[Click eStock] China VBP Implementation... "Dentium, Limited Impact on Earnings"

[Asia Economy Reporter Lee Jung-yoon] DB Financial Investment maintained a buy rating and a target price of 125,000 KRW on Dentium on the 8th, stating that the impact on performance would be limited despite China's Volume-Based Procurement (VBP) policy. The VBP policy refers to the Chinese government's large-scale purchase of pharmaceuticals at low prices to improve patient accessibility.

The Chinese government conducted a public consultation on the VBP implementation until the end of last month and plans to disclose guidelines and proceed with bidding from this month, reflecting the feedback. It is expected that the reduction in medical fees, which account for 80-90% of implant procedure costs, will be significant. Additionally, the material costs, which account for about 10-20%, will be purchased in bulk by the government through bidding.

The decline compared to the normal price due to VBP bidding by domestic implant companies, including Dentium, is analyzed to be around 20-30%. This is understood to be similar to the promotional prices applied under the surcharge system for bulk purchases of implants at dental clinics.

The implant installation rates in countries with a per capita GDP in the $10,000 range, such as Russia, Turkey, and Brazil, are 0.6-0.8%. In contrast, China's installation rate remains low at 0.1-0.2%. In this situation, the lowered procedure price is expected to lead to an increase in sales volume that offsets the decline in the average selling price (ASP).

Yu Hyun-jae, a researcher at DB Financial Investment, explained, "Implants are high value-added products with a cost ratio of around 30%, including raw material and labor costs. Due to strong operating leverage from increased quantity (Q), the impact on profitability is expected to be limited."

Dentium's sales this year are projected to reach 376 billion KRW, a 29.1% increase compared to the same period last year, and operating profit is expected to rise 82.2% to 127 billion KRW. Researcher Yu said, "Even under the worst assumption of a 30% decline in China's overall ASP, profitability and profit scale are estimated to recover depending on the increase in shipment volume."