What kind of company is Vatech?
If your dental condition is not good, it's common to undergo an X-ray examination at the dentist. After taking X-rays, the dentist unfolds the dental condition like a panorama, showing the images without any omissions. This reveals how much neglect has occurred in dental care, similar to checking a report card. Additionally, if implant or orthodontic treatment is needed, the complexity increases, requiring a CT scan. For those with a slight interest in medical devices, it's known that Vatech, the world's leading company in dental CT, is used by most dental practices worldwide. Vatech, a publicly traded company, reported a 11.5% decrease in revenue and a 13.2% decrease in operating profit in the third quarter of this year compared to the same period last year, affected by high interest rates and economic downturn. However, the operating profit margin still stands at 19.3%, with third-quarter revenue of 876 billion won and operating profit of 169 billion won. It continues to maintain its position as a 'hidden champion'.
What kind of company is Vatech?
Developing the world's first digital X-ray system
Vatech didn't have a smooth start from the beginning. While the company's founding year is listed as 1992, its current business model is considered to have started around 2002. Since then, the company has been using the name 'Vatech' and has focused its business on dental X-ray diagnostic equipment.
Originally, Vatech started as an industrial inspection equipment company and faced challenges in a competitive market. At that time, Ro Chang-joon, the president of Vatech Networks, who was the CEO of Vatech at the time, decided that the company needed to find a unique and globally competitive business area to survive. After reviewing hundreds of items based on X-ray technology, they found the medical X-ray market. At that time, the domestic market was in the early stages of introducing digital dental X-rays, relying entirely on imports. Believing that there would be an advantage in quickly seizing the market with digital technology, they recruited technicians from Finland and devoted all employees to development. They even started sales with catalogs before product development was complete, a story that has been widely circulated among many dentists.
Back then, dental offices had limited space, with only one X-ray shielding room. To install a CT, another shielding room was needed. In response, Vatech developed the world's first '3-in-1' digital X-ray system in 2005, combining CT for orthodontic and implant treatments with cephalometric imaging for panoramic views. Introduced to Europe in 2006, it received enthusiastic responses from dentists worldwide. This marked the beginning of Vatech's journey as a global export company.
As of the third quarter of this year, Vatech has a global sales network with 18 overseas subsidiaries and over 100 representative offices in various countries. Export accounts for 90% of total revenue. Last year, they exported dental X-ray diagnostic equipment worth 360 billion won, and the average annual revenue growth rate over the past three years is 27.2%. Thanks to this, Vatech became the first in the dental industry to achieve '2 billion dollars in exports' jointly with Osstem Implant.
A company official explained, "Unlike other medical device companies in Korea, where sales are heavily concentrated in Asian countries, especially China, Vatech has a balanced export distribution, with 25.8% from North America and 27.7% from Europe." The company went public on the KOSDAQ market in 2006.
Why is the operating profit margin high?
Mainstream sales are 3D high-value-added products
What is the secret to Vatech achieving an operating profit margin approaching 20%?
The company points to the brand premium as a key factor.
A company official introduced, "In the United States, Vatech is recognized for high-quality premium products. Considering the characteristics of advanced medical markets sensitive to radiation exposure, Vatech provides high-quality X-ray images with low radiation, convenient software, etc., making it popular in the U.S. market."
Vatech distinguishes its low-dose premium CT by branding it as 'Green CT.'
The official explained, "In advanced markets, there is a high demand for premium equipment because implant and orthodontic treatments are frequent. Therefore, the profit margin is high."
The fact that high-value-added new products are gaining traction in the market is also a positive factor. In the industry, there is a trend of placing higher value on 3D (three-dimensional) products that can diagnose the dental condition more comprehensively.
In this trend, Vatech strengthened its 3D product lineup by releasing the premium CT 'Green X' with root canal treatment diagnostic functionality in September 2020, the entry-level CT 'A9' in September 2021, and the 'Smart X' in May 2023, which can obtain high-resolution images in five areas with a single shot.
Kim Chung-hyun, an analyst at Mirae Asset Securities, mentioned, "A more meaningful point is that Vatech has achieved internalization of core components (detector, generator, etc.) of such high-priced equipment, which is a so-called technological internalization. This is quite helpful in terms of cost management."
It's worth noting that Vatech receives the core component, the detector, from its affiliate, Rayence, and major components, such as the column, in a modular form, from its affiliate, Vatech ENG. Through joint efforts from research and development to finished product manufacturing, they have increased cost competitiveness.
Swift market responsiveness has also been a significant strength in crisis management.
In the early days of 2020, when the global dental market was frozen due to COVID-19, Vatech utilized world-class small CT technology to develop a low-dose, high-resolution small CT capable of diagnosing viral pneumonia in just six months. This was in response to the high number of suspected pneumonia patients among COVID-19 patients. In April of that year, it obtained approval from the Korea Food and Drug Administration and supplied it to small and medium-sized hospitals with less than 200 beds, nursing hospitals, screening clinics, closed wards, and intensive care units. As a result, Vatech dominated the domestic small CT market and currently shows a market share of nearly 95%.
Any weaknesses?
High-interest era... Difficulty securing new customers
Of course, Vatech also has weaknesses.
There are evaluations that the company's business expansion is limited as its major revenue source is centered around diagnostic equipment. For example, it is challenging to find Vatech's name in the field of equipment such as intraoral scanners, 3D printers, milling machines, as well as software sectors like CAD and AI solutions.
Analyst Kim Chung-hyun mentioned, "Other medical device companies have a business model that raises revenue through consumable sales after product sales. Vatech almost lacks such a model, so it has to rely on repeated revenue from existing transactions. It has a high dependence on new business, and in the current uncertain economic situation, it may face difficulties in new business."
In addition, the rise in interest rates and leasing costs during this high-interest era has resulted in a contraction in global demand for dental equipment. Furthermore, local companies in the Chinese market are swiftly developing competitive products, presenting a challenge to Vatech's growth.
A company representative stated, "By introducing a product lineup tailored to the specific situations in each country, including advanced and emerging markets, and by accelerating market penetration, Vatech aims to contribute to the smartification of dentistry through the expansion of a diverse product lineup and the reinforcement of market dominance."
Vatech remains dedicated to creating a better dental treatment environment and has plans to further expand its product lineup. While the company continues to encounter challenges, it believes that innovation in X-ray diagnostic equipment and integration with various solutions will contribute to the progress of dentistry.
In conclusion, despite facing challenges, Vatech maintains its position as a global leader in the dental CT industry, showcasing a robust global presence, brand recognition for premium products, and ongoing efforts in product development and market expansion. The company's ability to adapt to market demands and introduce innovative solutions has played a pivotal role in sustaining its position in the highly competitive dental technology sector.
[This text has been re-edited from an article published in issue 2237 of Maeil Business Economy (December 06, 2023 - December 12, 2023).]