Q & M Dental Group (QNM SP)
Company Update: Updated 11 June 2021
| Turning challenges into opportunities |
- Q & M Dental Group (Q&M) has remained resilient with its dental and medical services through Covid-19. It continues to be the bread and butter of the group, as its network of clinics dominate the private dental healthcare space.
- Booster shot. In 1Q21, the group generated S$4.6mn sales from its equipment and lab tests segment (from S$1.6mn in 1Q20), a significant part contributed from its investment in medical tech firm Acumen Diagnostics. Given the continued need for Covid-19 testing regardless of the availability of vaccines, we are confident on the outlook of Acumen Diagnostics in the short-medium term.
- We maintain OUTPERFORM and raise our 12-month target price to S$0.91. Q&M continues to generate stable and resilient earnings, and we foresee no material changes in or threats to its market share in the private dental space in the medium term.
Q&M currently owns the largest network of private dental outlets in Singapore with over 90 clinics/outlets island-wide and 1 Covid-19 testing laboratory newly incorporated in April 2020. Q&M’s current overseas presence consists of 36 clinics in Malaysia and 1 clinic in China, bringing the overall total number of clinics as at end-March 2021 to 126, an increase of 8 clinics compared to YE2019. Revenue of Q&M increased by 8% YoY, from S$128mn in 2019 to S$138mnn in 2020, which was mainly attributable to operations in Singapore.
YoY financial performance
Q&M’s dental and medical clinics remain the core segment of its business, contributing more than 90% of FY2020 revenue. Although business at its clinics was somewhat affected during Singapore’s circuit breaker period from April-June 2020, demand has quickly bounced back. We see that Singapore’s revenue increased by 8% YoY, from S$116mn in 2019 to S$126mn in 2020.
On the other hand, for Q&M’s clinics in Malaysia and China, the situation was not as optimistic whereby there was a dip in YoY sales of 0.5% and 19% respectively. However, we expect minimal impact on Q&M’s financial performance from China’s dip in sales and forecasts as it only accounts for 1% of total clinic revenue.
On its Malaysia side, the decrease in sales was within our expectations considering that the magnitude of Covid-19 impact such as lockdowns were much more severe compared to Singapore. Moving forward, the Group will continue to pursue organic growth in Malaysia by expanding their network of dental clinics, specifically in the Johor, Selangor, Malacca, and Klang Valley regions.
Overall, Singapore continues to be the main revenue driver as a significant proportion of Q&M’s sales are generated by the local segment. With Q&M’s plans on expanding its network, we expect resilience in future years via gaining greater market share.
1Q2021 rebound and more
Q&M was able to benefit clearly from the rebound in Singapore, in addition to the surprisingly strong maiden contribution from Acumen Diagnostics, which the group had invested in last year. Core PATMI (excluding other gains and associate losses) tripled from S$2.3mn in 1Q20 to S$6.8mn in 1Q21. The group expects growth to be driven both by the dental and Covid-19 lab tests business.
Singapore’s sales on the other hand is increasing YoY, but has less room for expansion compared to overseas markets. The group is looking to replicate Malaysia’s successful business model by accessing more markets, such as the Philippines.
Valuation & Action
We maintain our OUTPERFORM recommendation on Q&M with a 12-month TP of S$0.91, using a conservative 22x core P/E (excluding one-off gains) as compared to its healthcare services peers. While 2020 performance was temporarily impacted by the pandemic, its acquisition of Acumen Diagnostics and expansion into medical technology (Covid-19 test kits) is expected to provide a boost to FY21F and FY22F earnings. Our TP represents a total upside of 38%, inclusive of FY21’s dividend yield of 5%.
Risks
Litigation risks, laboratory errors in relation to Acumen Diagnostics or non-approval of new technology and/or vaccines that may affect the viability of the business overall.
