Q & M DENTAL GROUP (S) LIMITED
QC7.SI
Q & M Dental Group The Tooth Fairy: A Tooth for A Coin
- The impending spin-off listing of Aidite is deemed positive for both Aidite and Q&M as capital could be channelled to focus on growing respective core businesses.
- Q&M Dental Holdings (China) is next in the pipeline for spin-off.
- Favorable demographics and business landscape support its effort to build up presence in Northeast China; while its expansion plans in Singapore and Malaysia could shift to lower gear.
- Downgrade to Neutral rating with lower TP at S$0.70.
WHAT'S NEW?
In the process of spinning off Aidite.
- The Group intends to enhance long-term shareholder value by spinning off of its manufacturing business in China by listing Aidite separately on the National Equities Exchange and Quotations, an emerging over-the-counter market in China (the "New Third Board").
- The listing will provide Aidite direct access to the capital market for funding, given its capital-intensive manufacturing business, and also free up Q&M’s capital to invest in other areas which could bring higher returns on investments for its shareholders as compared to its manufacturing business.
- Aidite will remain as an associated company of the Group with substantial holdings of no less than 30% post spinoff. In November 2015, the Group received approval from SGX to spin-off Aidite.
- The management is also looking to spin-off Q&M Dental Holdings (China) Pte Ltd, its healthcare services business in Shenyang, separately, following Aidite’s listing.
Three out of four acquisition deals in Singapore (announced in early-15) were completed –
- a testimony to its commitment and effectiveness in delivering what was announced. The management shared that the delay in acquiring Orchard Scotts Dental Clinic and De Pacific Dental Group is due to terms renegotiation. It is not peculiar that deals announced will undergo renegotiation.
- We are positive that the last deal could be sealed this year with better terms.
Continue to expand its footprint in China, but slowing down on South-East Asia
- Continue its roll-up strategy and some add-on acquisitions. Expects slower momentum to grow organically in Singapore as the market saturates and to avoid cannibalization within the same vicinity. Opened a new clinic in Blk 502 Bishan (Mar- 16).
- Riding on the wave of China’s evolving health care system. Expects the Group to gear up to grow its businesses organically or inorganically in China, particularly in the Northeast region. The Group is acquired five clinics in Liaoning Province in Dec-15 and is in the midst of acquiring a medical equipment distribution company.
- Cautious but remains vested in the Malaysia market. Facing heightened risks in political and foreign exchange rate, the deal on Smilebay Dental Clinics (announced in Jun-15) is still under review.
INVESTMENT ACTIONS
- As we rollover the balances into a new financial year, we have
- adjusted the number of clinics to reflect the latest acquisitions,
- revised downward our FY16F earnings by 40% to S$15 mn to reflect the challenging business environment in the countries where the Group operates in, and
- reset the PER multiple to a 38.2x FY16F PER (a slight premium compare to its Asian peers but 1 std. dev. lower from its 4-year historical PER).
- In view of the above and with the change of analyst, we downgraded to “Neutral” rating with a lower TP of S$0.70 from S$0.96.
Soh Lin Sin
Phillip Securities
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http://www.poems.com.sg/
2016-04-14
Phillip Securities
SGX Stock
Analyst Report
0.70
Down
0.96
