Wednesday, 20 August 2014

Q&M Dental

Kim Eng on 20 Aug 2014

  • Keen investor interest in its business and China growth strategy. Maintain BUY. TP lowered to SGD0.51, based on long-term mean of 39x FY15E fully-diluted EPS.
  • Completed China acquisitions to boost profits significantly from 2H14. More acquisitions in the pipeline.
  • Moving up value chain to fast-growing CAD/CAM dentistry, with Aidite’s aid.
Acquisitions to boost 2H14
We hosted Q&M to an NDR with 10 clients. Management reaffirmed that its completed acquisitions will boost profits significantly from 2H14E. Our current forecasts of SGD6.6m (+27% YoY) and SGD7.6m (+16%), which do not include contributions from acquisitions, would rise to SGD7.9m (+53%) in FY14E and SGD11m (+39%) in FY15E. Fully-diluted EPS, including the acquisitions, should grow 8% in FY14E and 39% in FY15E, their first full year of contributions.
Further M&A potential in China
Dr Ng, CEO of Q&M, shed more light on the private and public dental markets in China. We believe Q&M is pursuing more acquisitions in China. It can cherry-pick the best targets, as its acquisition of Aoxin has raised its profile in China’s dental industry.
Moving up the CAD/CAM value chain
Other than giving Q&M access to the China market and boosting its earnings via profit guarantees, Aidite should enable Q&M to participate more in CAD/CAM dentistry, the fastest-growing segment of dentistry. With its existing technology, 60 clinics in Singapore and now a source of reasonably-priced materials, Q&M now has the recipe for success in CAD/CAM dentistry services.
TP revised down to SGD0.51, 21% upside
We cut our TP to SGD0.51 (from SGD0.54) after assuming Heritas exercises its call option of 63m new shares in order to be entitled to the rights issue.

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