20170821-辉立证券-Stepping_up_acquisitions_11页_766kb

Q & M Dental Group 2Q17 Results and Outlook Summary

Core Content

Q & M Dental Group, a healthcare company based in Singapore, reported its second-quarter results for FY17, showing mixed performance across different segments. The Group has been actively pursuing acquisitions to expand its dental clinic footprint in Singapore and Malaysia. The results indicate a strategic shift in the company's business model, with a focus on sustainable growth and improving margins through operational efficiencies.

Main Points

Financial Performance (2Q17)

• Revenue: $29.6 million, down 22.7% YoY due to deconsolidation of Aidite and Aoxin.
• Gross Profit: $26.5 million, down 13.9% YoY, but with a pro-rated gross margin increase of +9.2pp to 89.6%.
• EBITDA: $15.3 million, up 114.9% YoY, primarily due to a one-time gain of $16.9 million from the spin-off of Aoxin.
• EBIT: $14.5 million, up 140.5% YoY, influenced by the reclassification of Aidite and Aoxin to associates.
• PATMI (Profit After Tax, Minority Interest): $13.6 million, up 268.7% YoY, with adjusted PATMI at $4.3 million, reflecting better-than-expected performance from associates.
• DPS (Dividend Per Share): 0.70 cents, up 66.7% YoY, with a payout ratio of 31.9% for 1H17, compared to 44.5% for 1H16.

Operational Highlights

• Clinics: Opened two new dental clinics in Singapore and consolidated two clinics into one.
• Acquisitions: Completed the acquisition of Horizon Dental Surgery and proposed the acquisition of Starbite Dental Centre, both in Singapore.
• Malaysia: Incorporated a 50:50 joint venture in Melaka and proposed the acquisition of CS Tan Dental Surgery.
• China: Proposed the acquisition of a 20% stake in Shenzhen Superline Technology Co., Ltd., a manufacturer of dental instruments.

Outlook

• The Group aims to open at least 5 new dental clinics per year, with plans to continue its expansion in both Singapore and Malaysia.
• The outlook has been upgraded to Neutral with a revised target price of SGD 0.61 (previously SGD 0.65), reflecting a lower forward PER of 32x.
• The company is well positioned to benefit from rising demand for dental healthcare services in Singapore, Malaysia, and China, where dentist density is relatively low.

Key Financials

Valuation and Performance

Valuation

• P/E Multiple: 32x, reflecting a lower forward PER of 32x compared to previous estimates.
• Target Price: SGD 0.61.
• Current Price: SGD 0.63.
• Potential Upside: -1.3%.
• Dividend Yield: 2%.
• Net Debt / Cash: 51.8x (FY17e).

Price Performance

Regional Footprint

Recent Developments

• Acquisition of Horizon Dental Surgery: Completed on 24 Jul-17 for S$350,000, with Dr. Tan Kwak Chun signing a 6-year service agreement.
• Proposed Acquisition of Starbite Dental Centre: Binding points of agreement on 24 May-17 for S$200,000 cash and S$150,000 subject to terms.
• Proposed Acquisition of CS Tan Dental Surgery: Sale and purchase agreement on 9 Jun-17 for RM 300,000 (c.S$96,774), with a 10-year profit guarantee.
• Acquisition of Shenzhen Superline: Proposed for a 20% stake, with consideration of RMB62mn (c.S$12.65mn) and a 12-year service agreement with owners.

Conclusion

Q & M Dental Group is focused on strategic expansion through acquisitions and operational improvements. While its Singapore operations face challenges due to a slowdown in government incentives, the Group is well-positioned for growth in Malaysia and China. The upgraded rating to Neutral and revised target price reflect a more cautious outlook on the Singapore market, but the company remains optimistic about its future growth prospects.