SINGAPORE (Aug 22): Phillip Capital has upgraded Q&M Dental Group to “neutral” with lower target price of $0.61 from $0.65.
“While our view remains unchanged for soft FY17e revenue, we raised FY17e EPS by 13% to 1.9 cents on better than expected results from associates,” says analyst Soh Lin Sin in a Monday.
“Our FY17e EPS excludes gain on spin-off of Aoxin and spin-off listing cots. We lowered PER on a structural slowdown in Singapore’s healthcare services,” adds Soh.
In 2Q17 ended June, one-time gain of $16.9 million from divestment of Aoxin buoyed the group’s bottom line.
With both Aidite and Aoxin reclassified from subsidiaries to associates, the duo also contributed $1.15 million, or 8.4%, to Q&M PBT.
Clinics margin rose 2.8ppt y-o-y to 94.3% due to Aoxin's deconsolidation and change in accounting treatment implemented in 1Q17 for instruments which are now capitalised.
Distribution margin also rose 4.0ppt y-o-y to 33.5% on deconsolidation of Aoxin.
Management noted potential price adjustment for the increased medical consumables and supplies, staff and rental expenses.
On the contrary, the dental equipment and supplies distribution business saw lower y-o-y demand in Singapore.
This was due to a higher base in 2016 which was boosted by Singapore government’s Productivity and Innovation Credit (PIC) scheme to raise productivity.
The payout rate of 60% of expenditures ended in July 31, 2016 and, according to management, most Singapore clients had replaced big-ticket items before a lower payout rate of 40% of expenditures took effect in Aug 1 2016.
But its Malaysia business remains unaffected.
Q&M Dental plans to expand its product offerings to drive its distribution business growth.
Looking ahead, Phillip Capital says the group’s outlook has improved as the group stepped up expansion plan to support future growth.
Q&M Dental is also on track to meet its target of opening of at least five new clinics per year. It opened two new clinics in Singapore and three acquisition deals in Singapore and Malaysia.
Management plans to continue its expansion momentum for its dental clinics as well as its team of general dental practitioners and dental specialists, in Singapore and Malaysia in 2H17.
According to Soh, potential re-rating catalysts would be the group stepping up the pace of earnings accretive acquisitions; and better-than-expected results from associates.
Successful acquisition of Shenzhen Superline will boost contribution from associates and could be the next Aidite.
The group has declared a higher interim dividend of 0.7 cent per share.
At 3.25pm, shares in Q&M closed at 64 cents.
