Photo: Q&M Dental
What started as a bonding session for a bunch of former classmates became the germination ground for a viable dental business.
In 2008, Dr Raymond Ang, the current COO of Q&M Dental, joined his mahjong kaki and friend Dr Ng Chin Siau, who had founded the group and was its CEO, to help grow the business.
From what was a single clinic in Bukit Batok in 1996, Q&M is now one of the largest dental groups in Singapore with some 86 clinics in Singapore, Malaysia and China and has over 200 dentists on its payroll. Ang is still a practising dentist with the group although there is less time for mahjong now.
“Despite Covid-19 last year, we have taken several steps to expand. We have opened new clinics and hired more dentists,” says Ang in an interview with The Edge Singapore.
Luckily for Q&M, the Covid-19 pandemic has encouraged people to be more conscious of their health and wellness, including their dental health, oral hygiene and appearance.
“With mandatory mask-wearing, we see a lot of people coming in our clinics for braces,” says Ang as many patients are embarrassed to be seen with braces in public.
“We are mindful of the recent changes in Singapore relating to the Covid-19 situation. Although there is nothing much we can do in terms of the social-distancing measures, with our implementation of infection control measures that we have put in place since last year, I think they give patients peace of mind to continue taking care of their oral health,” says Ang, who adds that just as long as Singapore does not enter into another “circuit breaker”, the company should not end up in the red.
During the circuit breaker last April, dental clinics were not allowed to undertake any aerosol-generating procedure. This meant 90% of the procedures were prohibited except for extractions and temporary fillings.
Crowning glory
In the latest 1QFY2021 ended March, Q&M saw earnings surge more than fivefold to $9.4 million while revenue increased by 47% y-o-y to $43.7 million due to higher contribution from the group’s dental and medical clinics that saw a 41% y-o-y growth in sales, and its equipment and supplies distribution and laboratory tests, which saw sales more than doubled.
1QFY2021 also saw the maiden contribution of Q&M’s newest acquisition of Acumen Research Laboratories. The 51%-owned biotech subsidiary is in the business of analysing Covid-19 test kits.
Most recently, on May 17, Acumen won a government tender to be a panel service provider for the Health Promotion Board (HPB) to provide Covid-19 swab and testing services. The announcement of the deal on May 18 caused Q&M’s share price to shoot up almost 6% to 71 cents the following day. As of May 24, shares in Q&M are trading at 69 cents, about 46.8% higher year to date.
Although Q&M cannot reveal much about the contract, analysts see this as a big win for the company.
Maybank Kim Eng, CGS-CIMB Research, PhillipCapital and DBS Group Research have “buy” calls on Q&M with target prices of 87 cents, 97 cents, $1.00 and 84 cents respectively.
“Moving forward, Q&M will continue to ramp up this business via automation to improve efficiency and productivity to cater for a higher number of swab tests conducted by the government as well as expand its in-house laboratory testing to include serology test,” says Eric Ong of Maybank.
CGS-CIMB’s lead analyst Lim Siew Khee estimates that even in the current situation, Acumen will be busy with a healthy number of swab tests to conduct.
“Assuming all awardees have an equal share of the tests (about 17%), we estimate that Q&M should be able to conduct about 900 tests per day just from Phase One sites alone. Our current assumptions are 1,500 tests per day and we see upside to our EPS. Conservatively, due to lower ASPs and margins due to the competitive public tender, we expect potential earnings contribution from Phase One sites of around $1 million. We think Phase Two execution could be more feasible in the later part of 2021 as there have been no alarming cases observed yet in dormitories,” she says.
Just like how Ang is wary that the Phase Two heightened alert lockdown may be raised to a circuit breaker if community cases remain high, PhillipCapital’s Paul Chew expects this to have a short-term impact on the group’s business. “While the country has entered a Phase Two heightened alert lockdown from May 16, dental clinics are allowed to stay open. However, we do expect cancellations. Patients will be wary of going for dental procedures despite all the safeguards in place,” he notes.
Meanwhile, Paul Yong of DBS sees Q&M’s future in the laboratory-testing business. “We think that the laboratory-testing business has huge potential as Q&M could get priority in being allocated more tests by the Singapore government, noting that the company will now focus on laboratory tests rather than the sale of test kits. We project this new segment to contribute 27% and 29% to net earnings in FY2021 and FY2022 respectively,” he says.
Bracing for the future
“We do have a lot of investments in the healthcare industry that is not in the dental space. So, going forward, we may not be ‘Q&M Dental’ anymore,” says Ang, adding that there is a possibility of the group rebranding itself as Q&M Healthcare, to reflect the provision of more than just dental services.
But that does not mean abandoning the dental business. “Our core dental business will remain our iron rice bowl, which gives our investors a sense of stability. They know that this business will achieve good earnings and dividends every year,” says Ang. Indeed, since its listing in 2009, Q&M has regularly rewarded shareholders with dividends as it has enjoyed rather consistent growth.
The way Ang sees it, the best way to grow the dental segment is to grow it organically, tapping on Q&M’s reputation as a household name in Singapore while having a knack for finding good locations to open up new clinics.
“Our business development team has a checklist when it sources for a new clinic location,” says Ang, adding that some important criteria include its location within the suburban areas to target the population at large, the size of the location to fit at least two doctors as well as the location having good visibility.
As for inorganic growth, Q&M is likely to stick to acquiring businesses it has no expertise in but have been identified as a high growth sector. One example is Aidite, a China-based manufacturer of zirconium oxide blocks, which are the main components of dental prosthesis. In 2014, Q&M acquired a 51% stake in Aidite for about RMB85 million.
“What is important is for us to reinvest a portion of our profits in other businesses. This means we act like a venture capital when we look at the market and invest in something that has good business sense and is scalable,” explains Ang. These new ventures or investments will then be scaled up and eventually sold for profit or spun off into a separate listing, which was what Q&M did with Aoxin Q&M, its dental arm based in northern China.
“After we made the Aidite acquisition, we helped them grow and build more factories. Then, we taught them corporate governance by listing them on China’s New Third Board in Beijing. After that, we had a lot of buyers for Aidite knocking on our doors,” says Ang.
Eventually, Aidite, with a valuation of RMB1 billion was sold off and the profits were redistributed to shareholders as part of a special dividend in 1HFY2020. This was a treat to investors as many stocks held back on dividends as they sought to conserve cash amid uncertainties surrounding the Covid-19 pandemic.
Looking ahead, Q&M is still on the lookout for such “gems” to acquire and invest in. As for its main dental business, the company intends to open another 30 new clinics across its current markets.
At present, plans to scale up in new markets have been put on hold due to the pandemic. However, the company was looking into expanding into Vietnam and Indonesia before Covid-19 hit, according to Ang. But due to the ban on international travelling, the budget for the expansion was redirected to the Acumen acquisition.
Although overseas expansion for the company’s dental business will have to be put on the back-burner until there is more clarity, Q&M still sees abundant opportunities in both the Malaysia and Singapore markets, which will be the focus of expansion for now.
As for Acumen, Q&M intends to do its duty for Singapore by conducting the necessary Covid-19 tests for the time being. “We are expecting a significant return of investment in the near term and you will probably see more of that in our second quarter coming up,” says Ang, who acknowledges that although the situation in Singapore is a little bit shaky, he is quietly confident about the company’s prospects for the rest of the year.
