[Click e-Stock] "Dentium, Undervalued at COVID-19 Levels... Focus on Earnings Recovery and Share Cancellation"

On December 30, Daishin Securities analyzed Dentium, stating that its stock price has fallen to levels seen during the COVID-19 lows, entering a phase of excessive undervaluation. As the company's performance is now at a bottoming stage, a valuation rerating is possible if signs of recovery in the Chinese market coincide with the company's large-scale share buyback and cancellation plan.

Han Songhyeop, a researcher at Daishin Securities, said, "Currently, the stock is trading at a 12-month forward price-to-earnings ratio (PER) of 8 times, which is down to the bottom levels seen during the COVID-19 period," adding, "The key to a stock price rebound in the current situation lies in signs of recovery in the Chinese market." In addition, Dentium plans to evenly cancel treasury shares amounting to about 22% of its total shares over three years from 2026 to 2028, which is expected to have a positive effect on valuation by strengthening shareholder returns.

Daishin Securities expects Dentium's sales this year to reach 339.8 billion won, a 17% decrease from the previous year, and operating profit to be 55.8 billion won, with an operating profit margin (OPM) of 16.4%. Han explained, "A demand gap due to uncertainty over China's VBP and a contraction in domestic demand led to a decrease in sales, which, combined with worsening fixed cost leverage, caused the OPM to drop from the 30% range to the 10% range."

However, it is evaluated that the bottom in performance is gradually being confirmed. He stated, "Sales in the fourth quarter are expected to recover to the 100 billion won range, surpassing the bottom seen in the third quarter," adding, "Gradual improvement in Chinese sales, which had dropped to around 28 billion won in the third quarter, and solid demand from Russia will support this recovery." In particular, the Asian market excluding China is expected to achieve record quarterly results, and domestic demand is also forecast to show a solid recovery trend.

In 2026, with normalization in China, a full-scale recovery of operating leverage is expected. Daishin Securities forecasts Dentium's sales in 2026 to increase by 19% year-on-year to 405 billion won, with operating profit rising by 53% to 85.3 billion won and the operating profit margin recovering to 21%.

Han commented, "The key to the recovery of Chinese performance is the trend of pent-up demand ahead of the second round of VBP implementation," adding, "The extent to which deferred demand due to policy uncertainty turns into actual orders after the policy is finalized will determine the magnitude of the performance rebound."

He also added, "As one-off cost risks such as bad debt provisions and inventory valuation losses are resolved, downside rigidity in performance will be secured."

However, the detailed rules of the second round of VBP remain a variable. Han analyzed, "If price resetting, that is, a re-bidding method, is applied, a decline in average selling price (ASP) will be inevitable, but if the existing conditions are extended, the price impact will not be significant."

Regarding the possibility of the regulatory scope expanding to private hospitals, he mentioned both short-term volatility and long-term opportunities. He said, "If regulation is extended to private hospitals, there may be increased sales volatility in the short term due to conservative inventory management by channels. However, if the decline in procedure fees leads to structural volume growth that expands the overall market size, this could serve as a factor driving qualitative growth in performance over the long term."