Q&M Dental Group - UOB Kay Hian 2021-02-08: Largest Private Dental Provider; Special Dividend & COVID-19 Test Kit Business Underappreciated


Q&M Dental Group - Largest Private Dental Provider; Special Dividend & COVID-19 Test Kit Business Underappreciated

  • Q&M Dental Group is an industry leader which has proven its ability to grow. Consensus believes its recent venture into the COVID-19 test kit business could provide upside surprise to earnings, while the core dentistry and medical services continue to grow, even during the pandemic.
  • The sale of stake in dental equipment manufacturer, Aidite, could result in a special dividend of 2.2 cents (4.6% yield) from Q&M Dental Group, assuming a full payout of the net proceeds.
  • Bloomberg consensus target price for Q&M Dental Group is S$0.54.

Industry leader expanding organically and inorganically.

  • Over the past three years, Q&M Dental Group (SGX:QC7)’s organic growth has been respectable, as management strives to expand its top-line.
  • Today, Q&M Dental Group leads the Singapore market with a total of 80 dental outlets across the country, at end-1H20 (1H17: 73 outlets). The company also has five medical outlets and one dental college. Elsewhere, Q&M Dental Group owns 33 dental outlets in Malaysia and one dental outlet in China (1H17: nine in Malaysia, one in China).
  • Inorganically, Q&M Dental Group has ventured into healthcare-related businesses including medical technology, artificial intelligence (AI)-based dental diagnosis and treatment, as well as the establishment of a private dentistry college institution. The medical technology venture in Apr 20 was an acquisition for a 51%-stake in Acumen Diagnostics, which is involved in the manufacture, sales and distribution of diagnostic test kits for COVID-19 mainly in Singapore.

Growing dental and medical business; outlook positive.

  • Despite the lockdowns caused by the COVID-19 global pandemic, Q&M Dental Group’s core dental and medical business remained resilient.
  • In 1H20, revenue slipped 14% y-o-y to S$48.5m, while EBIT margin 17.0% (1H19: 13.9%) and earnings dipped 2% to S$8.1m.
  • In Jun 20, Q&M Dental Group saw a recovery in dental revenue with a 20% increase in Singapore takings, compared to Jun 19.
  • Going forward, Bloomberg consensus estimates a 28% growth in Q&M Dental Group's revenue to S$141.1m and 39% EPS growth to 3.2 cents in 2021.

Special dividend from disposal of remaining stake in Aidite.

  • On 15 Jan 21, Q&M Dental Group entered into a share purchase agreement to sell its remaining 12.2% stake in dental equipment manufacturer, Aidite. If completed, Q&M Dental Group will receive net proceeds of S$17m, which has been earmarked for:
    1. working capital;
    2. business expansion; and
    3. special dividend to shareholders.

Valuation at discount to Singapore healthcare peers.

Key catalysts include:

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-08
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998