Modern Dental Presents and Extremely Asymmetric Long opportunityCompany Overview
Modern Dental Group, based in Hong Kong, is a global provider of dental prosthetics, including crowns, bridges, implants, and dentures. They also offer orthodontic devices, sports guards, and dental equipment. The company operates in over 23 countries with 80+ service centers. It has expanded through acquisitions, including in Thailand and Vietnam, and launched the QJ Smile clear aligner brand in China. Modern Dental Group is publicly traded on the Hong Kong Stock Exchange under ticker 3600.HK.
The Fundamental Case
The Fundamental case stems from a strong belief that we are going into a period of a structural weakening USD vs almost all global major currencies. Their business model is extremely leveraged to a weakening USD.
Take Europe for example. Modern Dental has performed extremely well in Europe with Revenues having grown 40% in the past two years and now accounting for almost 50% of global revenues. An increase of the EURUSD exchange rate to 1.15, along side the expected growth rate would result in probably what would be a 20% increase in revenue from current levels while costs may only increase 10%.
For the year 2025, the company could be potentially have the following metrics if the Euro appreciates to 1.15:
My 2025 Projections
Revenue: 4.1 Billion HKD
Net Profit 520 million HKD
EPS: 56 cents
Free Cash Flow: ~600 million HKD
This would put the P/E Ratio at just 7 and the Free Cash Flow Yield at 16%
Remember, are are not just talking about how cheap the company is, but the fact that it is a growing revenue in a structurally growing industry with a currency tailwind. Furthermore, they are almost Net debt neutral.
This, in my view, rules out the possibility it could be a value trap.
The Trade.
Id like to go Long at the Current price of $3.95, with a target of $6.00 (50% upside) within the next 12 months.
I'd stop out of this trade if the Euro get back under 1.05 or if the price of the share gets under HKD 3.5.
With a HKD 2 upside vs a HKD 50 cents downside the risk/reward is 4:1.
Thanks,
Kavi
