We Lower Straumann’s FVE to CHF 90 Amid VBP News and a Lowered 2023 Profitability

Narrow-moat Straumann STMN reported 2022 fourth-quarter and full-year results in line with our expectations. Total sales for the quarter were up 9.6%, as all regions except Asia-Pacific posted another positive quarter to end the year in a strong fashion. Despite tough comparisons with 2021, during which it posted 42% year-over-year revenue growth, the firm was able to grow its 2022 top line 15%. For the quarter, premium implantology continued to fuel growth for mature markets such as North America and Europe, regions that showed 13.7% and 11.3% respective year-over-year growth. Latin America remains the fastest growing region, bolstered by the firm’s leading presence thanks to Neodent, its value implant brand.

The most notable update concerned China and its volume-based procurement process. The policy was finalized during the first two weeks of 2023, and Straumann noted that the average selling price for implants sold in China will decrease between 35%-45%. We expect lowered price tags to increase patient flow and still forecast a 20%-30% decrease in 2023 regional sales. While other Asia-Pacific countries continue to show strong growth—all other APAC countries averaged 23% organic growth year over year for the quarter—we expect the VBP to have a significant impact on the overall region considering China made up roughly 55% of 2022 region sales.

After updating our valuation model with full-year results, we lowered our fair value estimate to CHF 90 per share from CHF 92 for a lower contribution from China and a lower near-term profitability, slightly offset by time value of money. Management guided for 2023 high-single-digit top-line growth with 25% core EBIT margin. We forecast low-double-digit growth for EMEA and North America and 25% growth for Latin America, offset by a high-single-digit revenue decline for Asia-Pacific.