20180816-辉立证券-Q___M_Dental_Group_8页_677kb

Q & M Dental Group 2Q18 Results Summary

Core Content

Q & M Dental Group, a healthcare company based in Singapore, reported its 2Q18 results, highlighting both positive and negative aspects of its performance. The company has been actively expanding in Singapore and Malaysia, with a focus on organic growth and new clinic openings. The document also includes financial highlights, valuation analysis, and a recommendation upgrade from Phillip Securities Group.

Key Financial Performance

• Revenue: 2Q18 revenue was S$29.5 million, slightly down by -0.3% YoY. Excluding Aoxin, revenue increased by 5.0% YoY.
• Gross Margin: Gross margin decreased by 2.1 percentage points to 87.5%, due to changes in accounting treatment.
• Core EBITDA: 2Q18 Core EBITDA was S$4.3 million, down by -10.8% YoY, mainly due to a one-time gain from the spin-off of Aoxin last year.
• EBIT: EBIT was S$7.1 million, a significant drop of -55.0% YoY, due to the inclusion of associates and joint ventures.
• PATMI (Profit After Tax, Minority Interest): 2Q18 PATMI was S$4.6 million, down by -66.6% YoY.
• Adjusted PATMI: 2Q18 adjusted PATMI was S$4.6 million, up by 6.4% YoY, excluding one-off gains and provisions.

Operational Highlights

• Clinic Expansion: The company opened 3 new clinics in 1H18 and plans to open 4 more in Singapore and 3 in Malaysia in 2H18.
• Distribution Revenue: Distribution revenue excluding Aoxin increased by 51.3% YoY, driven by higher revenue in Malaysia.
• Dividend Policy: The company has adopted a policy of paying out at least 30% of core operating earnings. The interim dividend was 0.4 cents per share, down by -43% YoY.

Valuation and Recommendation

• Upgraded Recommendation: Phillip Securities upgraded the recommendation to BUY with a target price of SGD 0.65 (previously SGD 0.63).
• Valuation Metrics:
  • FY18e EPS is estimated at 2.3 SCents.
  • The adjusted PER is 28.3x, aligning with peers' average.
• Potential Upside: The potential upside from the current price is 29.9%.

Outlook and Strategic Moves

• Expansion Plans: The company is aggressively expanding in Singapore and Malaysia, aiming to open at least 20 new clinics by end-FY18e.
• New Dentists: 24 new dentists were recruited in the last 3-4 months, supporting the expansion.
• Refinancing: The company refinanced its debt, leading to interest savings and improving financial flexibility.
• Potential Expansion into Southern China: There is a possibility of expansion into Southern China through joint ventures and organic growth with its Chinese associate, Aoxin Q&M Dental Group.

Key Financials (FY15–FY19e)

Positive Aspects

• Aggressive Expansion: The company is expanding aggressively in Singapore and Malaysia, with plans to open 20 new clinics by end-FY18e.
• Organic Growth: Distribution business is showing organic growth, with a 51.3% YoY increase in revenue (excluding Aoxin).
• Interest Savings: Refinancing efforts have led to interest savings, improving financial flexibility.

Negative Aspects

• Malaysia Challenges: No new clinics were opened in Malaysia YTD, and the company needs to open 7 more clinics in 2H18 to meet its 2018 target.
• EBITDA and EBIT Declines: Core EBITDA and EBIT both declined significantly YoY, primarily due to the absence of a one-time gain from the spin-off of Aoxin.

Valuation Ratios

Summary of Key Points

• Revenue and EBITDA Trends: Revenue and EBITDA have shown mixed performance, with some declines attributed to accounting changes and the absence of one-time gains.
• Expansion: The company is expanding aggressively in Singapore and Malaysia, with a target of 20 new clinics by end-FY18e.
• Dividend Policy: The company has adopted a policy of paying out at least 30% of core operating earnings, with a lower interim dividend.
• Valuation: The company is valued at a P/E multiple of 28x, with a potential upside of 29.9% from the current price.
• Recommendation: The recommendation has been upgraded to BUY, with a target price of SGD 0.65.

Conclusion

Q & M Dental Group is focusing on expansion and organic growth in key markets, despite some challenges in Malaysia. The company's financial performance has been impacted by accounting changes and the absence of one-time gains, but the updated recommendation suggests positive potential for future growth and returns.