SINGAPORE (Jan 8): CIMB Research is keeping its “reduce” rating on Q&M Dental Group with a marginally higher target price of 61 cents, up from 60 cents previously, even as the private dental healthcare provider looks likely to continue its pursuit of acquisitions.
“We expect Q&M Dental to retain its existing M&A strategy to grow earnings, especially in Tier 2 and 3 Chinese cities,” says CIMB analyst Ngoh Yi Sin in a report on Sunday.
In 2014, Q&M had bought a 60% stake in Aoxin, Liaoning-based primary dental healthcare group, and a 51% stake in Aidite, a dental company specialising in dental crown manufacturing based in Hebei Province.
Aoxin was spun off onto the SGX Catalist board in Aug 2017 as Aoxin Q&M Dental Group, while Aidite was listed on the China New Third Board in Dec 2016. Q&M’s stake in Aoxin and Aidite were diluted to 44% and 38%, respectively.
“Q&M had engaged in both spin-offs, hoping to fetch higher valuations, and provide different listing platform to raise funds for more aggressive growth,” says Ngoh.
However, CIMB has cut its earnings per share (EPS) forecast for FY17-19 by 4.9-8.7% as it factors in earnings dilution from the spin-offs.
In addition, Ngoh notes that Q&M’s strategic review of its businesses, which was completed on Aug 7 last year, did not yield any outcome.
“We keep Q&M at ‘reduce’ despite its recent share price correction, as the stock still looks expensive given the single-digit EPS growth over FY18-19F,” Ngoh says.
Shares of Q&M have fallen by 13.3% since its 2017 peak of 75 cents on Feb 24 last year.
As at 1.01pm, shares of Q&M are trading flat at 65 cents, implying an estimated price-to-earnings ratio of 35.6 times and a dividend yield of 1.4% for FY17.
