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Q&M Dental Group - Phillip Securities 2022-08-22: Hurt By Upfront & Uneven Expenses

Q & M DENTAL GROUP (S) LIMITED (SGX:QC7) | SGinvestors.io Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)

Q&M Dental Group - Hurt By Upfront & Uneven Expenses

  • Q&M Dental (SGX:QC7)'s earnings were below expectations. 1H22 revenue and PATMI were 52%/37% of our FY22e forecast. Additional cost from investments in AI project and change in recognition of bonus provision. Q&M Dental's earnings from COVID-19 PCR tests swung from $3mil net profit a year ago to S$50k net loss.
  • During the quarter, the number of Q&M Dental's clinics increased by 8 during to 149, a 19% y-o-y jump. Together with Malaysia, Q&M Dental has 350 dentists.
  • We lower our FY22e PATMI forecast for Q&M Dental by 16% to S$22mil. We are incorporating additional cost for the AI project and even weaker earnings from Acumen. Maintain BUY with lower Target price of S$0.60 (previously S$0.71).



The Positive


Surge in number of clinics.

  • There were 8 new clinics opened in 2Q22. It is a 19% y-o-y jump to 149. 1H22 has seen the opening of 13 new Q&M Dental clinics, tracking our modelled 25 new clinics this year. Headcount especially nurses is a major bottleneck in the expansion of clinics.
  • Despite the rise in the clinics, revenue rose by only 5%. Revenue per average clinic has declined to 10% y-o-y to S$293k. We believe it will take time for new clinics to ramp up. Group utilisation rate is still at 60-70%.


The Negative


Rise in expenses.

  • 2Q22 staff cost and depreciation jumped by 12% y-o-y to S$30mil despite the decline in revenue. We attribute the rise in Q&M Dental's expenses due to additional $0.5mil spent on the AI project, $1mil in bonus provision and S$0.7mil in equipment. AI expense was higher than expected. Bonus provision is allocated evenly across each quarter compared to a lumpy 4Q recognition.


Outlook

  • Investment into Artificial Intelligence (AI) project will continue into 2H22. Revenue per clinic should improve as clinics mature. Further, Q&M Dental aims to raise the utilisation of current chain of clinics by adding new dentists in existing clinics rather than adding new clinics.
  • Q&M Dental's AI software has received approval as a Class B medical device. It is being rolled out across Q&M Dental's clinics to independently generate dental plans for patients. Next phase is to deploy to other clinics in Singapore. Acumen’s focus is on sepsis, colon cancer and pharmacogenetics screening.

Q&M Dental - Investment recommendation






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-08-22
SGX Stock Analyst Report BUY MAINTAIN BUY 0.60 DOWN 0.710



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