Q & M Dental Group: Muted organic growth from clinics; No new clinics yet May 15, 2017 1311

PSR Recommendation: REDUCE Status: Maintained
Target Price: 0.65
  • 1Q FY17 Revenue/PATMI met 26%/28% of our full year FY17 estimates
  • Successful spin-off listing of Aoxin on the SGX-Catalist Board on April 2017; Will be reclassified as associate moving forward
  • Maintain “Reduce” due to lack of near term catalyst; Awaiting new clinics to support growth post spin-offs


Muted Clinics business growth, awaiting new clinics to lift top line. As expected, growth slowed post spin-offs. We expect unexciting single digit organic top line growth from its Clinics, especially after Aoxin’s deconsolidation. Recall in our 4Q FY16 results report, the Group intends to focus on organic growth in its Clinic business and will step up its expansion plan this year. Nonetheless, we have yet to see any progress for its target of three new clinics in Singapore by 1H FY2017.

Q&M is in a net debt position of S$36.6 mn. While the Group has S$48.1 mn cash as at 31 March 2017, S$15.5mn debt will be expiring in FY17 and its Medium Term Note of $59.7 mn will be repayable by 18 March 2018. We expect the Group to refinance these loans to fund its accelerated expansion.

Deconsolidation of Aoxin in Apr-17; Will be reclassified as associate moving forward. The Group successfully spun-off Aoxin Q&M Dental Group Pte. Ltd. (“Aoxin”) on the Catalist Board of the Singapore Exchange (SGX), with 57 million placement shares at S$0.20 per share on 26 Apr-17.

Maintained ‘Reduce’ rating and TP of $0.65. Our view remains unchanged for soft FY17F revenue and earnings growth after spin-off listings of Aoxin and Aidite. Instead of receiving 60% of Aoxin’s profit and 51% of Aidite’s, which formed c.50% of its Group profit, Q&M will now recognise c.44% of Aoxin’s profit and subsequently c.38% of Aidite’s profit.

Aidite contributed S$7.88 mn to FY16 PBT (51.5% of Group’s PBT). Its first quarterly contribution post spin-off as share of profit from equity-accounted associate was S$0.5 mn. Impact from Aoxin’s deconsolidation will soon be felt in 2Q FY17. We estimated c.26% loss of combined recurring profits from Aidite and Aoxin. Our FY17F EPS excludes gain on spin-off of Aoxin and spin-off listing cots.

Potential re-rating catalysts would be (i) the Group stepping up its pace of acquisitions or picking up favourable deals; (ii) better-than-expected results from Aidite and Aoxin; and (iii) to revive its businesses in Malaysia.

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Profile photo of Soh Lin Sin

Soh Lin Sin
Investment Analyst
Phillip Securities Research Pte Ltd

Lin Sin has been an investment analyst in Phillip Securities Research since June 2014, where she started as an economist, focusing on China and ASEAN macroeconomics. Currently, she covers primarily the Consumers and Healthcare sectors in Singapore equities market.

She graduated with a Bachelor of Science in Mathematics and Economics from NTU.

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