Background: Q&M Dental is Singapore’s largest private dental healthcare group, with two dental centres and 45 dental outlets in Singapore, two outlets in Malaysia and nine in China. It also has a team of more than 140 dentists and oral health therapists. The company was founded in 1996 and listed on the SGX Mainboard in November 2009.
Recent development: Q&M recently signed an MOU to acquire a 60% stake in Alpha Dental, which owns a dental clinic in Shanghai. This is the fifth proposed JV it has entered into this year in China, including one with a major dental hospital group in Shanxi Province. The move forms part of its plan to establish its dental business in China. It is also on its way to set up the first Q&M dental clinic in Shanghai.
Key ratios…
Price-to-earnings: 51.4x
Price-to-NTA: 8.1x
Dividend per share / yield: S$0.01 /1.6%
Net cash/(debt) per share: S$0.04
Net cash as % of market cap: 5.3%
Share price S$0.755
Issued shares (m) 275.2
Market cap (S$m) 207.8
Free float (%) 27.2
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders 18 principal shareholders (dentists) – 71.2%
YTD change +51%
52-week price range S$0.485-0.905
Our view
Higher operating costs dragged down net profit growth. 9M11 revenue posted a 23% YoY growth due to contributions from new outlets and increased revenue from existing clinics. Corresponding net profit grew by a lower 12% YoY, dragged down by a higher headcount, depreciation costs and rental expenses attributed to the new outlets.
Clear expansion plans. Q&M has outlined a set of clear expansion targets. It aims to establish a strong presence in China through JVs and organic growth with a target of 50 outlets and 20 labs by 2015. The final goal is to list its China business within five years. It also seeks to set up 60 outlets in Singapore and 15 in Malaysia by 2015. The market apparently has taken this into account given the high valuation the stock is trading at. The risk now is whether the group can deliver on these promises.
Valuation looks expensive. Based on the profit undertakings by its existing and proposed JVs in China, Q&M’s share of annual net profit from these JVs would be RMB19.3m (about S$3.9m). If we were to annualise its 9M11 net profit and add these potential contributions, full-year net profit would be about S$8.1m. Based on this figure, its valuation would be at 25.8x PER, still relatively expensive in our view, but we have not taken into account contributions from organic growth and more future acquisitions.
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