Q&M Dental

Kim Eng on 21 Mar 2012

Background: Q&M Dental is Singapore’s largest private dental healthcare group, with three dental centres and 46 dental outlets in Singapore, two outlets in Malaysia and nine in China. It also has a team of more than 130 qualified dentists and oral health therapists. The company was founded in 1996 and listed on the SGX Mainboard in November 2009.

Recent developments: Q&M recently proposed a share split of one ordinary share into two in a bid to improve liquidity and broaden its shareholder base. Having completed the purchase of a property in Clementi which was leased for its dental operations, it is proposing another similar acquisition of a property in Jurong Gateway, which is currently owned by Group CEO, Dr Ng Chin Siau.

Revenue growing in tandem with expansion. In its latest full-year results, Q&M saw FY11 revenue grew by 22% YoY to $47.8m while net profit rose by 14% YoY to $4.6m as its network of dental outlets continued to expand. The lower growth in net profit vis-à-vis revenue was due to an increase in headcount, as well as higher depreciation and rental charges, following the opening of new outlets. The group added six new clinics and a centre in FY11.

Government subsidy scheme a boon. Q&M would be a beneficiary of the enhanced Community Health Assist Scheme, under which needy patients are subsidised by the government for seeking treatment at private dental clinics. The group has 49 clinics registered under the scheme.

Overseas markets to be key growth drivers. Q&M is eyeing Malaysia and China as key markets that will drive its next phase of growth. In Malaysia, it plans to establish up to 15 dental outlets by 2015, while the target for China is 50 dental clinics and 20 labs by the same year.

Future expansion plans priced in. The market appears confident about Q&M’s expansion plans in Malaysia and China, as evidenced by the relative resilience of the company’s share price at valuation levels that seem steep to us. The stock is trading at 46x FY11 PER and 7.9x P/NTA. While we are impressed by management’s execution skills, we remain cautious on the stock’s valuation as we believe that future prospects and risks have been priced in.