While Q&M Dental Group saw record earnings of $30.5 million for the FY2021 ended December, its earnings of $3.2 million for the 4QFY2021 stood below analysts’ expectations.
CGS-CIMB Research analysts Tay Wee Kuang and Kenneth Tan, who expected the dental group to log earnings of $7.4 million for the quarter alone, attributed the lower-than-expected earnings to staff costs that were higher than expected, as well as tax expenses.
According to the analysts in their Feb 24 report, Q&M’s revenue for the 4QFY2021 stood broadly in line with their expectations at 99% of their forecasts as they had “expected a seasonally stronger dental core revenue to partially offset lower Covid-19 testing during the quarter as Singapore shifted towards self-testing”.
During the year, Q&M opened 14 new dental clinics in Singapore, which stood in line with the analysts’ estimates, but below management’s target of 20 new clinics in Singapore, note Tay and Tan.
While the group remains “steadfast” on its clinic opening goal of 20 in Singapore and 10 in Malaysia per year for the next 10 years, the analysts expect its aggressive expansion plans to underpin revenue growth in the future to offset weaker testing revenues.
As the daily polymerase chain reaction (PCR) tests continue to decline in February, CGS-CIMB’s Tay and Tan believe the supervised antigen rapid test (ART) services offered at Q&M’s clinics should help to partly offset the drop in PCR volumes.
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“Acumen is also exploring the rollout of new PCR use cases (e.g. sepsis, dengue), which we believe could be a new earnings driver should commercialisation be successful,” write the analysts.
Tay and Tan have kept their “add” call on Q&M with an unchanged target price of 79 cents, pegged at 22x FY2023 P/E.
“We keep our FY2022-2024 estimates as we had previously incorporated higher staff costs moving forward,” write the analysts.
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The analysts add that they continue to like the group for its “entrenched dental incumbency in Singapore and cash-generative business.”
“Valuations look attractive as the group trades at 16x FY2023 P/E (-1 s.d. from [its] six-year historical mean),” they say.
Re-rating catalysts identified include the commercialisation of new PCR services and a turnaround in Aoxin’s core business, while downside risks include lower intensity in Covid-19 testing.
DBS Group Research analyst Paul Yong has similarly deemed Q&M’s 4QFY2021 earnings a miss, as he keeps “buy” on the counter with a lower target price of 72 cents from 80 cents before.
As a result of the lower-than-expected quarterly earnings, Q&M’s FY2021 earnings missed Yong’s full-year estimate by 20%,” he says in his report dated Feb 25.
Further to his report, Yong notes that the group’s main miss came from its Acumen Diagnostics business, which resulted in a decline in revenue for the medical laboratory and dental equipment & supplies segment.
Earnings for the 4QFY2021 were further dented by higher staff costs from an increased headcount, as well as the provision of additional employee benefits, he adds.
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While Yong sees pressure on revenue and margins for Q&M’s Acumen business going forward on the back of lowered demand for polymerase chain test (PCR) tests.
“Hence, we cut our estimates as we moderate our expectations and await more concrete plans regarding the testing business,” he writes.
To be sure, Yong has lowered his earnings estimates for the FY2022 and FY2023 by 17% and 11% respectively as “we moderate our expectations for the Acumen Diagnostics business due to the fall in demand for PCR tests in Singapore”.
However, like the analysts at CGS-CIMB, Yong is positive on Q&M’s primary healthcare segment with the group’s “clear expansion strategy” for the next 10 years. The group’s aggressiveness to executing its plans is also a plus, notes Yong.
“Q&M has been off to a good start with 14 new clinics opened in Singapore and four new clinics in Malaysia in FY2021 and we expect to see the fruits of organic growth in FY2022, with more to come in the next nine years,” says Yong.
He has also deemed Q&M’s valuations as “undemanding”, which makes its current share price a good time to buy.
“Q & M is currently trading at 15.5x FY2022 P/E, which is c.1 s.d. below its five-year average, with an earnings per share (EPS) compound annual growth rate (CAGR) of 12.8% over FY2021- FY2023. It is also an attractive yield play with FY2022 yield of 7.5%,” writes Yong.
As at 4.35pm, shares in Q&M are trading 2 cents higher or 3.77% up at 55 cents, or an FY2022 P/B of 5.6 times and dividend yield of 7.5%, according to DBS’s estimates.
Photo: Bloomberg
