Analysts have all lowered their target price estimates for Q&M Dental Group QC7 after the group’s 4QFY2022 loss stood below their estimates. Q&M Dental, on March 2, reported a loss of $2.2 million for the quarter ended Dec 31, 2022. For the FY2022, the group’s earnings fell by 63% y-o-y to $11.3 million.
CGS-CIMB Research analysts Tay Wee Kuang and Kenneth Tan have lowered their target price to 42 cents from 45 cents previously as Q&M’s net loss during the 4QFY2022 missed their estimates. The group’s core net profit of $2.9 million for the quarter, which brought its FY2022 core net profit to $16.5 million, also stood lower than Tay and Tan’s expectations at 90.0% of their full-year estimates.
In their report dated March 9, Tay and Tan note that the group will be initiating “a strategy of intensive organic growth” by expanding its team of dentists.
“[This is] likely to optimise operations in existing dental clinics as Q&M’s FY2022 revenue growth of 2% y-o-y did not match its pace of clinic openings,” they write.
“In FY2022, Q&M opened 16 dental clinics across Singapore and Malaysia to bring total dental and medical clinics to 157 outlets from 141 outlets a year ago. We understand that the shortage of nurses also impacted operations during FY2022, but Q&M shared that it has since been able to recruit additional nurses,” they add.
That said, Tay and Tan are less upbeat on the group’s non-core businesses as they anticipate losses to extend into the FY2023.
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“[This is] as Q&M ramps up the development of EM2AI for future commercialisation, offset by higher contribution from Acumen, due to its management of a Joint Vaccination and Testing Centre (JVTC) till end-FY2023 while rolling out new diagnostic tests,” they write.
Following this, the analysts have also cut their earnings per share (EPS) estimates for the FY2023 and FY2024 by 3.2% and 7.3% respectively, which led to the lowered target price.
That said, Tay and Tan are still remaining upbeat with their “add” call as Q&M’s valuations are “undemanding”. At its share price of 35.5 cents as at the analysts’ report, shares in Q&M are trading at a forward P/E of 17x, almost 1.5 standard deviations (s.d.) below the group’s historical valuation.
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To them, re-rating catalysts include stronger revenue momentum, turnaround of associate Aoxin Q&M and higher revenue intensity in existing clinics. On the other hand, downside risks include sluggish dental demand and larger-than-expected costs for gestating assets.
Maybank Securities analyst Eric Ong has also lowered his target price to 37 cents from 40 cents previously while keeping his “hold” call on Q&M.
Like his peers at CGS-CIMB, Q&M’s 4QFY2022 results also stood below Ong’s estimates.
“The variance was largely due to [a] decrease in polymerase chain reaction (PCR) testing revenue, as well as write-off of about $5 million relating to its Covid-19 related consumables,” says Ong.
Following Q&M’s lower-than-expected results, Ong has also cut his EPS estimates for the FY2023 to FY2024 by 15% to 16% on slower-than-expected dental business growth and higher operating expenses (opex).
The analyst notes that the group faces headwinds such as increased manpower and occupancy costs, as well as a shortage of trained nurses amid the ongoing inflationary environment.
“Management articulated that it will now focus on improving the utilisation and productivity of existing clinics (for e.g., adding more dental chairs) to expand margins instead of network expansion going forward,” he says.
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On Q&M’s investment in data-centric artificial intelligence (AI) treatment, Ong sees this as a potential next-growth catalyst that “caters to the rising demand for primary and high-value specialist dental healthcare services”. However, “we think continued investments in this area may likely weigh on its earnings in the near-term,” Ong adds.
On Q&M’s Acumen Diagnostics aiming to progressively roll out its pipeline of new PCR tests, Ong is not assuming any revenue contribution from this new segment given the “lack of visibility on commercialisation and timeline”.
Ong’s new target price is based on an FY2023 P/E of 22x.
As at 3.48pm, shares in Q&M are trading 0.5 cent lower or 1.41% down at 35 cents.
