A record year despite 4Q21 miss
? 4Q21 net profit was below expectations on higher staff (+21% yoy) and tax expenses (+98% yoy). Core dental revenue was strong as expected.
? Accelerated outlet expansion in FY21 should underpin 24% dental revenue yoy growth in FY22F. Rollout of non-Covid PCR services could be a catalyst.
? Dividend yield and ROE notably higher than peers. Valuations attractive at -1 s.d. of historical mean P/E, reiterate Add with an unchanged TP of S$0.79.
Strong dental revenue weighed by higher staff and tax expenses
QNM recorded 4Q21 net profit of S$3.2m, below our expectations of S$7.4m due to higher-than-expected staff costs (+21% yoy) and tax expenses (+98% yoy). However, FY21 net profit was a record S$30m (+55% yoy), and formed 88%/85% of our/consensus’ full-year forecasts. 4Q21 revenue was in line with expectations at 99% of our forecasts as we had expected a seasonally stronger dental core revenue to partially offset lower Covid-19 testing during the quarter as Singapore shifted towards self-testing. The group declared a 1 Sct interim dividend in the quarter, bringing FY21 DPS to 4 Scts (c.7% FY21 dividend
yield).
Accelerated pace of expansion to bear fruit in FY22F
QNM opened 14 new dental clinics (15 new clinics, 1 consolidated) in Singapore as of end FY21, bringing its total outlet count to 97 outlets. This is in line with our estimates but below management’s target of 20 new clinics in Singapore. QNM remains steadfast on its clinic opening goal (20 in Singapore and 10 in Malaysia per year for the next 10 years) and we expect its aggressive expansion plans to underpin revenue growth in the future to offset weaker testing revenues.
PCR tests still on a downtrend; new use cases could help
Daily PCR test numbers continued to decline in Feb 2022, sliding 9% mom to c.17k tests. Testing measures in Singapore eased further on 16 Feb 22, with vaccinated travel lane (VTL) travelers no longer being required to undergo an on-arrival PCR test and are instead subjected to a supervised ART. As QNM clinics offer supervised ART services, we believe this should help to partially offset the decline in PCR volumes. Acumen is also exploring the rollout of new PCR use cases (e.g. sepsis, dengue), which we believe could be a new earnings driver should commercialisation be successful.
Valuations attractive at -1 s.d.; strong FY21 ROE of 27% vs. peers
We continue to like QNM for its entrenched dental incumbency in Singapore and cash generative business. Valuations look attractive as the group trades at 16x FY23F P/E (-1 s.d. from 6-year historical mean). We reiterate Add and maintain our TP at S$0.79, pegged to 22x FY23F P/E (c.10% discount to peers on account of its smaller size). We keep our FY22F-24F estimates as we had previously incorporated higher staff costs moving forward. Re-rating catalysts include commercialisation of new PCR services and turnaround in Aoxin’s core business. Downside risks include lower Covid-19 testing intensity