Q&M Dental Group - CGS-CIMB Research 2022-08-19: Pricing In Near-Term Challenges

Q&M Dental Group - Pricing In Near-Term Challenges

  • Q&M Dental (SGX:QC7)’s 1H22 core net profit of S$9.8m was below expectations at 33.7% and 37.2% of our and consensus FY22F estimates respectively. Apart from the slower-than-expected growth from its dental core business, we also understood from management that the lower operating leverage was a result of continued investments into its digital Artificial Intelligence (AI) guided clinical decision support system and a change in accounting treatment of employee bonuses and directors’ fees, which will now be accrued quarterly compared to only in the fourth quarter during FY21.
  • The relaxation of testing requirements in Singapore also saw Q&M Dental’s diagnostics arm, Acumen, dip back into losses in 2Q22, compared to the high profitability observed in FY21.
  • As of 2Q22, Q&M Dental was operating 149 dental clinics, 24 more clinics than a year ago. Although slightly short of its ambitions to open 30 dental clinics per year, management has noted that new clinics have mostly contributed positively within their expected gestation period. Nevertheless, average revenue per clinic seems to have declined.
  • Q&M Dental is currently assessing its capital allocation options in the short term, which could include paying down its debt in the higher interest rate environment, and for undertaking potential growth opportunities. We thus reduce our dividend expectation for FY22F from S$0.018 to S$0.01, implying a payout ratio of ~50%, in line with pre-COVID levels, and we expect it to resume in 4Q22.
  • Downgrade Q&M Dental to HOLD with lower target price of S$0.44. Our revised earnings estimates take into account the removal of COVID-19 contributions and slower dental core revenue growth. Nevertheless, we believe the market has priced in the near-term challenges for the group.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

TAY Wee Kuang CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-19

Read also CGS-CIMB's most recent report:
2022-11-14 Q&M Dental Group - Dental Core Revenue Growth Commendable.

Previous report by CGS-CIMB:
2022-10-12 Q&M Dental Group - Tender Win Alleviates Short-Term Pressure.

Price targets by 2 other brokers at Q&M Dental Target Prices.
Listing of research reports at Q&M Dental Analyst Reports.

Relevant links:
Q&M Dental Share Price History,
Q&M Dental Announcements,
Q&M Dental Dividends & Corporate Actions,
Q&M Dental News Articles

SGX Stock / REIT Search


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