Q & M DENTAL GROUP (S) LIMITED (SGX:QC7)
Q&M Dental - Expansion Cost Starts To Bite
- Q&M Dental (SGX:QC7)'s 3Q22 earnings were below expectations. 2022-to-date revenue and PATMI were 77%/61% of our FY22e forecast. Employee expenses were higher than expected due to Acumen losses, software development expenses and higher opex from new clinics.
- Sharp 62% drop in Q&M Dental's earnings due to the absence of COVID-19 test revenue from Acumen. Acumen swung from PAT of S$4.4mil to an estimated S$0.1mil loss.
- We cut our FY22e PATMI forecast for Q&M Dental by 30% to S$22mil. Expenses are running higher than expected. We expect employee expense to revenue to trend downwards as new clinics start to ramp up visitations.
- Our target price for Q&M Dental is lowered to S$0.52 (previously S$0.60).
Q&M Dental's 3Q22 – The Positive
Franchise is still expanding.
- There were 3 new clinics opened in 3Q22 (2Q22: 8). Another two clinics are planned in November. There has been a change in strategy in clinic openings. The priority is to fill existing capacity in current clinics before new locations are open. Other efforts are to build larger dental centres where profitability is higher from economies of scale.
Q&M Dental's 3Q22 – The Negative
Sluggish dental earnings and other expenses.
- Net profit from core dental operations declined 17% y-o-y to S$4.2mil. Performance of new clinics has been softer since border re-opening as visits have declined. Other expenses causing a drag in earnings have been the development cost of the AI guided dental software, recruitment cost for new dentists and start-up costs from new clinics.
- The record expansion of 24 clinics in Singapore and Malaysia over the past 12 months has been a burden on profitability in the near term.
Outlook
- Despite the number of Q&M Dental's clinics in Singapore expanding by almost 18% to 106, revenue growth has been muted. The re-opening of borders has shifted spending towards other discretionary spend. There were also disruptions in patient visitations and nurse availability from the recent surge in COVID-19 cases.
- We expect FY23e to be a recovery year for Q&M Dental as new clinics mature and contribute to earnings.
Maintain BUY with lower target price of S$0.52 (previously S$0.60)
- We believe FY22e is an investment year for Q&M Dental from start-up cost of new clinics and expenditure in developing the of AI dental guided software.
- See
- Our target price for Q&M Dental is lowered to S$0.52 (previously S$0.60).
- 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), is valued at market price with a 20% discount.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2022-11-17
SGX Stock
Analyst Report
0.52
DOWN
0.600
