Core dental on track, PCR testing could face some pressure

Core dental business    

  • Management guided that they have signed tenancy agreements for 17 new clinics in Singapore and 6 for Malaysia this year
  • No of dentists in Singapore has increased from 230 when we initiated in Apr to 270 currently
  • Profit contribution from new clinics will not be immediate, ranging from 6 months to 1-2 years for Singapore and 2-3 years or Malaysia as dental awareness is lower in Malaysia 
  • Factors affecting new openings include right location, rental, recruitment of dentists etc.
  • Management aiming double digit growth for core dental business every year through 30 new clinics a year in Singapore and Malaysia (organic growth and M&A activities) 

Acumen Diagnostics business

  • Acumen’s current PCR tests come mainly from clinics (symptomatic patients) and pre-departure tests
    • Acumen works with a large number of GP clinics
    • Acumen also has a license to travel island-wide to people’s homes to swab them for pre-departure 
    • No longer conduct PCR tests for routine roster testing (RRT) as RRT switched to ART tests
  • PCR testing could face some pressure as govt increasingly rely on ART 
  • Management guided that they will be using their gold standard PCR technology to conduct tests in other new areas like sepsis, cancer etc. 
    • Acumen could become a medical technology company instead of solely focusing on testing for COVID-19 only 
    • Full force for manpower will be kept to focus on new tests

Our thoughts
We remain positive on Q & M Dental Group especially for its core dental business (3Q21 revenue +5% y-o-y on top of high base effect due to border closures in 2020). With contributions from new clinics coming in from 2022 onwards and the larger market share, we expect a solid earnings growth trajectory for the dental business. Even as borders start to reopen, we think that demand for Q & M’s dental services is unlikely to reduce significantly as it is no longer as convenient to travel to neighbouring countries like in the past, which could be a huge deterring factor. 

There is a pivot from PCR to ART tests for the general public in Singapore as it is more cost-effective and accessible, and we expect the frequency of ART testing to increase further as we reopen domestically. We believe that Acumen can also start selling ART test kits given that they have done so before, which can help offset any slowdown in their PCR testing.  

Q & M has continued to pay a quarterly dividend of 1 Sct even after the bonus issue, which works out to be annual yield of >6.5%.

We maintain BUY, with an unrevised target price of S$0.84.