Q & M DENTAL GROUP (S) LIMITED
QC7.SI
Another strong boost from China
- 2Q15 in line, 6M15 core PATMI met 41% of our FY15E. Expect further boost from Singapore acquisitions in 4Q.
- 2Q growth driven largely by two major China acquisitions, Aoxin & Aidite, completed in 2H14.
- BUY & SGD1.05 TP.
- Catalysts from more acquisitions, Aidite’s capacity expansion and possible spin-offs of PRC acquisitions.
Strong delivery; 4Q boosted by more acquisitions
- 2Q15 core PATMI and operating cash flow jumped by 72% and 181% YoY, largely due to contributions from China-based Aoxin and Aidite, two substantial acquisitions that were completed in 2H14.
- Since recognition was started in 3Q14, the China operations have grown to 27% of group revenue in 2Q15. Aidite, the dental prosthetic supplies manufacturer in China, delivered robust growth in revenue (+32% QoQ) but by our estimates, Aoxin was flat QoQ due to hospital improvements instituted after Q&M’s investment.
- Singapore dental business grew by ~10-15%, on the back of five additional dental outlets to 61, up from 56 the year before.
- Going forward, we expect 4Q15 to be boosted by four additional clinic acquisitions in Singapore, with guaranteed contributions of at least SGD0.9m a quarter to more than offset higher financing costs from the SGD60m MTN issued to fund these acquisitions.
- In addition, 4Q is Q&M’s seasonally-strongest quarter, which contributed around 30% of full-year earnings in the past.
Maintain BUY; catalysts from more acquisitions
- Maintain BUY and TP of SGD1.05, which is based on 45x FY16 EPS, 1SD above 5-year mean.
- We believe this valuation captures Q&M’s strong earnings CAGR of 36%, credible M&A record and scarcity value.
- We expect catalysts from more acquisitions and quicker-than-expected capacity expansion by Aidite.
John Cheong | Gregory Yap | http://www.maybank-ke.com.sg/ Maybank Kim Eng 2015-08-14
1.05
Same
1.05
