Author: Blue Danube, Editor: Xiaoshimei
Recently, the interim reports of celebrity fund managers have been released one after another, among which Ge Lan's increase in positions on "Yasmao" Tongce Medical for three consecutive quarters is quite eye-catching.
Gulan mentioned in the interim report: With the rapid increase in per capita income and cognitive level of Chinese residents, the demand for medical services and consumer medical care is still growing rapidly and not fully met, and the space in the future is still huge.
This description cannot be compared with the current development status of oral medical care in my country. At this stage, whether from the per capita number of dentists or the cure rate of caries, my country's oral health is in its early stages. With the steady growth of per capita disposable income of and the increase in oral health awareness, oral medical services will have great potential.
Peter Lynch said that there is more than one winner in a good track. Since the top players are sought after by the market, the second, third and fourth places with cheaper valuations are also good targets for observation.
Rier Group exists like this. It ranks in the top three in the industry by revenue scale, but its overall valuation is much cheaper than Tongce Medical. Based on price-to-sales ratio, Tongce Medical's current price-to-sales ratio is nearly 18 times, and the average price-to-sales ratio in the past five years is also 21 times. In comparison, Ruier Group's current price-to-sales ratio is less than 3 times.
Why is Ruier Group's valuation far lower than Tongce Medical? What are the opportunities for the company to "turn the tables"?
["Slow" business]
As the saying goes, "golden eyes and silver teeth", as two important organs of the face, patients with eyes and teeth are usually treated with high costs and profits are also quite generous.
Especially with the support of the country's policy for the development of private hospitals, large-cap listed companies have been born in these two major fields in the past. For example, the market value of Aier Eye Hospital in the ophthalmology industry exceeded 390 billion yuan, and the market value of Tongce Medical in the dentistry industry also reached 135 billion yuan.
But in fact, the profit scale of these two companies is not large. Aier Eye Hospital's highest annual net profit in history is less than 2.5 billion yuan, while Tongce Medical's less than 800 million yuan. The cornerstone that supports both sides' huge market value is the high expectations of capital. This is mainly because of his optimism about the track, and Gelen's view is a typical representative.
Although they are both popular in the eyes of capital, the dental track and the ophthalmic track are significantly different, which is mainly reflected in the different expansion speeds of both sides.
Take Aier Eye Hospital and Tongce Medical as examples. As of the end of 2021, Aier Eye Hospital opened 723 ophthalmic hospitals around the world, 610 in the mainland, and less than 30 Tongce Medical, which started its business 8 years earlier than Aier .
Why is there such a big difference?
The reason is that the treatment process of dentistry is complex and highly dependent on doctors' manual operations. Ophthalmology treatment mainly relies on drugs and equipment, and doctors only play a diagnostic and auxiliary role.
This difference not only determines the high status of dentists in the dental chain, but also determines the high proportion of fixed costs in the dental chain.
Take Ruier Group, which was listed on Hong Kong stock at the beginning of the year as an example, the company's 2022 performance report disclosed that the two fixed costs of "employee welfare expenditure and depreciation and amortization" account for nearly 70% of the company's total sales costs, of which "employee welfare expenditure" exceeds 50%.
The high fixed cost of means that the profitability of the new clinic is far less than that of the mature clinic, and once the new clinic expands too quickly, it is easy to cause the entire group to fall into losses.
This is the stage that Ruier Group is currently in and the main reason why its valuation is lagging behind Tongce Medical.
Compared with the vast majority of the dental hospitals of Tongce Medical in the mature stage, Ruier Group's clinics are just over half of the mature stage, and nearly 30% of the clinics are in a period of rapid expansion every year. Coupled with the differences in scale benefits, the gross profit margins and net profit margins of the two parties are quite different.
Fortunately, the proportion of clinics in Ruier Group has entered a period of steady growth ( operating period has exceeded 6 years) is continuing to increase. It has just exceeded half in 2021, reached 56% in 2022, and the revenue share has reached 74%.
Riel predicts: If the proportion of clinics in the group's stable growth period remains above 50%, and the growth rate of dental chairs remains around 15%, under normal circumstances, the company can achieve a healthy double increase in revenue and net profit.
Implications: As new clinics are converted into mature clinics in batches, Riel Group's growth and profit will be taken into account.
【Long slope and thick snow】
Although Ruier Group is currently in a loss stage, Tongce Medical has also experienced a single-digit growth rate of two consecutive quarters due to the impact of the epidemic, but this will not change capital's view on the gold track of dental.
Stock God Buffett once said, "Life is like a snowball, the important thing is to discover wet snow and long snow slopes." Corresponding this sentence to investment, that is, to find industries with high ceilings and lucrative profits.
Obviously, this is the case in the oral medical service industry.
According to Frost & Sullivan's statistics, from 2015 to 2020, the scale of oral medical services in my country increased to RMB 119.9 billion, with a CAGR of 9.6%; it is expected that the market size is expected to grow to RMB 299.8 billion by 2025.
Private dental hospitals account for more than 70% of the shares, and the share is expected to rise to nearly 80% in 2025. Based on the revenue of Tongce Medical and Ruier Group in 2020, the proportion of the private oral medical service market size of the two parties is 2.5% and 1.8% respectively, and the snow slopes will be quite long in the future.
In terms of "wet snow", the industry gross profit margins of the two major businesses of "orthodontics" and "planting" that account for half of the overall revenue of oral medical services are both above 50%.
If the scale effect brought about by the increase in the proportion of mature clinics is included, the overall gross profit margin of leading dental companies, such as Tongce Medical, is around 45%, and the net profit margin will reach a terrifying nearly 30%.
In the past two years, due to the impact of the epidemic, the number of visits to dental clinics has fluctuated to certain extent, and the revenue growth rate of some companies has dropped to single digits, casting a shadow on the growth expectations of companies.
However, looking to the future, the growth attributes of the dental track will not change.
As long as the market believes: my country's per capita disposable income will still grow at a growth rate of more than 5% every year; the expansion of the population of the elderly for the main treatment of oral diseases (in 2021, the proportion of aging population in my country reached 14%); and the three major backgrounds for the continuous improvement of residents' oral care awareness.
In other words, as long as the basis for consumption upgrading is on the basis of almost urgent needs, the expenditure on dental medical services will not stagnate.
In market value observation, a "real obstacle" placed on the dental track is how related companies can achieve effective expansion.
In fact, it is precisely because of the high dependence of dental medical services on dentist manual labor and the low investment in related medical equipment that the concentration of the entire track is quite low, and the market share of Tongce Medical, the industry's No. 1 leader in Tongce Medical is less than 2%.
In addition, Tongce Medical has been working in the dental medical service industry for 27 years, but currently more than 90% of the company's revenue still comes from Zhejiang base camp, which also shows the difficulty of the national expansion of the dentist chain.
For a listed company, capital obviously prefers to see dental companies with potential for national expansion.
[Potential Player]
From the perspective of the difficulty of national expansion, Riel Group may be the most promising player.
We just need to look at the business layout area of Ruier Group. As of March 31, 2022, the company has 112 clinics in four major regions in the country - North China, East China, South China and West District, with business covering major core economic regions across the country.
From the revenue structure of the company, except South China, North China, East China and West District, all account for more than 20%, which is obviously more balanced than Tongce Medical, which comes from Zhejiang base camp.
In addition, according to our observation: Since patients attach great importance to the reputation quality brought by the service life of dental clinics when choosing dental medical services, theoretically, the dental chain brands that are preferred to be laid out in a certain area are more likely to be recognized by local people. From this perspective, it is easier for Riel Group to achieve national expansion.
In fact, the high and mid-term brand combination of "Rel Dental +Reltai Dental" of Ruier Group was established to better cover different areas.
Financial report data shows that as of March 31, 2022, Ruier Dental has operated a total of 51 Ruier clinics in seven domestic cities, namely Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Tianjin and Xiamen , mainly serving the high net worth ; while Ruitai Clinic is located in 10 first-tier cities and core second-tier cities in China, operating a total of 7 hospitals and 54 Ruitai Clinics, mainly serving the middle-class people.
's "high and medium misalignment" brand layout is also one of the company's main expansion strategies in the future.
In addition, the company has expanded in disguise through acquisitions or signing exclusive consultations or services. For example, the company had previously signed an exclusive consultation and service agreement with four dental clinics in Changsha, and in April this year, it acquired Shenzhen Baocheng Dental Hospital 14.1% stake in Shenzhen Baocheng Dental Hospital for a cash consideration of 25 million yuan.
With the dentist retention rate and patient repurchase rate, we can see that Riel Group has not sacrificed its business stability and service reputation because of the expansion of by the dual brand.
In terms of dentist retention rate, from 2019 to 2021, the dentist retention rate of Riel Group within three years exceeded 70%, and the retention rate for three years or more reached about 90%.
In terms of customer loyalty, from 2019 to 2021, the percentage of patients (excluding follow-up consultations and follow-up visits to the company's hospitals after six months of the first visit were 42.1%, 41.4%, and 45.8%, respectively.
We judge: In the future, due to the attractiveness of oral medical chains to high-quality doctors and the ability to solve patients' comprehensive diseases, the market share of oral individual outpatient clinics will gradually squeeze out and gain a larger market size. At that time, Riel Group will benefit from the expansion of its mature stores and the improvement of its profitability.
At present, in the second half of the year when the epidemic has been significantly alleviated, the number of visits to the company's oral clinics is expected to recover, driving the growth of revenue data year-on-year. Coupled with the disappearance of the one-time expenses for the company's listing and the subsequent promotion of preferred stocks and bonds to convert stocks, the company is expected to reverse the loss situation.
According to the Davis double-click effect, the improvement of profits will usually drive the increase in valuation, and the market performance of Riel Group is promising in the future.
Disclaimer
This article involves content about listed companies, and is a personal analysis and judgment made by the author based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.
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Fortunately, the proportion of clinics in Ruier Group has entered a period of steady growth ( operating period has exceeded 6 years) is continuing to increase. It has just exceeded half in 2021, reached 56% in 2022, and the revenue share has reached 74%.
Riel predicts: If the proportion of clinics in the group's stable growth period remains above 50%, and the growth rate of dental chairs remains around 15%, under normal circumstances, the company can achieve a healthy double increase in revenue and net profit.
Implications: As new clinics are converted into mature clinics in batches, Riel Group's growth and profit will be taken into account.
【Long slope and thick snow】
Although Ruier Group is currently in a loss stage, Tongce Medical has also experienced a single-digit growth rate of two consecutive quarters due to the impact of the epidemic, but this will not change capital's view on the gold track of dental.
Stock God Buffett once said, "Life is like a snowball, the important thing is to discover wet snow and long snow slopes." Corresponding this sentence to investment, that is, to find industries with high ceilings and lucrative profits.
Obviously, this is the case in the oral medical service industry.
According to Frost & Sullivan's statistics, from 2015 to 2020, the scale of oral medical services in my country increased to RMB 119.9 billion, with a CAGR of 9.6%; it is expected that the market size is expected to grow to RMB 299.8 billion by 2025.
Private dental hospitals account for more than 70% of the shares, and the share is expected to rise to nearly 80% in 2025. Based on the revenue of Tongce Medical and Ruier Group in 2020, the proportion of the private oral medical service market size of the two parties is 2.5% and 1.8% respectively, and the snow slopes will be quite long in the future.
In terms of "wet snow", the industry gross profit margins of the two major businesses of "orthodontics" and "planting" that account for half of the overall revenue of oral medical services are both above 50%.
If the scale effect brought about by the increase in the proportion of mature clinics is included, the overall gross profit margin of leading dental companies, such as Tongce Medical, is around 45%, and the net profit margin will reach a terrifying nearly 30%.
In the past two years, due to the impact of the epidemic, the number of visits to dental clinics has fluctuated to certain extent, and the revenue growth rate of some companies has dropped to single digits, casting a shadow on the growth expectations of companies.
However, looking to the future, the growth attributes of the dental track will not change.
As long as the market believes: my country's per capita disposable income will still grow at a growth rate of more than 5% every year; the expansion of the population of the elderly for the main treatment of oral diseases (in 2021, the proportion of aging population in my country reached 14%); and the three major backgrounds for the continuous improvement of residents' oral care awareness.
In other words, as long as the basis for consumption upgrading is on the basis of almost urgent needs, the expenditure on dental medical services will not stagnate.
In market value observation, a "real obstacle" placed on the dental track is how related companies can achieve effective expansion.
In fact, it is precisely because of the high dependence of dental medical services on dentist manual labor and the low investment in related medical equipment that the concentration of the entire track is quite low, and the market share of Tongce Medical, the industry's No. 1 leader in Tongce Medical is less than 2%.
In addition, Tongce Medical has been working in the dental medical service industry for 27 years, but currently more than 90% of the company's revenue still comes from Zhejiang base camp, which also shows the difficulty of the national expansion of the dentist chain.
For a listed company, capital obviously prefers to see dental companies with potential for national expansion.
[Potential Player]
From the perspective of the difficulty of national expansion, Riel Group may be the most promising player.
We just need to look at the business layout area of Ruier Group. As of March 31, 2022, the company has 112 clinics in four major regions in the country - North China, East China, South China and West District, with business covering major core economic regions across the country.
From the revenue structure of the company, except South China, North China, East China and West District, all account for more than 20%, which is obviously more balanced than Tongce Medical, which comes from Zhejiang base camp.
In addition, according to our observation: Since patients attach great importance to the reputation quality brought by the service life of dental clinics when choosing dental medical services, theoretically, the dental chain brands that are preferred to be laid out in a certain area are more likely to be recognized by local people. From this perspective, it is easier for Riel Group to achieve national expansion.
In fact, the high and mid-term brand combination of "Rel Dental +Reltai Dental" of Ruier Group was established to better cover different areas.
Financial report data shows that as of March 31, 2022, Ruier Dental has operated a total of 51 Ruier clinics in seven domestic cities, namely Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Tianjin and Xiamen , mainly serving the high net worth ; while Ruitai Clinic is located in 10 first-tier cities and core second-tier cities in China, operating a total of 7 hospitals and 54 Ruitai Clinics, mainly serving the middle-class people.
's "high and medium misalignment" brand layout is also one of the company's main expansion strategies in the future.
In addition, the company has expanded in disguise through acquisitions or signing exclusive consultations or services. For example, the company had previously signed an exclusive consultation and service agreement with four dental clinics in Changsha, and in April this year, it acquired Shenzhen Baocheng Dental Hospital 14.1% stake in Shenzhen Baocheng Dental Hospital for a cash consideration of 25 million yuan.
With the dentist retention rate and patient repurchase rate, we can see that Riel Group has not sacrificed its business stability and service reputation because of the expansion of by the dual brand.
In terms of dentist retention rate, from 2019 to 2021, the dentist retention rate of Riel Group within three years exceeded 70%, and the retention rate for three years or more reached about 90%.
In terms of customer loyalty, from 2019 to 2021, the percentage of patients (excluding follow-up consultations and follow-up visits to the company's hospitals after six months of the first visit were 42.1%, 41.4%, and 45.8%, respectively.
We judge: In the future, due to the attractiveness of oral medical chains to high-quality doctors and the ability to solve patients' comprehensive diseases, the market share of oral individual outpatient clinics will gradually squeeze out and gain a larger market size. At that time, Riel Group will benefit from the expansion of its mature stores and the improvement of its profitability.
At present, in the second half of the year when the epidemic has been significantly alleviated, the number of visits to the company's oral clinics is expected to recover, driving the growth of revenue data year-on-year. Coupled with the disappearance of the one-time expenses for the company's listing and the subsequent promotion of preferred stocks and bonds to convert stocks, the company is expected to reverse the loss situation.
According to the Davis double-click effect, the improvement of profits will usually drive the increase in valuation, and the market performance of Riel Group is promising in the future.
Disclaimer
This article involves content about listed companies, and is a personal analysis and judgment made by the author based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.
—END—
