The pandemic "breaks" the track, how high can ANGELALIGN Angels still fly?

If we divide the companies covered by Dolphin into two camps, "small and beautiful" and "big and strong," Times Angel is a typical representative of the former. Generally speaking, Dolphin is cautious when choosing to cover small companies because small companies are risky and many of them fail before they even start. A large number of small companies remain small and never grow, and they ultimately lose their charm.

However, Dolphin decided to take a look at Times Angel because, in its view, although it operates in a small market, it has formed relative barriers to entry through its case database, the number of platform doctors, and its patents. Its growth has a certain level of certainty. Based on this long-term certainty, Dolphin included Times Angel in its virtual portfolio, Alpha Dolphin, with a lower allocation weight after the valuation adjustment this year.

Let's first review the original logic of Times Angel:

"In an upward trend, Times Angel leverages its accumulated advantages in doctors and cases to expand the number of cases through doctor cooperation, rapidly increase the optimization of the backend orthodontic design capabilities through the increase in case numbers, improve the experience of doctors and patients, increase the delivery volume of individual doctors, and expand the number of cases. More accurate case numbers improve the experience for doctors and patients, ultimately leading to positive scale advantages."

However, looking at the situation in 2022 and disregarding the ever-changing expectations of centralized procurement policies, there seem to be three major changes from a fundamental perspective:

In the first half of this year, first-tier cities were hit by consecutive outbreaks, resulting in the closure of offline businesses. Even essential medical treatments became difficult, let alone non-urgent needs like orthodontics.
Invisible orthodontics, as a key service targeting young female white-collar workers in first- and second-tier cities, is a high-priced, low-frequency, and optional "upgrade" consumption category. The soaring youth unemployment rate this year seems to cast a shadow over medium-term demand.
Dolphin has observed that high-end invisible orthodontics, which positioned itself in the market this year, is attempting to increase its market share by lowering prices. This downward pressure on invisible orthodontics has also led Times Angel, which targets the mass market, to follow suit. In an industry characterized by high profits and a few dominant players, when demand is weak, it is easy for the top players to clash. The short-term competitive landscape seems to be deteriorating.

These changes seem to indicate that the actual situation in the short term did not follow the "established" script initially envisioned, and the medium-term situation is worse than expected. Therefore, Dolphin has reevaluated Times Angel.

Therefore, this reevaluation of Times Angel will revolve around the two core fundamental changes mentioned above: (1) As a growing player in the small and beautiful market, what is the actual potential of invisible orthodontics? (2) When high-end players start lowering prices, does the logic of Times Angel's increased market share still hold? (3) Can Times Angel recover from its high position? Where is the reasonable valuation after the bubble bursts?

Among them, in the case of Times Angel's already high market share in the field of invisible orthodontic cases, the question of how much the market can expand is more important. This article will focus on addressing the first question, while the next article will address the second and third questions. And to answer the first question, Dolphin breaks down this article into several smaller questions:

What kind of people have orthodontic needs?
What are the main concerns and worries in orthodontics?
What are the pain points in traditional orthodontic processes? Can invisible orthodontics solve them?
Is the user base for invisible orthodontics expanding?
How big is the potential industry scale?

For historical articles, please refer to "Angel of Time (Part 1): How high can you fly with "invisibility" wings?" and "Angel of Time (Part 2): After experiencing the sell-off in the Hong Kong stock market, is the entry opportunity finally here?"

This article is an original research article by Dolphin. Unauthorized reproduction is prohibited. It is recommended that interested users add the WeChat account "dolphinR123" to join the Dolphin Research Circle and discuss global asset investment perspectives together!

The following is the main text:

1. Money is the foundation, women are the main force, and the pursuit of beauty is the driving force

Oral health needs are positively correlated with income. The higher the income, the higher the attention to oral health. In the past decade, as people's income has increased, the attention to oral health has also steadily increased, and the number of visits to oral specialty hospitals has continued to grow. Considering the current environment, Dolphin believes that the economy has cycles and the pandemic has fluctuations, but the overall trend of increasing residents' income over time has not changed. Expenditure on oral health will also continue to grow, and a solid foundation of financial stability will promote an increase in the orthodontic treatment rate.

Focusing on orthodontics, although traditional orthodontics is generally cheaper than invisible orthodontics, it still costs around 10,000 to 15,000 yuan. Of course, the expenditure on invisible orthodontics is usually higher. For example, the terminal price of invisible orthodontic products under Dolphin's Time Angel brand is generally above 18,000 yuan, and the terminal price of Invisalign is even higher. It is true that only when people have sufficient financial resources can they generate consumption demand. Dolphin believes that with good economic development and everyone's efforts to earn money, the foundation of orthodontic demand will be solid. Otherwise, if the demand shrinks, the industry's development will be mired in a quagmire.

The change in the year-on-year growth rate of case numbers in the past two years also deeply reflects the importance of a solid financial foundation. Before the pandemic, the number of invisible orthodontic cases in China was growing rapidly every year. However, since the pandemic, the growth rate of case numbers has fluctuated significantly. In 2020, due to the impact of the pandemic, the year-on-year growth rate dropped to 11.83%. It has recovered in 2021, but the year-on-year growth rate in the first half of 2022 has also shown a significant decline, from around 75,000 in 2021H1 to around 60,000 in 2022H1. **Dolphin believes that if there is no significant recovery in the pandemic and the economy in the second half of 2022, This year, the possibility of negative growth cannot be ruled out, after all, the core customer group - the youth, has a high unemployment rate and uncertain income prospects, which has suppressed demand.

Women are the main force behind invisible orthodontics, and the pursuit of beauty is the driving force! Here, Dolphin shares a set of research data with everyone:

Through research on orthodontic patients, it was found that women account for 67.2%.
First-tier and new first-tier cities account for 85%.
Concentrated between 18-39 years old,

The core customer profile depicted by points (a)-(c) is: young women in first-tier and new first-tier cities who have money and love beauty. In the long run, such consumer characteristics will gradually spread to the sinking market with economic development, promoting the increase in orthodontic penetration rate.

Second, the long-term guarantee for increasing penetration rate: improved orthodontic effect + product price reduction

By analyzing the focus and concerns of consumers during orthodontic treatment, it is found that the core concerns of consumers are actually the orthodontic effect and price. Dolphin believes that the orthodontic effect is guaranteed to improve, and the probability of product price reduction is high. This two-way effect will be beneficial to the increase in orthodontic rate and invisible orthodontic penetration rate in the long term.

Regarding orthodontic effect: The orthodontic effect depends on the doctor's experience, technique, and product quality. Dolphin believes that invisible orthodontic manufacturers can empower dentists systematically, help dentists develop suitable correction plans, better serve consumers, and top orthodontic manufacturers have also upgraded their materials. If used with functional components, the ability to solve complex cases is improved, and the overall coverage of cases can reach 90%, which is a 10% improvement compared to the past.
Regarding price: In April 2022, Dolphin took the lead in reducing prices. It is estimated that some people cannot resist the temptation of using Dolphin starting from 25,000 yuan. Era Angel has also introduced competitive strategies to give benefits to channels. In addition, Era Angel has launched Comfos for the sinking market, with lower prices and outstanding cost performance, meeting the needs of the sinking market.

Now let's see what invisible braces manufacturers have done from several pain points that users are concerned about.

Dental technology and experience: Paying attention to the core concerns behind dental technology and experience is the final orthodontic effect. After all, orthodontics is for beauty, and users have to endure about 2 years of discomfort, inconvenience, and ugliness. Therefore, during orthodontic treatment, they will ensure the final effect by scrutinizing the dentist's experience and technology. Currently, in the context of a shortage of orthodontists and dentists as a channel, invisible orthodontic manufacturers will systematically assist dentists in the following ways:

Era Angel provides regular dental training courses and sets up dental clinics offline for training dentists.
In terms of hardware, Era Angel has developed the oral scanner business in 21, providing convenient and cost-effective or complimentary oral scanners to service dentists and clinics, helping them better obtain consumer oral data.
Era Angel uses software such as iOrtho, Make it, and A-Treat to assist dentists in designing treatment plans and managing patients, thereby improving the efficiency of dentists.

The Dolphin invisible orthodontic manufacturer assists dentists through various means, which can enhance the overall level of dentists and enable general dentists to engage in orthodontic work. Especially for top brands, their higher-quality medical design teams and larger case databases can better assist dentists.

Product Output: Material is the core factor affecting product quality and the key factor in achieving orthodontic effects. Currently, invisible orthodontics mainly use two materials: TPU and PETG. Various technical indicators show differences. After analyzing the technical indicators, the Dolphin concludes the following two points: 1) Whether the material can generate sufficient traction; 2) Whether the material can exert continuous force on the teeth, specifically whether the material can provide sufficient traction and act on the teeth for a relatively long time to achieve tooth movement and correction.

Both Invisalign and Era Angel use TPU materials with better overall performance. Although the two companies choose different material properties adjustments, Invisalign focuses on comfort while Era Angel emphasizes corrective force. However, both companies' materials can achieve the desired corrective effect. In addition, Era Angel and Invisalign have successfully upgraded their materials, increasing the coverage of complex cases from 70% to 80%. With the cooperation of various functional components, the coverage of complex cases can reach 90%.

Treatment Cost: Currently, orthodontic treatment costs are relatively high, especially during the pandemic, when people become more cautious about discretionary spending. However, the Dolphin believes that after the economy improves, suppressed demand will rebound. The consumer attribute of invisible orthodontics, although delayed, remains unchanged. In addition, Dolphin has discovered that the competition in the industry is becoming more intense. One of the two leading players, Invisalign, has launched a low-priced product after 22 years, with a starting retail price of 25,000 yuan. To counter Invisalign's move, Era Angel has decided to compete by offering discounts through channels. They have reduced the factory price of the standard version by 500 yuan and made efforts to maintain the retail price unchanged. They are now rolling up their sleeves and competing with Invisalign in the same price range. Furthermore, Zhengya and other new players can only seize the market mainly through low prices. Therefore, the cost of invisible orthodontics is expected to gradually decrease.

"3. Invisible orthodontics triumphs over traditional orthodontics, and the penetration rate of invisible orthodontics soars?"

Invisible orthodontics understands the thoughts of urban workers who are concerned about their appearance, find traditional orthodontics troublesome, and are too busy to take frequent leave. Therefore, it better meets the needs of urban workers in terms of treatment process, aesthetics, comfort, hygiene, and convenience. Therefore, it is highly likely that the penetration rate of invisible orthodontics will increase.

"1. Comparison of treatment processes:"

From the initial visit to the removal of braces, both traditional orthodontics and invisible orthodontics take about 1-2 years. By comparing the treatment SOPs, it can be seen that the process of invisible orthodontics has been somewhat reduced. The initial installation is less difficult, and the convenience is improved during daily cleaning and follow-up visits. Dolphin believes that the increased convenience in daily cleaning and reduced number of follow-up visits and time consumption are truly a blessing for urban workers. It reduces trouble and saves time. Under these circumstances, as long as the results are guaranteed and the cost is affordable, it is estimated that invisible orthodontics will become the preferred choice for urban workers.

Here, let's compare the processes of traditional orthodontics and invisible orthodontics:

"About traditional orthodontics"

First, oral data is collected, including X-rays, dental models, and photographs. This process may take half a day. Then the dentist formulates a treatment plan and orders orthodontic devices. It may take several days to wait for the orthodontic devices, during which tooth extraction or other tests can be completed if necessary.
Then the dentist personally installs the braces for us, attaching brackets and bending wires. It's time to experience the orthodontist's craftsmanship.
After that, follow-up visits are scheduled every month or so, each lasting more than 30 minutes, for a total duration of 1-2 years. During this period, we live and work with braces, adapt to them, clean them regularly, and may even be called "metal mouth."
In the final stage, the braces are removed, and the midline is adjusted and closed. Finally, a retainer is worn for a period of time to maintain the results. In the end, we achieve a set of straight, white teeth.

"About invisible orthodontics"

First, oral data is scanned using an intraoral scanner, which takes no more than 30 minutes. The scanned data is then uploaded to Era Angel's iOrtho cloud platform. In addition, X-rays and photographs of the mouth are taken.
Then the dentist uploads the data and treatment plan, and Time Angel conducts 3D modeling and treatment plan design through the medical design team and case database. The dentist completes the final review and adjustments, and confirms the final treatment plan. This process takes about 4-5 days;
Then Time Angel produces the orthodontic aligners, sends them to the dentist, and the dentist provides guidance on wearing them. Follow-up visits are scheduled every 2-3 months, with each visit lasting about 15 minutes. The entire treatment process takes 1-2 years.
After wearing all the invisible aligners, we can achieve a set of neat and white teeth.

2. Comparison of Orthodontic Methods: By comparing four orthodontic methods, it is found that invisible orthodontics stands out in terms of overall competitiveness. It has a lower awareness level than traditional metal braces, but higher aesthetic appeal than lingual braces. At the same time, it has significant advantages in terms of comfort, hygiene, and convenience. Dolphin believes that in today's fast-paced work and life, products that can fully meet consumers' various needs are truly competitive. Invisible orthodontics meets the aesthetic requirements of beauty-conscious individuals, while making the wearing process less uncomfortable and reducing the frequency of follow-up visits. If Dolphin has a need, it will definitely choose invisible orthodontics.

4. Expansion of Target Audience

Dolphin believes that with material upgrades and the accumulation of more cases, the ability of invisible orthodontics to handle complex cases has improved, and the product has also been upgraded. In addition, invisible orthodontics has expanded its target audience to children aged 5-12 during the mixed dentition period, guiding tooth alignment through pre-designed aligners.

1. Product Upgrade: After Time Angel and Invisalign completed material upgrades, the invisible aligners have stronger control over tooth movement, allowing for more powerful and lasting tooth traction. Moreover, as more complex Asian cases are recorded in their respective case databases, the ability of invisible orthodontics to handle complex cases has improved. The more cases there are, the stronger the problem-solving ability, perfectly validating the logic of "the strong get stronger".

2. Expansion to Children in the Mixed Dentition Period: Compared to traditional orthodontics, invisible orthodontics can provide better preventive orthodontic treatment for children aged 5-12 during the mixed dentition period, further expanding the target audience for orthodontics. Dolphin believes that traditional orthodontics is most effective when performed after the teeth have fully formed, but invisible orthodontics can predictively design aligners to guide tooth alignment and achieve the desired orthodontic results.

5. 6 Million Cases and a Trillion-Yuan Market?

When Dolphin calculated the market space, it looked at the market space forecast made by Time Angel in its prospectus, and the outlook was extremely optimistic. The number of cases is expected to reach around 5.8 million in 2026 and 9.5 million in 2030. It's soaring to the sky! Of course, Dolphin also looked at other market expectations, and those with logical support generally predicted around 1.3 million cases in 2026. 2030 is expected to have around 2.7 million cases, which is slightly more optimistic than Dolphin's estimate. Based on the current market environment, Dolphin used two calculation methods to conclude that there will be approximately 1 million cases in 2026, with a compound annual growth rate of about 20% from 2021 to 2026. By 2030, there will be around 2 million cases. Dolphin's estimate takes into account the impact of the pandemic and is generally neutral.

Here are some reasons why Dolphin's predictions differ from the market:

Dolphin considers a decline in population after 2025. This means that the number of patients with malocclusion will decrease assuming the incidence rate remains unchanged.
Dolphin's calculations involve a more detailed breakdown of age groups and takes into account different incidence rates for each age group, rather than using a uniform calculation of 74%.
Dolphin believes that the orthodontic treatment rate will not increase rapidly due to economic and pandemic factors, but it is expected to increase faster from 2025 to 2030 compared to before 2025.
Dolphin believes that in the current market environment, the development of the industry relies heavily on the increase in the penetration rate of invisible orthodontics. Considering that invisible orthodontics is known to be better than traditional orthodontics, the price of the product plays a key role in increasing the penetration rate of invisible orthodontics. In reality, in April 2022, Invisalign launched a low-priced product, and Angelalign reduced the factory price of its standard version to benefit the distribution channels. Not to mention other players in the market who mainly compete for market share through low prices. Moreover, the price difference between invisible orthodontics and traditional orthodontics is not significant anymore, so the penetration rate of invisible orthodontics is increasing at the right time.
Dolphin believes that after the top manufacturers reduce prices in 2022, there will be no significant price changes in the next 2 years. However, in the medium to long term, the end retail price will continue to decrease.
Dolphin believes that both Angelalign and Invisalign have upgraded their materials and functional components, which have improved the coverage and treatment effects for complex cases. With the continuous accumulation of databases, they can solve about 90% of the cases in the market, and in the future, this can reach close to 95%.
Dolphin believes that the economic foundation is the basis for invisible orthodontics. Therefore, when conducting tests, it takes into account the growth of per capita income to determine the number of people capable of affording invisible orthodontics.

Method 1:

First, the number of patients in different time periods and age groups is determined based on the incidence rate of malocclusion. Then, the overall number of orthodontic cases is determined based on the orthodontic treatment rate. Finally, the number of invisible orthodontic cases is calculated based on the penetration rate of invisible orthodontics. The growth potential of the orthodontic treatment rate and the penetration rate of invisible orthodontics refers to data from the United States in 2020, while also considering factors such as per capita income, oral health awareness, and the pandemic in a neutral manner.

Dolphin believes that with the development of the economy and the improvement of residents' health awareness, the domestic orthodontic rate and the penetration rate of invisible orthodontics have also reached a relatively high level. At the same time, Dolphin has fully considered the soft factors such as per capita income, oral health awareness, and the epidemic in the Celestial Empire. Finally, it obtained the number of patients, orthodontic cases, and invisible orthodontic cases. The core data is as follows:

After determining the number of cases, the market size is determined by the terminal selling price. By 2026, the number of invisible orthodontic cases in China will reach 1 million, and the market size will reach about 33 billion. Dolphin will provide detailed data in the form of a table below for reference:

Method 2:

First, Dolphin determines the age group of the main orthodontic population, which is 5-49 years old. Then, based on the incidence rate of malocclusion in different age groups, it determines the number of orthodontic patients. Finally, based on the proportion of suitable candidates for invisible correction, it determines the ceiling of the population using invisible correction. The core data is as follows:

Secondly, after obtaining the number of people suitable for invisible correction, Dolphin refers to the proportion of average annual income and determines that individuals with an income of more than 34,000 yuan per capita are likely to have enough money for invisible orthodontics with the help of family members. Finally, it obtains the potential population for invisible correction. The core data is as follows:

Finally, the number of invisible orthodontic cases is determined based on the orthodontic correction rate and the penetration rate of invisible orthodontics. Since Dolphin has already filtered the potential population for invisible orthodontics based on per capita income, which means it has purified the population suitable for invisible orthodontics, both the orthodontic correction rate and the penetration rate of invisible correction are higher than the industry average. The core data is as follows:

After determining the number of cases, the market size is determined by the terminal selling price. By 2026, the number of invisible orthodontic cases in China will be 1.014 million, and the market size will reach about 30.5 billion. Dolphin will provide detailed data in the form of a table below for reference:

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