Q&M Dental Group - Maybank Kim Eng 2016-01-29: A Strong Platform for Growth

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Q & M DENTAL GROUP (S) LIMITED QC7.SI 

Q&M Dental Group (QNM SP) - A Strong Platform for Growth 

Acquiring three clinics 

• Q&M is acquiring Lee & Lee Dental for SGD10m, with 51% cash and 49% shares, at 14x P/E. 
• We trim our EPS by 1-2% for slight delays in pipeline acquisitions, offset by contributions from Lee & Lee. 
• Accordingly, our TP dips to SGD0.93 from SGD0.97, still at 42x FY16 P/E or 1SD above 5-year mean. Maintain BUY. 
• With SGD20m of cash left from its MTN, we expect more acquisitions that will provide further positive catalysts. 

Lee & Lee: 11% share premium suggests confidence 

• Founded in 1984, Lee & Lee Dental is one of the most-established dental surgeries in Singapore. It operates three clinics in Ocean Financial Centre, Tampines and Bukit Batok. 
• As in past deals, the vendor will provide a 10-year profit guarantee, starting with SGDD0.7m in 2016 or 4% of Q&M’s FY16E earnings. 
• Q&M will be paying with new shares issued at SGD0.72 each. This is an 11% premium to its last closing price, suggesting that the vendor sees long-term value in Q&M. 
• It also highlights the strong appeal of Q&M’s platform. 
• Cash will come from internal resources. 

Dr Long: renowned root canal specialist joining Q&M 

• Separately, Dr. Benjamin Long, one of Singapore’s most well-known endodontists (i.e. root canal treatment), has joined the group. He started practising dentistry in 1987 and has close to 30 years of practice. 
• Dr. Long is the Chairman of the Dental Specialist Accreditation Board, a member of Singapore Dental council complaints panel and a clinical supervisor for endodontics in the National University of Singapore. 

Increasingly attractive platform; maintain BUY 

• The above two developments should further cement Q&M’s leadership in Singapore. 
• As it builds up its track record of attracting good dentists to join its platform, we foresee more knocking on its door, paving the way for more deals. 
• Maintain BUY. 
• We trim our EPS by 1-2% for slight delays in its pipeline acquisitions, offset by contributions from Lee & Lee. 
• Accordingly, our TP dips to SGD0.93 from SGD0.97, still at 42x FY16 P/E. This is 1SD above its 5-year mean to capture Q&M’s earnings trajectory and M&A track record plus a scarcity premium for healthcare stocks.

John Cheong CFA Maybank Kim Eng | Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-29

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.93 Down 0.97