[Promising Industries & Stocks③] Export Momentum in Medical Devices... Ray, L&C Bio, JVM

[Asia Economy Reporter Lee Seon-ae] #If last year was a liquidity-driven market due to rapid liquidity expansion, this year is marked by notable stock price increases in sectors and stocks with clear earnings growth. With increased market volatility, a selective approach toward stocks expected to show definite earnings growth in the second half of 2021 and 2022 is necessary. Daishin Securities identified promising sectors for the second half as ① parts and equipment within the secondary battery industry, which has high growth visibility beyond 2022, ② individual consumer goods with valuation appeal expected to show earnings growth in 2022, and ③ healthcare, which is expected to see earnings growth through overseas expansion.

Healthcare medical devices have been a representative beneficiary sector of pent-up demand consumption since COVID-19. Besides companies already recording strong performance in the first half, stock price gains are expected in the second half and 2022 for companies possessing new momentum through earnings recovery and overseas expansion.

According to Daishin Securities on the 21st, although the stock price rise in the medical device sector has continued in the first half, which may be somewhat burdensome, the valuation trend from the past shows it is still not at a high level. The sector’s 12-month forward price-to-earnings ratio (PER) rose from 20 to 40 times between 2017 and 2019 but fell to the low teens due to the COVID-19 shock. It has been recovering since 2021 but remains only around 17 times. This valuation level is not burdensome for a sector capable of mid- to long-term growth beyond 2022.

Among these, attention should be paid to companies with visible momentum for overseas expansion. Researcher Han Kyung-rae of Daishin Securities stated, "Since the market has already confirmed the sector’s earnings growth in the first half due to economic reopening, interest is expected to increase in companies with promising growth momentum from next year onward," adding, "Key promising companies include Ray, L&C Bio, and JVM."

Ray is a dental equipment company with over 95% of its sales generated from exports. In the second quarter, it recorded its highest quarterly sales with performance surpassing pre-COVID-19 levels across all regions. Concerns about core business performance have been completely resolved, and a full-scale operating leverage effect is expected in the second half due to seasonal peak effects. Momentum such as the launch of a joint venture with a local Chinese company and the release of an oral scanner is expected to materialize within 2021. Both earnings and corporate value are expected to continue rising.

L&C Bio is a manufacturer of human implant materials. In August, the final investment in its Chinese joint venture was confirmed, and entry into the Chinese market is accelerating. As the top domestic company, its main products hold a clear technological advantage in the Chinese market, which is more than six times larger than the domestic market, making the expansion a definite momentum.

JVM is a manufacturer of fully automatic pharmaceutical dispensing machines. Although earnings slowed in the first half due to the COVID-19 impact and shipping delays, growth in scale is expected in the second half. Improvement in cost ratio due to a rebound in the export proportion, which has a good profit margin, is also positive. The current stock price is only about 13 times on a 12-month basis, making it the most overlooked within the medical device sector. Since earnings are expected to rebound from the third quarter through 2022, stock price normalization is necessary.