On 30th March, DRGEM Corporation, the Korean originated manufacturer of x-ray imaging systems, published it’s audited 2019 financial results. These show that sales continued to grow during the fourth quarter, contributing toward modest full-year growth. The Q4 2019 sales revenue reached ₩19.7 billion, compared with ₩17.8 billion, an increase of +10.2% year-on-year. This took full-year 2019 sales revenue to ₩60.2 billion, compared with ₩56.6 billion, an increase of +6.4% year-on-year.
The sales growth during 2019 was driven by higher sales revenue from international exports which were partially offset by lower revenue from domestic customers. The sales revenue from exports accounted for approximately 77% of total company revenues and were approximately +20% higher, relative to 2018. In contrast, revenue from customers based in South Korea contracted by approximately -22%, relative to 2018, and accounted for the remaining 23% of revenue. Export sales are generated through a combination of strategic partnerships as well as agency contracts with approximately 150 distributors globally. From a geographical perspective, the companies largest export markets have historically been the United States, Turkey and Iran, with China becoming increasingly significant. In recent periods, DRGEM has been focused upon evolving its distribution within China in order to strengthen future sales pipeline. 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. The company reports plans to operate both direct sales through this local subsidiary as well as indirect sales through regional distributors.
From a product mix perspective, the sales growth during 2019 was driven by a combination of higher sales revenue from fixed and mobile digital radiography (DR) systems, DR retrofit solutions as well as service sales for warranty, installation and maintenance. Sales growth within these areas were partially offset by lower sales from generators as well as veterinary DR systems.
The revenue originating from the sale of fixed DR systems to customers based internationally were approximately +9% higher, relative to 2018, while sales to customers based in South Korea contracted by approximately -20%, resulting in the overall growth of +1% year-on-year. The companies portfolio of fixed DR systems, which encompasses the GXR and the Diamond systems, accounted for approximately 71% of total sales revenue during 2019. Both the GXR and Diamond imaging systems are available within the United States, which has historically been a strong export market for the company. The GXR series received FDA 510(k) clearance during September 2019 and the Diamond system received FDA 510(k) clearance in October 2019. Both are approved to utilise flat-panel detectors by Varex Imaging to offer wireless digital configurations.
Revenue originating from the sale of mobile x-ray systems as well as retrofit DR solutions were significantly higher during 2019 and increased by approximately +50% and +100%, relative to 2018. The companies portfolio of mobile x-ray systems encompasses the TOPAZ system, a “premium” motorised digital solution and the JADE system, a highly compact, non-motorised “value” solution with both digital and analogue configurations. Both products are available within the United States with FDA approvals occurring during 2019. The TOPAZ system received FDA 510(k) clearance during May 2019 and the JADE system received FDA 510(k) clearance during February 2019. The companies digital upgrade or retrofit solution is branded RADMAX within the U.S. and received FDA 510(k) clearance during March 2019.
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 historic sales revenue CAGR:
The 2019 full-year financial statements indicate that FujiFilm Corporation remains the second-largest shareholder, with 14.25% equity ownership. Samsung was reported as the third-largest shareholder with ownership through Samsung Venture Co., Ltd. The partnership agreement with FujiFilm Corporation means that DRGEM benefits through leveraging FujiFilm’s worldwide sales distribution network 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 and EMD. Theses Canadian firms are still generally recognised 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.
Production capacity and volumes
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, which has an annual production capacity of approximately 2,500 units per annum. The company has recently secured a second factory site of 34,000 square meters in Gimcheon, Gyeongsangbuk-do, which will increase the companies annual production capacity to approximately 10,000 units per annum.