Q&M Dental Group - DBS Research 2021-05-20: Clinches Tender By HPB For Provision Of COVID-19 Services


Q&M Dental Group - Clinches Tender By HPB For Provision Of Covid-19 Services

  • Q&M Dental Group awarded tender by HPB for provision of COVID-19 swab and testing services.
  • Opened one new dental clinic in April and secured locations to open three new dental clinics in 2021.
  • We raise our FY21F/FY22F core earnings forecasts by 19%/13%.
  • Maintain BUY call on Q&M Dental Group with higher target price of S$0.84.

Q&M Clinches tender by HPB for provision of COVID-19 services

  • Q&M Dental Group (SGX:QC7)’s 51% subsidiary, Acumen Diagnostics, will be a panel service provider of the Health Promotion Board (HPB) in respect of the provision of COVID-19 swab and testing services. It is one of the six successful awardees and one of the 18 applicants of the Tender.

Positive for Q & M’s laboratory testing business.

  • This award suggests that Q&M Dental Group could get priority in being allocated more tests by the Singapore government. Given the resurgence in COVID-19 cases in Singapore recently, we believe testing activities will only become more vigorous, such as the Ministry of Health (MOH) fully-funded COVID-19 tests offered to those who may have visited places pertaining to existing COVID-19 clusters like the Changi Airport T3, White Sands Shopping Mall, JEM and Westgate.
  • According to MOH, as of 17 May, the average daily number of swab tests over the past week has increased substantially to ~89,000. This is almost triple the number from Feb 2021, with the surge taking place in just a short span of three months. Q&M Dental Group currently has a capacity of 6,000 tests daily and it is buying more machines now to capture more market share. We raise our projection for the number of daily laboratory tests conducted by Q&M Dental Group and nudge down our price assumption. This should help offset the test kit segment, which has failed to materialise so far.
  • We had previously forecast sales of 5m test kits per annum over FY21-22F but management has guided for the redirection of energy and resources to the testing business in Singapore instead, which still has huge room to grow. As our current assumption for the sale of test kits has been adjusted to zero, there is upside potential to our numbers.

Outstanding 1Q21 results for core dental business.

  • Q&M Dental Group's 1Q21 results came in strong with dental and medical clinics revenue increasing by 41% to S$39.2m in 1Q21 from S$27.8m in 1Q20, bearing in mind that it was business as usual in 1Q20 and thus was no low-base effect. This is in line with our full-year core dental business revenue forecast of ~S$140m.
  • Net profit attributable to parent increased by 198% to S$6.8m in 1Q21 from S$2.3m in 1Q20, excluding other gains and share of loss from associate.

Optimistic on Q & M’s core dental business.

  • We continue to like Q&M Dental Group’s resilient core dental business as the two key drivers remain the same:
    1. border closures, resulting in Singaporeans not being able to travel overseas for dental services; and
    2. flexibility in visiting dentists due to the work-from-home trend.
  • We also note that medical and dental services can continue, although Singapore has recently implemented stricter COVID-19 measures. Its expansion plan seems to be on track with the company opening one new dental clinic in April and securing the locations to open three new dental clinics in 2021.
  • Q&M Dental Group's management is targeting to open 10 new clinics by 1H21 and has guided for at least 30 dental clinics a year from 2021 onwards in Singapore and Malaysia for the next 10 years, which trounces our own assumptions. With ~10% market share now and if the plan works out, its expansion will enable Q&M Dental Group to obtain ~40% market share in 10 years, assuming 1-2% annual growth in the market.
  • See

Paul YONG CFA DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2021-05-20
SGX Stock Analyst Report BUY MAINTAIN BUY 0.84 UP 0.810