CGS-CIMB Research is keeping its “add” recommendation on Q&M Dental but with a decreased target price of 78.5 cents from 83.5 cents previously.
In a Feb 10 report, analyst Tay Wee Kuang and Kenneth Tan expects the group’s upcoming 4QFY2021 ended December to see earnings growth momentum ease, due to the normalisation of Covid-19 testing contribution from the group’s testing arm Acumen. This is due to the government’s shift to self-testing for Covid-19 during the fourth quarter. Daily PCR tests conducted during 4Q2021 fell to 28,600 daily from 66,400 daily in the third quarter.
“However, we expect contributions from Covid-19 testing services to stabilise moving forward as it continues to be an essential healthcare service in a post-pandemic society,” says the analysts.
Additionally, the group has also started to offer supervised ART testing services in its dental clinics, which could benefit from higher volumes as society repens.
To that end, the analysts revised their earnings for FY2021 downwards by 4%, 7% for FY2023 and 5% upwards for FY2023, as revenue and margins from Acumen normalise. “We now forecast a swifter decline in testing contribution in FY2022 to 60% compared with 40% previously but expect it to be stable going into FY2023,” says Tay and Tan, who have estimated a net profit of $7.4 million, representing a 45% increase y-o-y, for Q&M in 4QFY2021.
Nonetheless, the group’s core dental business has experiences a seasonally stronger business momentum in 4QFY2021 and is expected to underpin long-term growth. In FY2021, the group opened 17 new outlets in Singapore and another 4 new ones in Malaysia. This is shy of its annual target of 20 new outlets in Singapore and 10 new outlets in Malaysia over the next 10 years, but the number of clinic openings tracks well with the analysts’ forecast of 20 clinic openings across the two countries.
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“Q&M sees growing contribution from both maturing and new dental clinics supporting double-digit growth in dental core revenues that could translate into higher profits given gestation periods of approximately a year for new dental clinics,” says the analysts.
Overall, the analysts believe that the stock is still trading at an attractive valuation of 15.2 times forward P/E, more than 1 standard deviation below its five-year historical average of 27.2 times. With an estimated 4QFY2021 dividend of 1 cent, the analyst expect total FY2021 dividend from Q&M to come up to 4 cents, representing an attractive dividend yield of about 7% at the current price, which they reckon will be sustainable moving forward.
As at 2.30pm, shares in Q&M are trading at 56 cents or 16.4 times FY2021 P/E with a dividend yield of 7.0%.
Photo: Q&M Dental
