Q&M Dental Group Summary
Core Content
Q&M Dental Group (QNM SP) is a healthcare company based in Singapore with a current share price of SGD0.48 and a target price (TP) of SGD0.55, representing a 15% increase. The company has a market capitalization of USD232 million and an average daily trading volume (ADTV) of USD0.8 million. Maybank maintains a "BUY" rating with an unchanged TP of SGD0.55, based on a 39x forecasted FY14E earnings multiple.
Key Investment Highlights
- Heritas Helios Investments (HHI) has acquired a 10% equity stake in Q&M at SGD0.48 per share, demonstrating strong confidence in the company's future.
- HHI has also been granted a two-year call option to purchase an additional 63 million new shares (10.4% of current shares) at SGD0.48 per share.
- The transaction includes a moratorium extension for major shareholders, including Quan Min Holdings, Dr Kelvin Koh, and Dr Felicia Koh, to January 2021. This indicates a long-term investment strategy.
- HHI, a private equity arm of IMC Group, is focused on long-term growth and sustainability and aims to leverage IMC’s extensive business reach for synergy creation.
Strategic Implications
- M&A-Driven Growth: Q&M is expected to benefit significantly from its ongoing M&A activities, particularly in the high-growth Chinese dental market.
- Spin-off Potential: The company plans to spin off its China-based acquisitions, which could lead to a highly valued listing. This is a major catalyst for future growth.
- Market Positioning: Q&M's China dental business is anticipated to grow to over 200 dentists, surpassing its Singapore operations, making it a strong candidate for a public listing.
Financial Projections
| Metric |
FY12A |
FY13A |
FY14E |
FY15E |
FY16E |
| Revenue |
SGD57.0m |
SGD71.2m |
SGD85.3m |
SGD97.0m |
SGD107.5m |
| EBITDA |
SGD5.1m |
SGD9.1m |
SGD9.2m |
SGD10.5m |
SGD11.6m |
| Core Net Profit |
SGD5.0m |
SGD5.2m |
SGD6.6m |
SGD7.6m |
SGD8.6m |
| Core EPS (cts) |
0.9 |
0.9 |
1.1 |
1.3 |
1.4 |
| Core EPS Growth (%) |
9.2 |
(6.0) |
26.8 |
16.3 |
12.5 |
| Net DPS (cts) |
0.7 |
1.3 |
0.8 |
1.0 |
1.1 |
| Core P/E (x) |
52.8 |
56.2 |
44.3 |
38.1 |
33.9 |
| P/BV (x) |
9.3 |
6.3 |
6.1 |
5.9 |
5.7 |
| Net Dividend Yield (%) |
1.4 |
2.7 |
1.8 |
2.0 |
2.3 |
| ROAE (%) |
17.9 |
13.7 |
13.8 |
15.5 |
16.8 |
| ROAA (%) |
11.7 |
8.7 |
9.2 |
10.4 |
11.1 |
| EV/EBITDA (x) |
36.1 |
20.2 |
29.6 |
25.9 |
23.3 |
| Net Debt/Equity (%) |
Net Cash |
Net Cash |
Net Cash |
Net Cash |
Net Cash |
Shareholder Structure
| Shareholder |
Before Placement (Shares, %) |
After Placement (Shares, %) |
| Quan Min Holdings |
392.0m (64.7%) |
338.7m (55.9%) |
| HHI |
N/A |
60.5m (10.0%) |
| Dr Kelvin Koh |
38.5m (6.4%) |
33.5m (5.5%) |
| Dr Felicia Koh |
16.5m (2.7%) |
14.3m (2.4%) |
Investment Potential
- The current TP of SGD0.55 is based on a 39x FY14E earnings multiple and assumes the completion of Aoxin Stomatology Group and Qinhuangdao Aidite acquisitions.
- If all six acquisitions are confirmed, the TP could rise to SGD0.59.
- China's dental market is seen as a major growth opportunity, with potential for spin-offs and public listings.
- Topchoice Medical (600763 CN), the only comparable listed peer, is valued at 50x FY14E P/E, indicating that Q&M's potential upside could be substantial.
Share Price Performance
| Period |
Absolute (%) |
Relative to Index (%) |
| 1 Month |
4.3 |
3.9 |
| 3 Months |
18.5 |
11.5 |
| 12 Months |
57.4 |
62.7 |
Summary of Proforma Forecasts
| Scenario |
FY14E PATMI |
Increase from Current |
FY14E EPS |
Increase from Current |
Increase from FY13 |
Target Price (39x) |
| No Acquisitions |
SGD6.6m |
n/a |
SGD1.08 |
n/a |
27% |
SGD0.42 |
| Aoxin Only |
SGD7.6m |
16% |
SGD1.23 |
14% |
45% |
SGD0.48 |
| Aidite Only |
SGD7.7m |
18% |
SGD1.27 |
17% |
49% |
SGD0.50 |
| Aoxin & Aidite |
SGD8.8m |
34% |
SGD1.42 |
31% |
66% |
SGD0.55 |
Conclusion
The investment by HHI signals confidence in Q&M's future growth potential, particularly in the Chinese dental market. The company is expected to benefit from organic growth in Singapore and Malaysia, and M&A activities that could lead to a public listing. The extended moratorium and service agreements indicate a long-term strategic commitment from key shareholders. With the potential for additional earnings from acquisitions, the TP could increase beyond the current SGD0.55. Q&M is well-positioned for sustainable growth and value creation, making it a strong investment opportunity.
