• Earnings were below our forecast. FY21 PATMI was 81% of our forecast. COVID-19 PCR test revenue declined dramatically and employee expenses were higher than expected.
• A record 7 new Singapore dental clinics were opened in 4Q21 (3Q21: +3). The number of Singapore clinics increased by 17% YoY in FY21 to 97.
• We cut our FY22e PATMI by 15% to S$26.3mn due to lower PCR revenue. Our BUY recommendation is maintained. The target price is lowered from S$0.82 to S$0.71. The core dental operations are valued at 25x PE FY22 earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.187, Not Rated), is valued at market price with a 20% discount. Our forecasted 15 new clinics in Singapore, plus a full-year contribution of 14 new clinics last year, will remain the growth drivers for the company. The number of clinics in Singapore is expected to jump 35% from FY19 to FY22e.
• Earnings were below our forecast. FY21 PATMI was 81% of our forecast. COVID-19 PCR test revenue declined dramatically and employee expenses were higher than expected.
• A record 7 new Singapore dental clinics were opened in 4Q21 (3Q21: +3). The number of Singapore clinics increased by 17% YoY in FY21 to 97.
• We cut our FY22e PATMI by 15% to S$26.3mn due to lower PCR revenue. Our BUY recommendation is maintained. The target price is lowered from S$0.82 to S$0.71. The core dental operations are valued at 25x PE FY22 earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.187, Not Rated), is valued at market price with a 20% discount. Our forecasted 15 new clinics in Singapore, plus a full-year contribution of 14 new clinics last year, will remain the growth drivers for the company. The number of clinics in Singapore is expected to jump 35% from FY19 to FY22e.

The Positive

+ Record quarterly expansion in clinics. The 7 new clinics in Singapore will be the highest quarterly expansion in clinic numbers. It equals the 7 in the entire FY19. Another two clinics to commence in 1Q22. The company has plans to expand by at least 30 dental clinics a year in Singapore and Malaysia for the next 10 years, starting from 2021.

The Negatives

– Dental earnings weak. Profitability from core dental operations was weak due to higher employee expenses from the provision of higher bonuses. Volume was also impacted by the wariness of patients for dental visitations due to the resurgence of COVID-19 pandemic cases.

– Collapse in COVID-19 PCR test earnings. Earnings contribution from Acumen collapsed from around S$4.4mn in 3Q21 to S$0.8mn in 4Q21.  ART has become the default option for most users. Under the new inbound travel requirements, PCR is no longer mandatory. Acumen will also pursue other PCR test products such as sepsis and colorectal detection. The near-term revenue driver will be ART testing.

Outlook

Revenue growth in FY22e will be driven by the 18 clinics (Singapore – 14 / Malaysia – 4) opened last year. A drag to FY22e earnings will be the decline in COVID-19 PCR test revenue. However, Acumen contribution will now be derived from the 46 clinics providing the ART testing services islandwide.

Q&M has plans to open at least 30 dental clinics a year from 2021 onwards in Singapore and Malaysia for the next 10 years. This implies a doubling of dental clinics in 5 years.

Maintain BUY with a lower TP of S$0.71 (prev. S$0.82)

We cut our FY22e PATMI by 15% to S$26.3mn due to lower PCR revenue. Our BUY recommendation is maintained. The target price is lowered from S$0.82 to S$0.71. We value the core dental operations at 25x PE FY22 earnings, in line with industry peers. Listed associate, Aoxin Q & M Dental (S$0.187, Not Rated), is valued at market price with a 20% discount. Acumen Diagnostics valuation of 51% stake is cut from S$30mn* to S$15mn.

*Implied valuation following the disposal of a 49% stake to associate Aoxin Q & M Dental.