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INITIATE COVERAGE

Aoxin Q & M Dental Group (AOXIN SP)

BUY | Price/Tgt: S$0.250/S$0.370 | Mkt Cap: S$127.2m

A Strong Turnaround; High Growth Potential From Precision Medicine Capabilities
Aoxin’s earnings are expected to turn around in 2022 (S$12m profit vs S$0.1m loss in 2021), with contributions from the newly-acquired Acumen and improved performance of its China dental business. Expansion into the COVID-19 ART testing business should complement Acumen’s existing PCR testing business. Also, Acumen’s expertise in the precision medicine space could open up many new future revenue streams. We initiate coverage with BUY and target price of S$0.37 (16x 2022F PE).

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·        Expect strong turnaround in 2022 from Acumen and improved dental business. We expect Aoxin Q & M Dental Group’s (Aoxin) earnings to post a strong turnaround in 2022 from: a) maiden earnings contribution from Acumen Diagnostics (Acumen), in which Aoxin has a 49% stake; and b) improved performance of the core dental business, which should start contributing earnings of about Rmb6m in 2022, from a potential loss in 2021. Acumen is a medical technology company with functions in research and development, manufacturing, commercialisation of molecular diagnostics by distribution and conducting clinical laboratory testing services for infectious diseases, cancer and COVID-19. Started in 1997, Aoxin is a leading provider of private dental services in Liaoning Province, China. It operates 16 dental centres across eight cities.

·        Potential expansion into COVID-19 ART testing business could boost earnings. Beyond the lucrative Polymerase Chain Reaction (PCR) testing business, in which Acumen already has a respectable market share, expansion into the Antigen Rapid Test (ART) testing space could lift Aoxin’s earnings. ART testing is a big market given the high frequency of testing required by the mass population. Based on an estimated 10% market share and a 40% net margin, this new business could contribute an additional S$9m to Aoxin’s 2022 earnings, potentially lifting 2022 earnings by another 80%.

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·        Acumen’s precision medicine expertise could open up many new revenue streams. Acumen has the expertise to provide R&D services in drug target discovery and pre-clinical drug development to support the pharmaceutical industry and biomedical sciences research. Acumen focuses mainly on cancer research, where there are unmet medical needs for prescribed drugs. In addition, Acumen has made significant development in the space relating to testing of sepsis and vaccine for dengue. Successful commercialisation of both the test and vaccine could generate huge revenue for Aoxin.

·        Initiate coverage with BUY and target price of S$0.37, pegged to 16x 2022F PE, based on a 20% discount to parent company Q&M Dental, due to a shorter profitable track record. We think the current valuation of 11x 2022F PE for Aoxin is attractive, given its strong growth profile and proven capabilities in the precision medicine space. Peers are trading at 32x 2022F PE.

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