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
- 2022 is a transition year as Q&M Dental invests in the AI project, accelerates the roll-out of more clinics and Acumen pivots away from the COVID-19 PCR test to other test kits.
- See
- Our target price for Q&M Dental is lowered to S$0.60 (previously S$0.71). We value
- Q&M Dental's core dental operations at 25x P/E FY22 earnings, in line with industry peers.
- Listed associate, Aoxin Q& M (SGX:1D4) at market price with a 20% discount.
- Q&M Dental is expanding its dental clinics at the fastest pace since inception. We estimate CAGR of 18% over the next two years.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2022-08-22
SGX Stock
Analyst Report
0.60
DOWN
0.710
