Iray Technology Company Limited(688301) (688301)
Key investment points
Leader of digital X-ray detector in China
Iray Technology Company Limited(688301) : a leading global medical detector enterprise. Iray Technology Company Limited(688301) is a leading enterprise of digital X-ray detector in China. In 2018, the company ranked third in the world in the market share of medical detector field. In 2011, the company successfully developed the Chinese mainland’s first domestic amorphous silicon TFT sensor and digital X-ray detector based on the sensor, successfully breaking the monopoly of foreign manufacturers and realizing import substitution and industrialization. At present, among the top ten enterprises in the global imaging equipment market share, the company’s customers account for 5. We believe that the company has formed a local leading position in the global market by virtue of the comprehensive layout of technology and products and the advantages of cost and price. With the continuous expansion of the company in the field of dental CBCT and industry and the gradual large-scale production of products, it is expected to usher in a rapid development opportunity in the future, and the market share will still have great room for improvement.
Revenue and profits increased rapidly, and the performance still exceeded expectations under the pressure of the epidemic. From 2015 to 2020, the company’s operating revenue increased from 210 million yuan to 780 million yuan, with a CAGR of 29.8%; The net profit attributable to the parent company increased from 19 million yuan to 220 million yuan, with a CAGR of 63.7%. In the first three quarters of 2021, the company’s operating revenue was 824 million, with a year-on-year increase of 48.6%, and the net profit attributable to the parent company was 326 million, with a year-on-year increase of 46.6%. In addition, in the first three quarters of 2021, the company’s gross profit margin and net profit margin were 54.8% and 39.7% respectively, an increase of 8.8 and 26.2 percentage points compared with 2018.
2021q3 inventory and contract liabilities increased significantly, guiding the acceleration of 2021q4-2022q1 performance. In 2021q3, the company’s inventory and contract liabilities reached 313 million yuan and 57 million yuan, with a year-on-year growth rate of 185.9% and 301.6% respectively. It is mainly caused by the company’s full orders and preparation in advance. As the company’s digital X-ray detector adopts the sales mode of “production based on sales”, the significant increase in inventory and contract liabilities reflects the continuous improvement of the company’s downstream order demand. Considering that the company’s inventory turnover days are between 131-176 days, which is about 1-2 quarters, we believe that the company’s 2021q4-2022q1 performance acceleration certainty is strong.
Digital X-ray detector: the application scenario is opened, and the 10 billion market can be expected
The digital X-ray detector market is growing steadily, and the industrial and security markets are growing rapidly. In 2018, the global market scale of digital X-ray detectors was about US $2 billion. Yoled é veloppement expects the market scale to reach US $2.8 billion by 2024, with an average annual compound growth rate of 5.9%. In terms of market segments, the market share of medical products accounted for about 74% in 2018, and the proportion of industrial and security market scale is expected to increase from 9% and 13% in 2018 to 11% and 17% in 2024, with CAGR of 9.5% and 10.8% respectively. As an emerging field of digital X-ray detector application, industry and security market may be the field with rapid market expansion in the next five years.
Or more elastic than expected: continuous expansion capacity in dental and industrial fields
The company has the key technology of CBCT detector, the downstream customers continue to expand, and the dental products are expected to bring greater increment. The company’s customers include CBCT leading enterprise Hefei Meiya Optoelectronic Technology Inc(002690) and other head companies, such as Shenzhen fisen, Beijing Landsea, etc. Considering that some customers have completed the registration stage in 2020 and started small batch sales in the second half of 2020, we believe that the company has a complete supply chain independently cultivated and comprehensive technology accumulation. With the gradual growth of customer market and sales, the company’s dental products may usher in a rapid mass production stage. We estimate that the dental operating revenue from 2021 to 2023 will be 170, 281 and 421 million yuan, with the corresponding growth rate of 240%, 65% and 50%, and the proportion of total revenue may reach 14.5%, 17.4% and 18.9%.
The rapid growth in the industrial field has verified the company’s ability to expand in new fields, with high performance and strong growth sustainability. From 2019 to 2020, the overall revenue growth of the company in the industrial field remained above 100%. The rapid growth in the industrial field has verified the company’s core competitiveness in the horizontal expansion of product segments. We believe that industrial security will still be the focus of the company in the next 3-5 years. The good cooperative relationship established between the company and downstream core customers will continue to promote the rapid development of this part of business with the rapid release of the demand for power battery and semiconductor rear section packaging and testing. We estimate that the industrial operating revenue from 2021 to 2023 will be RMB 171 million, RMB 336 million and RMB 600 million, with a growth rate of 184.2%, 96.0% and 78.5%, and the proportion of total revenue may reach 14.6%, 20.8% and 27.0%.
Cost advantage, technical barrier and customer quality build core competitiveness
Cost advantage: “price for quantity” comes from excellent cost control ability. The company has effectively reduced the procurement cost of core components by about 10-26% from 2017 to 2019 by extending its self built factories upstream of the industrial chain, improving the level of product integration and gradually reducing the degree of supplier dependence, and actively participated in the international market competition through the low price competition strategy of “price for quantity”, Promote the rapid increase of the company’s international market share from 8.09% in 2017 to 12.91% in 2019. We believe that the cost-effective moat built by the company with the attribute of made in China will have lasting competitiveness.
Technical barriers: break the technical monopoly, and some technologies have taken the lead in the world. There are less than 20 manufacturers of digital X-ray detectors in the world, of which less than 10 have mastered the core technology through independent research and development and achieved stable mass production. Among the few industry competitors, with excellent R & D and innovation ability, the company has become one of the few digital X-ray detector manufacturers in the world who master all the main core technologies.
Customer quality: downstream customers are of high quality and cover a wide range. The company’s products are exported to more than 70 countries and regions in Asia, America and Europe. Its downstream customers include well-known head machine manufacturers at home and abroad, such as Philips, Siemens, Ruike, Fuji, Konica, ankerui and Hefei Meiya Optoelectronic Technology Inc(002690) . It has partially realized the domestic replacement of imported detectors such as varex and canon. We believe that since the whole machine manufacturers often need to carry out long-term inspection, testing and improvement after selecting detectors, once the cooperative relationship with detector manufacturers is established, it will remain stable for a long time. This stable cooperative relationship and high-quality customer resources have become the company’s more prominent competitive advantage.
Profit forecast and valuation
Based on the analysis of the company’s core business, we predict that from 2021 to 2023, we will achieve operating revenue of RMB 1171, 1614 and 2222 million, with a year-on-year increase of 49.3%, 37.9% and 37.7%, and net profit attributable to parent company of RMB 405, 530 and 788 million, with a year-on-year increase of 82.36%, 30.78% and 48.59%, corresponding to EPS of RMB 5.59, 7.31 and 10.86 per share. The current share price corresponds to PE of 92, 70 and 47 times. Considering the layout rhythm of the company in the field of Dentistry and industrial security and the upcoming release of the production capacity of Haining factory, the company’s revenue will still maintain a high growth rate, so it will be rated as “overweight” for the first time.
Risk statement
The volatility of the impact of equity incentive on apparent performance, the risk of decline in gross profit margin, the risk that the sales of new products are less than expected, the risk of raw material supply, exchange risk, etc.
