• 2Q21 PATMI within expectations, at 49% of our adjusted FY21e forecast. Revenue spiked 105% YoY to S$50.8mn. Normalised PATMI was up 10x. 1-for-5 bonus issue and 1 cent quarterly dividend announced.
• Earnings from Acumen Diagnostics’ COVID-19 PCR tests were an estimated S$3mn, up from S$0.6mn the previous quarter.
• Maintain BUY. Target price dips to S$0.98 from S$1.00 as we revamp our valuations. We now peg Acumen at S$60mn, at the proposed purchase price by Aoxin for a 49% stake. We roll over our 25x core P/E valuation to FY22e. Another S$0.04 has been added from the market value of listed associate, Aoxin Q & M Dental (S$0.225, Not Rated), at a 20% discount.

The Positives

+ Bounce in revenue. Increased demand for dental procedures due to closed borders, PCR test revenue and a higher number of dental clinics led to a 105% YoY surge in revenue. This was aided by a lower base last year due to circuit breaker. Core dental service rose 86% YoY to S$38mn. Medical equipment sales, including PCR tests, tripled to S$12.7mn. Revenue per dental clinic jumped 71% YoY to around S$308k in 2Q21. Pre-pandemic revenue per clinic in 2Q19 was around S$295k, a modest 5% lower. Industry data point to slower dental admissions in May and June 2021, likely due to the Phase 2HA lockdown.

+ COVID-19 PCR test earnings spiked. Earnings from PCR tests were around S$3mn this quarter, based on minority interest. This was a jump from S$0.6mn in the previous quarter. No details were disclosed. We model around S$7mn from PCR tests for FY21e.

The Negative

– New-clinic openings below run rate, for now. Q & M opened seven new clinics in 1H21: four in Singapore and three in Malaysia. This was below our forecast of 25. It plans to open 30 p.a. In Singapore, another six sites have been secured with 10 more to be completed. Singapore  appears on course for 20 new clinics but expansion in Malaysia remains fluid due to the pandemic. Revenue per clinic in Singapore is typically 4x higher than Malaysia.

Outlook

We expect dental admissions to remain healthy in 2H21. New clinics are expected to form the foundation of revenue growth in Singapore. Despite a rebound in revenue per clinic, industry patient volumes are still below pre-pandemic levels.

We forecast lower PCR testing income for FY22e. As the country moves towards higher vaccination rates and an endemic COVID-19, there is less clarity on the number of tests which will be administered in the next two years. That said, testing should remain an important tool as the country opens its borders. PCR testing will likely be required for vaccinated travellers, unlinked cases and routine tests.

Maintain BUY with lower TP of S$0.98, from S$1.00

We keep FY21e earnings unchanged but our valuation metrics has changed (Figure 1). Earlier, Acumen Diagnostics was valued together with group earnings at 25x FY21e PE. We now separately value Acumen. Associate Axoin is proposing to acquire the remaining 49% stake in Acumen for S$29.4mn via the issuance of 127.3mn shares at S$0.231 per share. The vendors are Acumen Holdings and Ong Siew Hwa (Figure 2). Our valuation for Acumen Diagnostics is now pegged to its implied S$60mn valuation.