Background: Q & M Dental is Singapore’s largest private dental healthcare group, with 43 dental outlets in Singapore, two in Malaysia and nine in China. It also has a team of more than 130 qualified dentists and oral health therapists. The company was founded in 1996 and listed on the SGX Mainboard in November 2009.
Recent development: On 10 August 2011, Q & M announced a proposed joint venture with Shanxi Meiyuan Medical Technology Co., Ltd (SMM) of China. SMM owns and operates two dental hospitals, six dental clinics and a dental laboratory in Shanxi Province. The proposed JV will see Q & M taking an equity stake (to be determined later) in SMM.
Key ratios…
Price-to-earnings: 53.1x
Price-to-NTA: 8.2x
Dividend per share / yield: S$0.01 /1.5%
Net cash/(debt) per share: S$0.046
Net cash as % of market cap: 5.9%
Share price S$0.780
Issued shares (m) 275.2
Market cap (S$m) 214.7
Free float (%) 27.2
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders 18 principal shareholders (dentist) – 71.2%
YTD change +56%
52-wk price range S$0.480-0.905
Our view
Expanding presence in China. The newly announced JV is consistent with Q & M’s plans to expand its presence in China. With RMB400m earmarked for this purpose, the company expects to operate 50 dental clinics and 20 dental laboratories by 2015. This is estimated to bring in RMB80m in annual combined net profit.
Encouraging growth profits. Q & M’s latest 1H11 results showed a healthy YoY growth of 22% and 18% in revenue and net profit to $21.8m and $2.4m, respectively. Although margins were affected by the expansion activities, the overall positive results lend support to the company’s growth projectile.
An eventful year. This year has to be one of the most eventful in Q & M’s history. A potential $50m TDR issue, strategic investment of $15m by International Financial Corporation and several proposed acquisitions have generated positive newsflow for the company, not to mention the interest created. We believe Q & M will engage in more acquisition activities, especially in China.
Valuation uncompelling. The stock has risen by 56% YTD and is trading at consensus FY11 PER of 36.7x. The current valuation level appears to be on the high side. While the potential growth prospects may be able to justify the valuation, there is risk that valuation may re-rate downwards in the short term given the financial turmoil. At trough valuation, the stock traded at a PER of about 15.8x.
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