Acquiring clinic in China
- Acquiring 36% effective stake in Panjin Jinsai Dental Clinic for SGD0.8m, at 9.2x forward P/E.
- Good relationship forged with Aoxin, expect more China deals via Aoxin to replicate Q&M’s Singapore success.
- Raise FY16-17 EPS by 0.4%. Maintain BUY & SGD1.02 TP at 45x FY16 P/E.
Expect catalysts from more acquisitions.
- Chinese subsidiary acquiring dental clinic Q&M’s 60% subsidiary, Aoxin has proposed to acquire a 60% stake in Panjin Jinsai Dental Clinic. This translates into a 36% effective stake for Q&M. Panjin Jinsai currently owns and operates a dental clinic in Shuantaizi District, Panjin City.
- This allows Q&M to add another profitable clinic in the Liaoning Province, where its largest China subsidiary, Aoxin, is based.
Leveraging on Aoxin’s influence for more acquisitions
- This is the fourth dental clinic secured by Aoxin, since its first announcement to acquire Panjin and Gaizhou City Dental Clinics in 3 June 15, which will cost around SGD1.6m.
- We believe Q&M and Aoxin have forged a good working relationship and Aoxin could secure more accretive deals, to replicate Q&M’s Singapore success.
Minor contributions, raise EPS by 0.4%
- Q&M will be using funds raised from its recent MTN.
- Based on its 12-year profit guarantee, Panjin Jinsai is expected to contribute at least SGD85k in annual earnings to Q&M, from FY16 onwards. This assumes deal completion before end-FY15.
- Accordingly, we raise FY16-17 EPS by 0.4%.
Maintain BUY; catalysts from more acquisitions
- Maintain BUY and SGD1.02 TP, based on 45x FY16 EPS. This is 1SD above its 5-year mean to capture Q&M’s strong earnings trajectory, consistent M&A track record and a scarcity premium for healthcare stocks.
- With SGD25m of remaining cash from its MTN issue, we expect more acquisitions that could potentially boost our FY16-17 EPS by another 15-18%.
(John Cheong, Gregory Yap)
Source: http://www.maybank-ke.com.sg
