Scaling up in China
- Impressed with China operations during our recent visit. More positive on growth potential.
- Observed good working relationships with the Chinese. Expect greater penetration of dental hospitals & capacity expansion. Adjust FY15E/16-17E EPS by -9%/+3% for a 3- month delay in acquisitions/higher Aidite contributions.
- Maintain BUY with higher TP of SGD1.05 from SGD1.02 after EPS increase. Still on 45x FY16 P/E. Expect catalysts from more acquisitions & capacity expansion.
Visited Dental Hospitals & Manufacturing Plant
- We visited Q&M’s operations in Liaoning Province, including Aoxin’s three hospitals, the Liaoning Medical University (LMU) Stomatology Hospital No. 2 and Aidite’s manufacturing facilities.
- We were impressed with their scale and standards of operations.
- We now expect greater contributions from Aidite as it aims to add two new production lines when its new facility is completed in Oct 2015. This is to meet overwhelming demand.
- We also think Aoxin has much more room for growth as two of its three hospitals are new.
- One just commenced operations a year ago while the other just completed its 3-month renovation. We raise FY16-17 EPS by 3% for higher Aidite contributions but reduce FY15 EPS by 9% for a 3- month delay in the completion of its four Singapore acquisitions.
- We expect 2Q15 core earnings to be c.SGD2.2m, down QoQ due to MTN interest costs. However, YoY growth could be c.80%, from Aoxin’s & Aidite’s contributions. 4Q15 will be a catch-up quarter.
Smooth Integration, Followed by Further Expansion
- We understand that Aoxin intends to replicate Q&M’s Singapore model of expanding through acquisitions and internally. It will turn its attention to the privatisation of public hospitals as this segment offers substantial growth potential.
- After our EPS adjustments, we raise TP to SGD1.05 from SGD1.02, still based on 45x FY16 EPS.
- This is 1SD above Q&M’s 5-year mean.
- We expect catalysts from more acquisitions and quicker-than-expected capacity expansion.
(John Cheong; Gregory Yap)
Source: http://www.maybank-ke.com.sg
