DRGEM Corporation, the Korean originated manufacturer of x-ray imaging systems published its half-yearly results in August. These financial statements indicate that quarterly sales revenue returned to growth during the second quarter and reached 15.4 billion won representing +3.2% growth year-on-year (YoY). The growth during the second quarter was not enough to offset the contraction during the first quarter and on a calendar year-to-date basis, sales revenue remains -3% lower YoY.
This recent contraction follows a period of sustained high-growth which has averaged +28% per annum between FY 2014 and FY 2018. The weakness in sales activity during the first quarter was driven by lower demand across its core product lines, both domestically and overseas. During the first quarter, export sales revenue contracted by approximately -5% YoY and domestic sales revenue contracted by approximately -21% YoY.
During the second quarter, sales revenue from exports rebounded and grew by approximately 17% YoY. On a calendar year-to-date basis, exports reached 10.9 billion won representing +6.3% growth YoY. Sales revenue from domestic sales remained significantly weaker and were approximately -20% lower YoY. The strengthening activity from international customers was not enough to offset lower domestic demand, resulting in the overall sales revenue contracting of -3% YoY.
The international demand for DR upgrade, retrofit and mobile DR solutions were notably strong during the second quarter, although only accounted for approximately 10% of total revenues during the first half.
One of the factors helping drive sustained growth is the companies strategic partnerships with FUJIFILM Corporation and Samsung Electronics, which are both investors, customers and distributors of DRGEM x-systems and components. These strategic partnerships have materially contributed toward the companies favourable 5-year sales revenue CAGR. The half-year financial statements indicate that FUJIFILM Corporation remains the second-largest shareholder with a 14.2% equity stake. Samsung Electronics was reported as the third-largest shareholder with a 12.8% equity stake held through Samsung Venture Co., Ltd. The partnership agreement with FUJIFILM Corporation means that DRGEM benefits through leveraging FUJIFILM’s worldwide sales distribution channels which helps to deliver a stable sales pipeline. FUJIFILM also provides support with product development and R&D to help ensure new product launches reflect customer requirements and maintain market competitiveness. For example, the G-XR series of fully automated ceiling suspended x-ray systems were originally proposed by FUJIFILM in response to global product trends within developed international markets. The G-XR series of systems are expected to contribute toward continued sales growth as the firm seeks to capture additional market share from the large incumbent OEM’s through a combination of pricing and technological product competitiveness. One of the core benefits for FUJIFILM and Samsung Electronics is the continuous supply of high-quality x-ray generators which DRGEM has been producing on-mass since 2008. The firm has developed a strategic advantage through its know-how in high voltage insulation technology, high power conversion technology, and high voltage control technology which enables it to compete with other generator manufacturers such as CPI (Canada) and EMD (Canada). Theses Canadian firms are still generally recognized as having the best x-ray generator technologies in the world, although DRGEM has made significant progress to achieve recognition for its prowess in x-ray generator technology. Its generators are particularly suitable for small hospitals and small clinics where high power supply is difficult, as well as developing countries with poorer power supply.
DRGEM is also continuing to evolve its distribution in China, historically the world’s second-largest market for x-ray equipment. At present, the company adopts an indirect sales method through its subsidiary, Weihai DRGEM Medical Equipment Co Ltd, which provides local manufacturing to the region, although the company has plans to operate both direct sales through this local subsidiary as well as indirect sales through regional distributors. The expectation is that this evolution of the distribution model will strengthen the companies presence and sales activity. As well as developing out its international distribution, the company has also been investing in expanding its production capacity. The company currently has a factory of 7,000 square meters based in Gumi, Gyeongsangbuk-do (Korea), which has an annual production capacity of 2,500 x-ray systems. The company has recently secured a second factory site of 34,000 square meters in Gimcheon, Gyeongsangbuk-do (Korea), which will increase its annual production capacity to 10,000 x-ray systems. This sizeable increase indicates the level of expected future demand the firm intends to attract.
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