Straumann Earnings: Mixed Results as Positive Patient Flow Offset by China’s VBP in Full Swing

Narrow-moat Straumann STMN reported mixed results for the first quarter, with total sales up 1.1% year over year. While most of its serviced regions performed better than expected, China significantly hurt the Asia Pacific region. We maintain our fair value estimate of CHF 90 per share as our near-term lower forecast, mostly to Asia Pacific sales, was offset by time value of money.

North America sales were up 6.9% and Europe, Middle East, and Africa increased 7.3%. Patient flow remains positive in both regions while volume growth was the main driver behind both regions’ boosted sales. Latin America continues to show robust growth, up 20.1% year over year, driven by a continued strong performance from Neodent, Straumann’s challenger brand, and VirtuoViso intraoral scanner’s expansion in the region.

Asia Pacific suffered a tough quarter, with sales down 29%. Most of the drop in sales was attributable to China—the country that historically makes up more than half of the segment’s revenue—due to its volume-based procurement policy, or VBP, as well as lower patient flow due to the region’s COVID-19 lockdown. VBP was designed to lower the cost of medical consumables by tendering the market volume to a manufacturer with the lowest price. The policy was finalized during January and went into effect immediately on the private side. The public side, which reflects roughly a quarter of Straumann’s business in the region, is still implementing the policy. Average selling price in the country fell 40%-45% and we expect further pricing headwinds as the public side finalizes its impact. While we expect volume growth, anywhere from 20%-35%, to arise from lower price, we do not believe it is strong enough to offset the price decline. Without China, the region reported solid results, posting double-digit growth, as many developed markets such as Japan—as well as newly established markets like Vietnam—continue to deliver solid performance.