Q & M Dental Group Ltd - New clinics support earnings growth

23 May 2022
  • Earnings were within expectations. 1Q22 revenue and PATMI were 27%/25% of our FY22e forecast. New dental clinics drove dental earnings growth.
  • Excluding disposal gains and COVID-19 PCR earnings, we estimate dental earnings growth of 27% to S$5.7mn in 1Q22.
  • We maintain our FY22e PATMI and BUY recommendation. The target price is unchanged, and core dental operations are valued at 25x PE FY22 earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.175, Not Rated), is valued at market price with a 20% discount. Q & M Dental is expanding its franchise of dental clinics across Singapore and Malaysia. We estimate the number of clinics to grow at 18% CAGR over the next two years (or 27 p.a. vs management target of at least 30 p.a.).

The Positive

+ Fewer clinics this quarter but up 17% YoY. Only 2 clinics were opened in Singapore, unchanged from a year ago, but fewer than the 7 clinics opened last quarter.  Total number of clinics in Singapore rose 17% YoY to 99. Together with Malaysia, the total number of new clinics opened was 5. The company maintained the guidance of at least 30 and has identified 10 new locations.

 

The Negative

– COVID-19 PCR tests contribution becoming negligible. COVID-19 related earnings from Acumen, as measured by minority interest, has declined 76% QoQ from S$2.9mn to S$0.7mn. The need for PCR tests is now largely for outbound travellers. Acumen’s focus is on sepsis and cancer marker PCR tests.

 

Outlook

We believe the reopening of borders will become a near-term headwind as the availability of dentists decline and patients will likely fall due to travel reasons.  New dental clinics will be the key earnings driver for the company. Other benefits of a larger dental chain are the de-risking revenue contribution from a larger pool of dentists and a more valuable referral ecosystem to the specialist dentist. In 1Q22, industry outpatient dental admissions was down 14%, QNM likely took some market share judging by the more stable revenue.

 

Maintain BUY with an unchanged TP of S$0.71

QNM is on its most aggressive expansion plan from an average of 5 clinics p.a. before 2019 to currently 25 to 30 p.a. Earnings in FY22e will be impacted by the collapse in COVID-19 PCR test revenue.

About the author

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

Latest Reports

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com