20150728-Maybank_KERPL-Scaling_up_in_China_15页_1mb

Q&M Dental Group Summary

Core Information

• Share Price: SGD0.86
• Target Price: SGD1.05 (+23%)
• Market Cap (USD): 487M
• Average Daily Trading Volume (USD): 3M
• Sector: Health Care
• Country: Singapore
• Investment Recommendation: BUY (unchanged)
• Key Contacts:
  • John Cheong: (65) 6231 5845, johncheong@maybank-ke.com.sg
  • Gregory Yap: (65) 6231 5848, gyap@maybank-ke.com.sg
  • www.baogaoba.xyz: 獨家收集 每天更新 免费分享

China Operations Overview

• Q&M has made significant progress in its China operations, particularly with the acquisitions of Aoxin and Aidite.
• Aoxin (Liaoning Province): Acquired on 7 Jul 2014, owns three dental hospitals and three dental clinics.
• Aidite (Hebei Province): Acquired on 13 Aug 2014, a specialised dental materials manufacturer.
• During a recent visit, the operations were found to be impressive, with good working relationships and high standards of operations.
• Q&M is expected to expand further in China by replicating its Singapore model of growth through acquisitions and internal expansion.
• Aoxin is also looking to expand into public hospital privatisation, which is seen as a high-growth opportunity.

Financial Projections and Adjustments

• EPS Adjustments:
  • FY15E: Reduced by 9% due to a 3-month delay in acquisitions.
  • FY16E and FY17E: Increased by 3% due to higher Aidite contributions.
• Core EPS (cts):
  • FY13A: 0.9
  • FY14A: 1.1
  • FY15E: 1.5
  • FY16E: 2.3
  • FY17E: 2.7
• Core EPS Growth (%):
  • FY13A: -6.0
  • FY14A: 28.9
  • FY15E: 35.1
  • FY16E: 57.3
  • FY17E: 17.5
• Target Price: SGD1.05, based on 45x FY16 P/E, which is 1SD above Q&M's 5-year mean.
• Earnings Growth Expectations:
  • 2Q15: c.SGD2.2m, down QoQ due to interest costs from a SGD60m MTN.
  • YoY growth: c.80% from Aoxin and Aidite contributions.
  • 4Q15: Expected to be a catch-up quarter as Singapore acquisitions start contributing.

Aidite's Growth Potential

• Aidite is expected to significantly boost Q&M's earnings from FY16 onwards.
• Its new facility is expected to be completed in Oct 2015, allowing for capacity expansion.
• Aidite aims to add two new production lines to meet high demand.
• Export contributions have risen to 50% from 20% a year ago.
• Earnings growth for Aidite is now modeled at 56–74% for FY15–17, up from 30% previously.
• Q&M paid a low valuation for Aidite, 4.3x FY15/16 P/E, which is considered a "cheapest acquisition."

Aoxin's Growth Opportunities

• Aoxin has two new hospitals, with one just opened and the other recently renovated, indicating strong growth potential.
• Aoxin is expected to adopt Q&M's model of acquiring smaller players and expanding organically.
• Aoxin has already made three acquisitions with profit guarantees and service agreements.
• A potential joint venture with LMU Stomatology Hospital No. 2 is being discussed, which could lead to rapid expansion in Liaoning and beyond.

Key Financial Metrics

Key Insights from the Visit

• Operations: The dental hospitals and manufacturing plant in Liaoning and Hebei were well-managed and showed strong growth potential.
• Integration: Strong relationships were observed between Q&M's Singapore and China teams, with good collaboration and knowledge sharing.
• Product Development: Aidite is exploring 3D printing technology and has seen increased market share in China due to improved product quality and innovation.
• Market Expansion: Q&M is in the process of obtaining MOH approval to sell Aidite's products in Singapore and Malaysia, which could boost its market presence.

Strategic Outlook

• Acquisition Strategy: Q&M and Aoxin plan to continue expanding through acquisitions, particularly in the public hospital sector.
• IPO Potential: Potential IPOs for Aidite and Aoxin could enhance their profiles and attract more investors and hospital operators.
• Growth Catalysts: More acquisitions and capacity expansion are expected to drive future growth.

Peer Comparison

Research Contacts

• Regional Head, Research & Economics: Sadiq CURRIMBOHY, (65) 6231 5836, sadiq@maybank-ke.com.sg
• Regional Head of Institutional Research: WONG Chew Hann, CA, (603) 2297 8686, wchewh@maybank-ib.com
• Regional Head of Retail Research: ONG Seng Yeow, (65) 6432 1453, ongsengyeow@maybank-ke.com.sg
• Chief Economist, Singapore | Malaysia: Suhaimi JILIAS, (603) 2297 8682, suhaimi_iliias@maybank-ib.com
• Global Strategist: Sadiq CURRIMBOHY, (65) 6231 5836, sadiq@maybank-ke.com.sg
• Regional Research Contacts:
  • Malaysia: WONG Chew Hann, CA, (603) 2297 8686, wchewh@maybank-ib.com
  • Indonesia: JUNIMAN, (62) 21 29228888 ext 29682, Juniman@bankbii.com
  • Philippines: Luz LORENZO, (63) 28498836, luz_lorenzo@maybank-atrke.com
  • Thailand: Tim LEELAHAPHAN, (66) 2658 6300 ext 1420, tim.l@maybank-ke.co.th
  • Hong Kong / Regional: Willie CHAN, (852) 2268 0631, williechan@kimeng.com.hk
  • Banking & Finance: Desmond CH'NG, ACA, (603)22978680, desmond.chng@maybank-ib.com
  • Oil & Gas Services - Regional: LIAW Thong Jung, (603) 2297 8688, tjliaw@maybank-ob.com
  • Plantations - Regional: ONG Chee Ting, CA, (603) 2297 8678, ct.ong@maybank-ib.com
  • Aviation - Regional - Petrochem: Mohsin AZIZ, (603) 2297 8692, mohshin.aziz@maybank-ib.com
  • Gaming - Regional Media: YIN Shao Yang, CPA, (603) 2297 8916, samuel.y@maybank-ib.com
  • Power Telcos: TAN Chi Wei, CFA, (603) 2297 8690, chiwei.t@maybank-ib.com
  • Property: WONG Wei Sum, CFA, (603) 2297 8679, weisum@maybank-ob.com
  • Other: LEE Yen Ling, (603) 2297 8691, lee.yl@maybank-ib.