Q&M Dental Group had an impressive third quarter. Following the Group’s 1:5 bonus issue, we revise our target price for Q&M to SGD 0.83, which represents an upside potential of 41%.

Chloe Nadia Halim |  Published on 22 Dec 2021

  • Q&M Dental Group (SGX:QC7) is a leading private dental healthcare group in Asia. It has the largest network of private dental outlets in Singapore, and an expanding presence in Malaysia and China.
  • Q&M recorded an impressive third quarter. Total revenue in 3Q21 experienced a 47.6% YoY increase, while net profit saw a 57.0% YoY increase.
  • The Group witnessed higher revenue coming from its dental outlets, as well as significant contribution from its Covid-19 medical laboratory/testing business.
  • Q&M is a major shareholder of Aoxin, who is acquiring 49% of Acumen Diagnostics. The proposed acquisition would help to improve the profitability of Aoxin.
  • The PCR tests developed by Q&M’s subsidiary, Acumen Diagnostics is able to detect the new Omicron variant. Hence, Acumen is expected to continue playing an important role in the fight against Covid-19.
  • Following the completion of a 1:5 bonus issue, we have revised our 2023 target price for Q&M to SGD 0.83. This represents an upside potential of 41% based on the closing price of SGD 0.59 on 21 December 2021.  

Serving over 10% of the local population, Q&M Dental Group (SGX:QC7) is a household name. The Group has an extensive network of dental outlets (90 clinics in Singapore), and has more than 40,000 recurring patient visits per month.

Q&M has also been a beneficiary of the Covid-19 pandemic, given its expansion into the Covid-19 testing space via its subsidiary Acumen Diagnostics. In this article, we share an update on Q&M, and provide some key takeaways from its 3Q21 results.

Impressive third quarter thanks to Covid-19 testing services

Q&M had an impressive third quarter.

Total revenue grew by 47.6%, from SGD 39.1 million in 3Q20 to SGD 57.7 million in 3Q21 (Table 1). The increase was mainly due to revenue from Covid-19 test kits and testing services from the Group’s Covid-19 medical laboratory business, as Singapore experienced a surge in Covid-19 cases.

The revenue from the medical laboratory and dental equipment & supplies segment thus soared 932% to reach SGD 18.4 million, while the dental and medical clinics, increased 5.4% year-on-year (YoY) to reach SGD 39.3 million.

Table 1: Revenue highlights
Revenue (in SGD’000)3Q213Q20% Change
Dental and medical clinics39,32037,3185.4
Medical laboratory and dental equipment & supplies18,4141,785931.6
Total Revenue57,73439,10347.6
Source: Q&M Dental Group, iFAST CompilationsData as of 30 September 2021

Overall, Q&M reported a profit after tax and minority interest (PATMI) of SGD 9.7 million in 3Q21, which is an increase of 57.0% YoY from SGD 6.2 million in 3Q20.

Moving forward, the opening of new clinics in Singapore would continue to drive Q&M’s future revenue and earnings growth.

As of 3Q21, the Group’s number of dental clinics in Singapore has grown to 90, from 81 in 3Q20 (increase of 11.1% YoY). Similarly in Malaysia, the number of dental clinics has increased to 38, as compared to 33 previously (increase of 15.2% YoY). Q&M is committed to open nine new clinics in Singapore, and two new clinics in Malaysia by the end of the year.

Aoxin has acquired 49% of Acumen Diagnostics

Q&M is a major shareholder of Aoxin Q&M Dental Group Limited (SGX:1D4), which operates dental clinics and hospitals located primarily in the North-eastern region of China.

On 4 October 2021, it was announced that Aoxin has entered into a conditional sale and purchase deed with Acumen’s shareholders, to acquire 49% of their shareholdings. Acumen has a preliminary valuation of SGD 60 million, and Aoxin’s purchase consideration (SGD 29.4 million) will be satisfied by way of the allotment and issuance of new ordinary shares by Aoxin, at an issue price of SGD 0.231 per share.

This proposed acquisition was completed on 1 November 2021, with Aoxin directly holding 49% of Acumen, and Q&M holding the balance of 51%. It raises Q&M’s total effective ownership in Acumen to 67%, based on Q&M’s equity stake in Axoin (33% stake post deal, down from 44% following Aoxin’s issuance of new shares) (Figure 1).

Figure 1: Shareholdings upon completion of acquisition of Acumen Diagnostics by Aoxin

This acquisition is timely, as it would allow Aoxin to enter the medical diagnostics business in Singapore, and capture a portion of the testing capacity market.

Aoxin has been loss-making in the last few years, due to gestation losses from opening two new hospitals in Panjing and Daliang, as well as Covid-19’s impact on its operations. 

However, in 3Q21, Aoxin reversed its net loss and recorded profit of RMB 2.3 million. Aoxin has managed to narrow losses to RMB 3.8 million in 9M21 compared to losses of RMB 7.3 million in 9M20.

Acumen will continue to offer Covid-19 testing via polymerase chain reaction (PCR) test kits for patients and travellers as Singapore opens its borders, as well as distribute Covid-19 antigen rapid tests. Hence, this acquisition could help improve the bottom line of Aoxin, benefitting Q&M in the process.

Acumen Diagnostics’ test kit is able to detect the new Omicron variant

The latest Omicron variant illustrates the virus’s continued ability to surprise, and Acumen is expected to continue playing an important role in the fight against Covid-19.

As on 3 December 2021, Q&M announced that the two PCR test kits developed by its subsidiary, Acumen Diagnostics — Acu-Corona 2.0 and Acu-Corona Duplex, can also detect the Omicron variant.

Figure 2: Acu-Corona 2.0 test kits

Moreover, given that Acumen’s PCR test kits are manufactured locally, they can be deployed more quickly and efficiently. Acumen currently operates two laboratories that can process 7,000 diagnostic tests on a daily basis. Where it stands, PCR tests remain the gold standard to detect Covid-19, with the highest accuracy amongst other test types.

Revision of target price following bonus issue

Q&M has completed its 1:5 bonus share issue on 7 September 2021, with 161 million bonus shares allotted. Following the allotment of the bonus shares, the total number of issued shares has increased from 805 million to 966 million shares.

We maintain our fair PE of 20X for Q&M, and revise our 2023 target price to SGD 0.83 (vs SGD 1.00 before), following the bonus share issue. This represents an upside potential of about 41% based on the closing price of SGD 0.59 on 21 December 2021.

Q&M has a dividend policy of at least 30% of their core operating profits, but the Group has the capacity to raise the payout ratio due to their strong operating cash flows.

The Group declared a third dividend of SGD 0.01 in the third quarter (9M21: SGD 0.03), and we expect a FY21 dividend payout of SGD 0.04, which represents an attractive dividend yield of about 6.8%, based on the current share price. Going forward, we estimate a similar dividend payout in FY22.  

Table 2: Q&M is expected to have strong earnings growth ahead
Q&M Dental GroupFY20FY21EFY22EFY23E
PE Ratio28.116.815.414.3
Earnings Growth67.0%9.0%8.0%
EPS (in cents)2.13.53.84.1
Upside Potential19.0%29.8%40.6%
Source: Bloomberg Finance L.P., iFAST EstimatesData as of 21 Dec 2021
Figure 3: In the long run, share prices are driven by earnings