Q&M Dental Group - CGS-CIMB Research 2021-05-05: Swab Up

Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)

Q&M Dental Group - Swab Up

We expect a ramp-up in COVID-19 testing services with rising COVID-19 cases in Singapore to benefit Q&M Dental, more meaningfully from 2Q21F.
We estimate 1Q21F net profit at ~S$9m (163% higher vs 1Q19), factoring in seasonal weakness and S$5m gain from the disposal of stake in Aidite.
At ~13x FY22F P/E, Q&M Dental trades below -2 standard deviation of its 12-year valuation since 2009. Reiterate ADD and target price of S$0.92, still based on 20x FY22F P/E.

Singapore is tightening its safety measures with effect from 8 May 2021, as the number of new daily COVID-19 cases continues to rise. The uptick in new cases has been largely attributed to a new cluster at Tan Tock Seng Hospital (TTSH). COVID-19 testing of migrant workers has been ramped up as of 29 Apr 2021. Also, new migrant workers arriving from higher-risk countries will be isolated and subjected to repeated PCR COVID-19 tests.
We expect the tightened measures and heightened pace of testing to be beneficial for Q&M’s laboratory tests services. As of Feb 2021, the average number of daily swab tests conducted was ~34k (vs. ~27k in Sep 2020), according to the Ministry of Health. We estimate ~15k cluster-focused tests has been carried out since 22 Apr 2021.

Q&M Dental Group (SGX:QC7) continued with its expansion plans in 1Q21, and opened two new dental clinics in Singapore (in Tampines Hub and Compassvale Crescent) and one new dental clinic in Malaysia (in Jasin, Johor). This brings the group’s total dental outlet count to 85 outlets in Singapore and 35 in Malaysia, up from 83 and 34 respectively as of end-FY20.
We still expect Q&M Dental to open 10 new outlets each in Singapore and Malaysia.

As announced in the group’s FY20 results, Q&M Dental will resume quarterly reporting in FY21, with 1Q21 results to be reported by 12 May. While we note that 1Q21 has historically been a seasonally weaker quarter (c.23% of full-year revenue), we still expect favourable results on the back of a ramp-up in COVID-19 testing services. Having said that, we expect more meaningful contribution from testing to start from 2Q21F onwards, as Q&M Dental gradually ramped up its testing operations in 1Q21.
We estimate Q&M Dental's 1Q21F revenue at ~S$37m (+25% vs 1Q19) and net profit at ~S$9m (+163% vs 1Q19), which includes a one-off S$5m net gain from the disposal of the group’s stake in Aidite.

We expect FY21F to be a record year for Q&M Dental on the back of robust outlet expansion and ramp-up in testing services. We raise our FY21F/22F dividend estimates to 3.4 cents on the back of strong net profit outlook.
Our target price for Q&M Dental is based on a ~25% discount to peers for its smaller market cap.
See
Key downside risks: resurging COVID-19 infections and increasing competitive pressure.
Potential re-rating catalysts: stronger-than-expected number of tests performed.

LIM Siew Khee CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-05

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