Value Added Technology: Weakness in China vs. Hopes on Europe and US – BusinessKorea

The author is an analyst of Shinhan Investment Corp. He can be reached at mingu.jeong@shinhan.com. — Ed.

Retain BUY with a lowered target price of KRW46,200

We maintain our BUY rating on Value Added Technology, but lower our target price to KRW46,200 to reflect downward earnings revision for 2022. Our new target price is derived by applying a target PER of 11.7x to 2022F EPS of KRW3,955 (previously KRW5,156). The growth of the global dental equipment market is expected to be led by the value segment. Value Added Technology stands to enjoy steady growth as the world’s largest supplier of 3D CT equipment with strong price competitiveness. Its shares are currently seen undervalued at 2022F PER of 8.3x even when considering the recent earnings revision.

Brisk sales in North America and Europe sustain top-line growth in 2Q

Value Added Technology is expected to have generated operating profit of KRW17.6bn (-11.6% YoY) on sales of KRW90.1bn (+6.0% YoY) for 2Q22. Sales from the Asian region including China should have dropped 35.9% YoY to KRW13.5bn, hit by shutdowns in Shanghai that have continued since April. However, the company’s top-line growth should be driven by the ramp-up of sales of GreenX equipment, which carries a high price tag, in North America and Europe in 2022. While global rivals have been slow to bring out new products, Value Added Technology has continued to launch new offerings and expand its sales power, resulting in market share gains. Sales from North America and Europe are estimated to have jumped 24.7% YoY to KRW57bn. Operating margin likely slipped 3.9%p YoY to 19.6% due to rising costs from raw material price hikes.

2022 forecasts revised down on prolonged shutdowns in Shanghai

We revise our earnings forecasts for full-year 2022 because of the shutdowns in Shanghai that started in 2Q. Sales are down-adjusted from KRW384.8bn to KRW363.8bn (+7.3% YoY) and operating profit from KRW80.3bn to KRW67.5bn (+3.1% YoY). Operations in Shanghai are expected to return to normal at the end of 3Q. Capacity additions and launch of premium equipment (Green16, Green18, etc.) in China should be pushed back to the year-end.

We believe Value Added Technology will resume full-fledged growth from 2023, as capacity expansion and new equipment releases in China are set to begin in 4Q, and its product mix is improving steadily with focus on high-priced equipment in North America and Europe.

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