Q&M Dental Group - Phillip Securities 2021-05-19: Profits More Than Tripled

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

Q&M Dental Group - Profits More Than Tripled

Q&M Dental Group (SGX:QC7)'s 1Q21 revenue and PATMI were within, at 24% of our FY21e forecasts.
Core dental revenue surged 41% y-o-y to S$39.2mn. Dental visits climbed with households having more time and opportunities to undertake regular and elective procedures.
Q&M Dental Group's revenue from COVID-19 PCR lab tests yet to be material. We estimate only 10% of PATMI this quarter.
We raise FY21e PATMI forecast (excluding exceptionals) by 10% to S$30.3mn. Estimates for daily PCR tests have been doubled. But we shave off revenue in Malaysia in view of its extended lockdown.
BUY recommendation for Q&M Dental Group maintained. We expect stellar earnings growth from higher patient visits and maiden earnings from PCR testing. Despite COVID-19 vaccinations, PCR testing in Singapore has increased. The threat of variants will likely make PCR tests a norm even when international borders re-open.

Target price of Q&M Dental Group raised to S$1.00 from S$0.73. Our initial 20x FY21e P/E target or 50% discount to historical normalised average has been lifted to 25x. We think this can be justified by greater visibility of the sustainability of PCR revenue and core dental earnings as aggressive expansion of clinics is underway. Another S$0.03 is added from the market value of listed associate, Aoxin Q & M (SGX:1D4) (S$0.18), at a 20% discount.

Q&M Dental Group's 1Q21 revenue jumped 47% y-o-y to a record S$43mn. Core dental business was up 41% to S$39.2mn. The remaining revenue came from PCR (Polymerase chain reaction) tests and equipment that more than doubled to S$4.5mn. Revenue was supported by a 7.6% increase in dental clinics to 122. Admissions were also higher.
With borders closed and more time available, households could opt for more regular and elective dental procedures.
Due to strict MOH requirements, revenue from PCR test kits is no longer separately disclosed.

Net debt declined from S$75mn in FY19 to S$20mn in FY20. FCF was S$19mn. Another S$47mn was collected from the disposal of Aidite in 1H20.
Q&M Dental Group announced a special dividend of S$0.025 to return S$19mn to shareholders from the proceeds of its sale of Aidite.

PCR revenue was not disclosed. We used minority interest of S$0.6mn during the quarter as PATMI contributions from PCR. With PCR tests rising in Singapore, we double our daily test assumption for FY21e to 1,200.
Q&M Dental Group’s ability to ramp capacity is limited by a short supply of lab technicians in the country.

While the country has entered a Phase 2 heightened alert lockdown from 16 May, dental clinics are allowed to stay open. However, we do expect cancellations. Patients will be wary of going for dental procedures despite all the safeguards in place. During the circuit breaker last April, dental clinics were not allowed to undertake any aerosol-generating procedures. This meant 90% of the procedures were prohibited except for extractions and temporary fillings.

The number of COVID-19 PCR tests conducted in the country is not regularly disclosed. But media and government statements point to a rising trend. In September last year, tests were conducted on 27,200 individuals a day, according to the Ministry of Health. Commentaries this February suggested 34,000 tests per day with the media this month reporting more than 73,000 per day.
Q&M Dental Group operates the largest private dental chain in Singapore. Even then, this is only 10% of the market. As such, a doubling of its footprint is possible without cannibalising revenue. Capex is not large at around S$200,000 per clinic. The key is managing the manpower and recruiting and retaining dentists. We expect it expand clinics by 20% this year to 149.

We raise Q&M Dental Group's FY21e earnings forecast by 11% to S$30.3mn, adjusting PATMI - excluding exceptionals - for higher PCR tests conducted during the year.
We now peg Q&M Dental Group at 25x P/E, up from 20x, which was a 50% discount to its historical 7-year normalised average. We think a higher P/E can be justified by greater visibility of its PCR revenue despite large-scale vaccinations. Also, core dental earnings are expected to grow from multi-year expansion of its clinic footprint.
Another S$0.03 is added from the market value of Q&M Dental Group's listed associate, Aoxin Q & M (SGX:1D4), at a 20% discount.
See

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-05-19

SGX Stock Analyst Report BUY MAINTAIN BUY 0.700 SAME 0.700