Q&M Dental Group - DBS Research 2022-11-17: Slowdown Expected In Dental Business

Q&M Dental Group - Slowdown Expected In Dental Business

  • See Q&M Dental's announcement dated 13 Nov 2022 for its 3Q22 earnings update –
    • Core Dental and Medical Clinics:
      • 3Q22 revenue for the core dental and medical clinics segment remained largely stable y-o-y and q-o-q.
      • 3Q22 PATMI declined 17% y-o-y to S$4.3m in 3Q22 from S$5.1m in 3Q21 due to an increase in borrowing costs, higher staff costs, the gestation period of new clinics, and lower share of profit from associate Aoxin Q & M.
      • Q&M Dental Group plans to open two new clinics in Singapore in 4Q22, bringing the total number of clinics to 113 (31 Dec 2022) from 111 (30 Sep 2022).
      • Focus will also be on optimising the productivity of each clinic with internal key performance indicators to be monitored.
    • Medical Laboratory and Dental Equipment & Supplies:
      • 3Q22 revenue declined 82% y-o-y and 21% q-o-q. 3Q22 EBIT turned negative to -S$0.2m.
      • Acumen Diagnostics won a Singapore MOH tender for one Joint Testing Vaccination Centre (JTVC) in Oct 2022 for 15 months till 31 Dec 2023, value of contract at least S$3.6m.

Our thoughts on Q&M Dental Group

  • 3Q22 revenue for Q&M Dental Group's core primary healthcare segment remained largely stable y-o-y and q-o-q despite the opening of 16 new dental clinics in Singapore and 8 new dental clinics in Malaysia since 30 Sep 2021, possibly due to the reopening of borders and Singaporeans seeking dental treatment overseas.
  • Going forward, we will be factoring in a longer gestation period for the new clinics as we await the ramp-up in profitability, which seems to be taking longer than expected.
  • Meanwhile, the medical laboratory and dental equipment & supplies segment turned loss-making due to the significant fall in demand for COVID-19 testing in Singapore and the reduction on COVID test prices to maintain competitiveness.
  • While 9M22 revenue of S$133.4m is roughly on track for our FY22F estimate, Q&M Dental Group's 9M22 PATMI of S$13.5m makes up only ~60% of our FY22F estimate, as both segments performed below expectations.

Our thoughts post-briefing by Q&M Dental Group's management

  • With management citing higher rental costs and a labour crunch, especially with nurses, we should start seeing a slowdown in the expansion of new clinics. Previously, we lowered our projections to 10 new clinics in Singapore and 5 new clinics in Malaysia per year instead of management’s target of 20 new clinics in Singapore and 10 new clinics in Malaysia per year. We note that the focus remains to recruit more dentists, but Q&M Dental Group’s strategy has pivoted to filling up more chairs at existing clinics, which should help margins after the gestation period.
  • Although Acumen Diagnostics won a Singapore MOH tender for one Joint Testing Vaccination Centre (JTVC) in Oct 2022 for 15 months till 31 Dec 2023, with the value of contract at at least S$3.6m, we prefer to remain conservative and will watch for upside in this segment in 4Q22/1Q23 results.
  • Management of Q&M Dental Group has also expressed that it will continue to pay the bank loans, given the higher borrowing costs in a rising interest rate environment.
  • While no dividend was declared for 3Q22, Q&M Dental Group has a dividend payout policy of at least 30% while we have projected a 50% payout, which implies 3%-4% yield p.a. for FY22F-24F. See Q&M Dental's Dividend History.

Q&M Dental Group - Earnings forecasts revision

  • Cut FY22F-24F earnings forecast for Q&M Dental Group by 22%-26% to factor in
    1. slightly lower revenue per clinic due to the reopening of borders, which has resulted in dentists, nurses, and patients travelling;
    2. longer gestation period for the new clinics; and
    3. higher costs.
  • We lower our target price for Q&M Dental Group to S$0.40 based on sum-of-the-parts (SOTP) valuation, with the core primary healthcare business at 18x FY23F P/E, which is ~0.75 standard deviation below the 5-year historical mean.
  • Maintain HOLD recommendation on Q&M Dental Group.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Tabitha FOO DBS Group Research | Paul YONG DBS Research | https://www.dbs.com/insightsdirect/ 2022-11-17
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.40 DOWN 0.530

Previous report by DBS Research:
2022-08-15 Q&M Dental Group - Expansion Plan Delayed; Disappointing 1H22 Performance

Target prices by 3 other brokers at Q&M Dental Target Prices.
Listing of broker reports at Q&M Dental Analyst Report.

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


SGX Stock / REIT Search


Trust Bank Referral Code