Background: Q & M has a network of 43 dental clinics in Singapore, commanding a 7% share of the market based on the total number of local dental outlets. It serves about 18% of the local population who visit dentists more than once a year. The group also operates nine dental outlets in China through joint ventures and two in Malaysia.
Recent development: Q & M attracted a US$15m financing from the International Finance Corporation (IFC) in April this year and proposed a TDR issue of up to US$50m on the Taiwan Stock Exchange in the following month. This target war chest of US$65m (or RMB400m) has been earmarked for the group’s expansion in China over the next five years.
Key ratios…
Price-to-earnings: 54.0x
Price-to-NTA: 8.6x
Dividend per share / yield: $0.012 / 1.5%
Net cash/(debt) per share: $0.05
Net cash as % of market cap: 6.7%
Everything else…
Share price S$0.81
Issued shares (m) 275.2
Market cap (S$m) 222.9
Free float (%) 27.2%
Recent fundraising activities IPO: November 2009 (IPO price of $0.27)
Financial YE December 31
Major shareholders 18 principal shareholders (dentists) – 71.2%
YTD change +62.0%
52-wk price range S$0.415-0.905
Our view:
Roadmap to success in Singapore. Q & M is gaining market share in the area of aesthetic dental solutions with two large-scale centres in Singapore. There is excess capacity at these centres for new dentists to capture the rising demand for specialist dental services. In addition, the group plans to increase its dental outlets in Singapore to 60 by 2015 through organic expansion or acquisitions. This implies profit growth of 44% in Singapore alone over the next five years, based on very conservative estimates of revenue per clinic per annum of $0.9k and net margin of 10%.
Gearing up for China listing. The group targets to operate 50 dental outlets and at least 20 laboratories in five years through JVs and build a combined profit base of at least RMB80m before seeking a separate listing, likely in China. Its share of the profit undertakings under the existing and proposed JVs currently amounts to RMB14.5m pa and will impact the bottomline from next year.
Price surge on news combo. The proposed TDR issue, coupled with the endorsement by IFC and plans for a separate China listing in the future, has sent Q & M’s share price surging by 62% year-to-date. The stock trades at 32x FY11 PER (consensus) and 8.3x P/B.
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