Q&M Dental Group - Phillip Securities 2021-08-23: Rebound On Track

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

Q&M Dental Group - Rebound On Track

Q&M Dental Group (SGX:QC7)'s 2Q21 PATMI within expectations, at 49% of our adjusted FY21e forecast. Revenue spiked 105% y-o-y to S$50.8mn. Normalised PATMI was up 10x. 1-for-5 bonus issue and S$0.01 quarterly dividend announced.
Earnings from Acumen Diagnostics’ COVID-19 PCR tests were an estimated S$3mn, up from S$0.6mn the previous quarter.

Maintain BUY. Target price for Q&M Dental Group dips to S$0.98 from S$1.00 as we revamp our valuations. We now peg Acumen at S$60mn, at the proposed purchase price by Aoxin Q&M (SGX:1D4) for a 49% stake. We roll over our 25x core P/E valuation to FY22e. Another S$0.04 has been added from the market value of listed associate, Aoxin Q&M at a 20% discount.

Increased demand for dental procedures due to closed borders, PCR test revenue and a higher number of dental clinics led to a 105% y-o-y surge in revenue. This was aided by a lower base last year due to circuit breaker. Core dental service rose 86% y-o-y to S$38mn. Medical equipment sales, including PCR tests, tripled to S$12.7mn.
Revenue per dental clinic jumped 71% y-o-y to around S$308k in 2Q21. Pre-pandemic revenue per clinic in 2Q19 was around S$295k, a modest 5% lower. Industry data point to slower dental admissions in May and June 2021, likely due to the Phase 2HA lockdown.

Q&M Dental Group's earnings from PCR tests were around S$3mn this quarter, based on minority interest. This was a jump from S$0.6mn in the previous quarter. No details were disclosed. We model around S$7mn from PCR tests for FY21e.

Q&M Dental Group opened seven new clinics in 1H21: four in Singapore and three in Malaysia. This was below our forecast of 25. It plans to open 30 p.a. In Singapore, another six sites have been secured with 10 more to be completed. Singapore appears on course for 20 new clinics but expansion in Malaysia remains fluid due to the pandemic.
Revenue per clinic in Singapore is typically 4x higher than Malaysia.

We expect dental admissions to remain healthy in 2H21. New clinics are expected to form the foundation of revenue growth in Singapore. Despite a rebound in revenue per clinic, industry patient volumes are still below pre-pandemic levels.
We forecast lower PCR testing income for FY22e. As the country moves towards higher vaccination rates and an endemic COVID-19, there is less clarity on the number of tests which will be administered in the next two years. That said, testing should remain an important tool as the country opens its borders. PCR testing will likely be required for vaccinated travellers, unlinked cases and routine tests.

We keep FY21e earnings forecast for Q&M Dental Group unchanged but our valuation metrics has changed.
- Earlier, Acumen Diagnostics was valued together with group earnings at 25x FY21e P/E. We now separately value Acumen. Associate Axoin is proposing to acquire the remaining 49% stake in Acumen for S$29.4mn via the issuance of 127.3mn shares at S$0.231 per share. The vendors are Acumen Holdings and Ong Siew Hwa. Our valuation for Acumen Diagnostics is now pegged to its implied S$60mn valuation. See details in report attached below.
- Secondly, we roll over to FY22e. FY22e will capture a normalised dental admissions and the expansion in clinics. We also move our benchmark from Q&M Dental Group’s historical P/E to industry valuations. The regional dental industry from clinics to equipment makers trades at around 28x 2-year forward P/E.
As highlighted in our initiation report Q&M Dental Group - Phillip Securities 2021-02-08: Record Earnings Expected; Initiate Coverage With BUY, Q&M Dental Group historically traded in a wide range, from 26x to 65x, with an average of 38x. We view industry peers as more transparent proxies. Valuation range is relatively narrower and peer comparables are available.
See

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-23

SGX Stock Analyst Report BUY MAINTAIN BUY 0.98 DOWN 1.000