Q&M Dental Group - CGS-CIMB Research 2021-10-11: PCR Waning, ART Shining

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

Q&M Dental Group - PCR Waning, ART Shining

• PCR testing in Singapore is to be reserved for symptomatic COVID-19 patients and travellers requiring on-arrival and pre-departure tests.
• Previously, PCR tests were required for ART-positive individuals (confirmatory) as well as patients exiting home quarantine.
• Reduced demand for PCR tests could see FY22F/23F earnings per share dip by 7%/3% for Q&M Dental (SGX:QC7). No change in our earnings estimates for now.

PCR testing to be reserved for symptomatic patients

• As announced by the Ministry of Health (MOH) on 9 Oct 2021, COVID-19 testing protocols have been streamlined for simplicity.
• The nation will be relying more heavily on antigen rapid tests (ART) while reserving usage of polymerase chain reaction tests (PCR) for symptomatic patients.
• Travellers flying to Singapore via vaccinated travel lanes (VTLs) will still need to take on-arrival and pre-departure PCR tests. At present, VTLs only exist with Germany and Brunei. Singapore is expanding VTLs to 9 other countries, with South Korea VTL starting from 15 Nov 2021 and the rest commencing on 19 Oct 2021.

New protocols to favour ART more; negative for PCR

• The new MOH protocols cover 3 scenarios:
  1. symptomatic individuals w ho test ART-positive,
  2. asymptomatic individuals w ho test ART-positive,
  3. close contacts of a positive case.
• These three groups of individuals are required to take an initial ART to determine COVID-19 infection.
• Symptomatic individuals are expected to see a doctor to get an ART. PCR tests will be used at the discretion of doctors for patients displaying more severe symptoms.
• Asymptomatic individuals will not be required by law to undergo a PCR test.
• Previously, a confirmatory PCR test was needed for patients who tested ART-positive. Patients in home quarantine were also required to take a PCR test before exiting quarantine. These are now no longer required under the new protocols.

Dampener to Q&M’s testing revenue

• While PCR tests are expected to decrease in FY22/23F, we still see resilient demand from the opening of borders and the emergence of new virus strains. Continued rostered routine testing (RRT) for workers should also contribute to PCR demand.
• We believe that the shift towards ART is to mainly reduce the strain on public healthcare resources.
• We understand that Q&M Dental Group currently offers ART testing at 6 of its outlets (as of 13 Aug 2021), according to the MOH. Growing ART testing volumes could help to support testing revenues.
• We are not changing our earnings estimates for Q&M Dental yet because increased COVID-19 cases could support PCR revenue from symptomatic and rostered routine testing (RRT) testing. However, our initial assessment sees Q&M Dental's earnings per share declining by 7%/3% if testing capacity is reduced by ~50% in FY22F/23F.
• See
  • Q&M Dental's Share Price,
  • Q&M Dental's Target Price,
  • Q&M Dental's Analyst Reports,
  • Q&M Dental's Dividend History,
  • Q&M Dental's Announcements,
  • Q&M Dental's Latest News.

Potential Catalysts:

more tests than expected, quicker Aoxin turnaround.

Downside risks include intensifying competitive pressure and lower-than-expected PCR demand.

Kenneth TAN CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-11

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