Tuesday, 12 August 2014

Q&M Dental Group

Kim Eng on 11 Aug 2014

  • 2Q14 core in line on organic and acquisition-led growth. 
  • We expect another major acquisition, Aidite, to fuel growth in FY15E.
  • New rights-adjusted TP of SGD0.54 from SGD0.55, based on unchanged 39x FY15E EPS (rolled over from FY14E). Maintain BUY for upcoming record earnings.
Organic and acquisition boosted earnings
2Q14 PATMI of SGD1.2m (-23.4% QoQ, +33.0% YoY) lifted 1H14 recurring net profit to 41.5% of our full-year forecast. However, we keep our forecasts unchanged as 2H is usually seasonally stronger and maiden contributions from Dr Foo and Associates, and Aoxin,Q&M’s largest deal to date. AR Dental, its Malaysian dental distribution business acquired in Jul 2013, contributed 39% of the YoY growth. Organic revenue grew 17% YoY in 2Q14, consistent with its historical growth rate.

Aoxin to lift earnings to record high
The completion of its Aoxin acquisition in Jul is expected to boost its PATMI by SGD0.7m in 2H14 (11% of FY14E core profit). Aoxin’s contribution should more than double in FY15E to SGD1.5m, on full-year contributions along with a guaranteed profit CAGR of 9% over the next 12 years. We expect another major acquisition, Aidite, to contribute SGD1.8m in FY15E. Three smaller acquisitions — Dr. Sun, Rongcheng City and Nanjing Sucroronal —are also expected to fuel its growth in FY15E.

Rights-adjusted TP of SGD0.54, rollover to FY15E
Our TP remains based on 39x FY15E EPS, rolled over from FY14E. This is consistent with its average P/E in the last five years. Our TP incorporates full-year profits from Aoxin and Qinghuangdao but not our numbers below due to data limitations for consolidation purpose. We show our proforma forecasts in Figures 4 and 5. Our  TP implies 32% upside from the stock’s theoretical ex-rights price  (TERP) of SGD0.41.

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