in China. Meanwhile, Modern Dental is exploring opportunities to extend its presence in second- and third-tier provinces and cities, thereby consolidating its leading position in the mainland China market.

Modern Dental has commenced construction of a new, modern production base in Dongguan, mainland China, and is investing in the site of its existing production base in Xili, Nanshan District, Shenzhen.

In the Group’s existing markets and potential new markets, Modern Dental continues to seek opportunities aligned with its corporate growth strategy, as well as potential new product launches. Meanwhile, Modern Dental will place greater emphasis on cost-effectiveness and exercise more prudent control over expenditures, without compromising efficiency and productivity.

Revenue generated from sales in the European market (including France, Germany, the Netherlands, Belgium, Denmark, Sweden, Norway, the United Kingdom, and other European countries) accounts for the largest share of the Group’s annual revenue. 

Sales Performance by Regional Market (Image Source: 2017 Fiscal Year Annual Report)

In 2017, revenue from the European market amounted to approximately HK$837 million, representing an increase of approximately HK$90.93 million compared with 2016. Including sales of dental equipment totaling approximately HK$6.26 million, the European market accounted for 38.7% of the Group’s total revenue, compared with approximately 45.9% in 2016. The increase in revenue from the European market was primarily attributable to the completion of acquisitions, organic growth in sales volume, and a year-on-year rise in retail prices charged to dentists.

Modern Dental’s sales and distribution network in Europe reaches 13 countries. The company has further increased its market share through acquisitions and organic growth, with sales and marketing efforts yielding positive results, as evidenced by the strong revenue growth from imports manufactured in China within this market.

In the first half of 2017, the Group continued to actively acquire dental laboratory facilities and dental product distributors in Europe. In January 2017, Modern Dental completed the acquisition of Schmidt Dentalkeramik ApS (“Schmidt”). In February 2017, it completed the acquisition of CDI Dental AB and CDI Supply AB (collectively, “CDI”).

A key strategy of the Group in Europe is to provide existing customers with a comprehensive product portfolio, encompassing both technologically advanced and traditional products, as well as superior local services. This includes faster and more efficient turnaround times achieved through a network of local workshops situated in close proximity to customers.

The Group is able to meet customers’ high expectations by leveraging diverse domestic and international resources. By enhancing its local presence, the Group is better positioned to attract new customers from local competitors in additional market segments.

Meanwhile, the team and management are focused on growth strategies and synergies. A series of new products, particularly in orthodontics and anti-snoring devices, have become the forefront of innovation in continuing education and training programs, further stimulating growth.

As the newly acquired companies are integrated into the Group, further cost savings and synergies are expected. Modern Dental’s geographically diversified business model in Europe positions it favorably to capitalize on future acquisition opportunities.

Revenue from the North American market (including the United States and Canada) accounts for the second largest portion of annual revenue.

In 2017, the North American market generated revenue of approximately HK$687 million, representing an increase of approximately HK$410 million compared to 2016. This region accounted for approximately 31.5% of the Group’s total revenue, compared to approximately 16.9% in the previous year. The revenue growth in the North American market was primarily attributable to the acquisition of the MicroDental Group, as well as an increase in the average selling price and sales volume of products manufactured overseas.

On October 31, 2016, Modern Dental completed the acquisition of RTFP Dental Inc. and its subsidiaries (the MicroDental Group). In the fiscal year 2017, the MicroDental Group contributed approximately HK$494 million to the Group’s revenue (for the fiscal year ended 2016: HK$97.7 million), contributed approximately HK$5.05 million to the Group’s adjusted EBITDA (for the fiscal year ended 2016: HK$1.06 million), and resulted in a loss of approximately HK$10.13 million attributable to the Group’s profit (for the fiscal year ended 2016: a loss of HK$6.12 million).

The Group’s primary strategy regarding MicroDental is as follows:

1. Increase sales by expanding the product portfolio, strengthening investment in training, and improving sales and marketing strategies;

2. Increase the average selling price by strategically allocating products at optimal price points;

3. Fully leverage the existing and future synergies derived from MicroDental Group’s 40-year brand heritage, extensive distribution network, and highly experienced workforce;

4. Cost restructuring, efficient utilization of existing resources, and minimization of resource overlap.

The North American denture market is growing due to multiple factors. The aging population directly drives demand for denture products. Furthermore, following the enactment of the Affordable Care Act in 2010, health insurance coverage has expanded. Meanwhile, the U.S. government has allocated funding for oral health, helping to raise awareness in this area.

China, which includes mainland China, Hong Kong, and Macau (Note: Taiwan is not included in sales), accounts for the third largest portion of annual revenue.

In 2017, revenue from the Chinese market amounted to approximately HK$417 million, representing an increase of approximately HK$22.51 million compared with 2016. Together with sales of raw materials and dental equipment totaling approximately HK$4.34 million, this regional market accounted for approximately 19.3% of the Group’s total revenue, compared with approximately 24.2% in the previous year. The increase in revenue from the Chinese market was primarily attributable to the results of recent sales and marketing efforts in mainland China, continued growth in sales volume in the Hong Kong market, and an increase in sales volume in mainland China driven mainly by the opening of new private clinics in first-tier cities in mainland China.

Given the significant improvement in living standards in China in recent years, people have increasingly recognized the importance of oral health, which has facilitated the development of the domestic market for customized denture sales. Modern Dental offers high-quality products at slightly higher prices in the Chinese market, attracting customers with strong demand for premium products. As the Group’s strategy focuses on building strong relationships with private clinics in first-tier cities in mainland China and acquiring new clients from these clinics, its business in this market has grown since the first half of 2017.

Another key strategy is to expand geographic coverage, such as by enhancing sales and marketing strategies, customer service, and technical service teams to provide higher-quality services to customers.

The Group has been actively seeking acquisition or strategic partnership opportunities in China. STM Digital Dentistry Holdings Limited (“STM Digital”) was established in Hong Kong, China, in collaboration with the Straumann Group, with the aim of expanding its presence in China’s high-end market.

STM Digital is engaged in the production of customized dentures and was prepared to launch them on the market by the end of the first half of 2018. With a new production facility in Dongguan, output is expected to increase substantially, thereby further consolidating its position in the mainland China market.