Q & M Dental Group - DBS Research 2016-07-04: Scaling up

Q & M Dental Group - DBS Research 2016-07-04: Scaling up Q & M DENTAL GROUP (S) LIMITED QC7.SI 

Q & M Dental Group - Scaling up

  • Largest integrated private dental healthcare group in Singapore
  • Expansion of clinical network
  • Exploring possible spin-offs in China
  • Fair value of S$0.80

The Business

Integrated private dental healthcare group. 

  • Founded in 1996, Q & M Dental Group (Q&M) owns the largest network of private dental outlets in Singapore and continues to expand its operations in China and Malaysia. The Group has approximately 12% of the overall market share in Singapore. 
  • To branch out along the dental value chain, Q&M also owns four dental supplies manufacturers/distributors of dental equipment company in China, Singapore and Malaysia.

Expansion of dental clinic network. 

  • Q&M will continue to widen its network of dental clinics in its countries of operations, both organically and through acquisitions. 
  • In Singapore, acquisition targets include family-run clinics that have no successors or clinics preferring to be part of a larger group in order to reap economies of scale. 
  • In China, Q&M aims to become the largest clinic in the various cities that it has a foothold.

Exploring possible spin-offs in China. 

  • Q&M is also exploring the possible spin-offs of Q & M Dental Holdings (China) and Q & M Aidite International, in a bid to widen and strengthen its revenue streams and profits.

The Stock

Currently trading at above average FY17F valuations. 

  • The stock currently trades at 36x FY16F earnings and 33x FY17F earnings, vs average of the healthcare stocks listed on SGX of 37x FY16F and 30.5x FY17F PE. 
  • Valuation is even higher when compare to direct peer, Modern Dental, listed on HKSE, which trades at a mid-teen PE. We arrive at a fair value of S$0.80 per share, based on +2SD of 36.5x FY17F earnings, which we believe is fair, given its acquisition spree in China which should drive earnings higher. 
  • Key risks: Stall in M&A plans, competition, increase in staff benefits, which account for > 50% of sales.

Return *: 2
Risk: Moderate
Potential Target * : 12-Month S$ 0.80

LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-07-04
DBS Vickers SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 0.80 Same 0.80

*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV’s coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage universe and is explained further on the back page of this report.