SINGAPORE (June 5): Maybank Kim Eng is maintaining its “hold” call on Q&M Dental Group despite its ability to attract more players in Singapore and China.
Q&M is an established brand in Singapore, operating 71 dental outlets in Singapore, 12 dental outlets in Singapore and six dental outlets in Malaysia.
It aims to expand its presence in China with the opening of larger dental hospitals, while strengthening its leadership position in Singapore through organic growth.
In a Monday report, analyst John Cheong says Q&M’s earnings have been affected previously as a newly acquired entity was weakly executed and the management’s attention has been diverted due to two major spinoffs.
However, after the spinoffs, Cheong expects both entities to be set for more expansion, with access to capital and better profile.
More dental hospitals and capacity expansions are also planned by the entities.
However, Cheong warns of several risks ahead for Q&M.
These include adverse regulatory changes, especially in China, which could slow down M&A and penetration of public dental hospitals.
There is also the possibility of goodwill impairment due to newly-acquired entities that may not be able to meet Q&M’s profit targets and adapt to new management.
Finally, there is the issue of succession planning as the CEO and founder Dr Ng was instrumental in originating and closing most of the deals on favourable terms.
Maybank has lowered its target price by 22% to 60 cents to reflect lower growth profile.
At 4.56pm, shares of Q&M are trading 1 cent lower at 68 cents.
