Analysts have maintained “buy” calls on Q&M Dental Group with lower target prices. They are also optimistic about a strong earnings trajectory moving forward.
Maybank Kim Eng Research analyst Eric Ong lowered the target price to 78 cents, based on 22 times FY2022 price-to-earnings ratio (P/E), which implies an approximate 15% discount to its peers.
Ong also notes that Q&M declared a third dividend per share of 1 cent, translating into an attractive yield of 6.9%.
Q&M’s 3QFY2021 revenue rose 47.6% y-o-y to $57.7 million, driven by higher turnover in core dental segment, which experienced an increase of 5.4% y-o-y, as well as contribution from Covid-19 test kits and testing by Acumen Diagnostics.
See: Q&M Dental posts 69% jump in earnings to $9.5 mil for 3Q21
See: 'Buy' Raffles Medical and Q&M Dental as reopening begins: Maybank Kim Eng
Ong expects to cut testing revenue forecast by 65% for FY2022, and trim down earnings per share estimates by approximately 7%-10% however, as PCR tests are now reserved mainly for people who are unwell.
To mitigate the fall in Covid-19 swab tests, Ong shared that Q&M is looking to develop a panel of new PCR assays in infectious diseases, dengue sepsis and cancer, as well as distributing ART self-test kits (currently 5 brands in the market) once it obtains the licence from MOH.
“To be conservative, we have not factored in any contributions from these initiatives in our forecasts until we get more visibility on the timing, etc.,” says Ong. “If successful, this could present some upside potential to our earnings per share estimates,” he added.
As such, Q&M’s 3QFY2021 net profit of $9.5 million that saw an 68.7% increase y-o-y was largely in line with the analyst’s and street’s expectations. “This took 9MFY2021 earnings to $27.3 million and achieved approximately 78% of our full-year estimate,” says Ong.
The analyst also notes that Q&M’s free cash flow is likely to stay positive given its robust cash generating business model.
The expansion of Q&M’s outlets is also another avenue to drive growth for the group, says Ong.
During the quarter, Q&M opened three clinics in Canberra, Bedok Reservoir, and IMM shopping centre. Its management has also revealed that the group is on track to establish nine new clinics in Singapore by FY2021. In Malaysia, Q&M has also opened three outlets year-to-date (y-t-d) and has identified locations to open another two in Selangor and Johor by end 2021.
“With the easing restrictions, we believe the group is well positioned to cater to the pent-up demand for primary and higher value specialist and/or elective dental services to its patients,” writes Ong.
DBS Group Research analyst Paul Yong also maintains a “buy” rating on Q&M Dental, with a lower target price of $0.80, revising down FY2021/FY2022 earnings by 5.3%/6.7%--a 30.5% earnings per share compound annual growth rate (CAGR) over FY2020-2023.
“FY2021 valuations remain undemanding at 15x PE (c. 1 SD below five-year average) with an attractive yield of 6.1%, as Q&M has continued to pay a quarterly dividend of 1 Sct even after the bonus issue,” Yong says.
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Yong posits that some key risks include reopening of borders and execution risks.
However, the analyst says that demand for Q&M’s dental services is unlikely to drop significantly even as borders reopen. “This is because as the inconvenience of travelling, i.e., the need to test at the borders, additional costs of testing, and fear of contracting the virus overseas is likely a deterrent for many [at this stage],” Yong says.
Shares in Q&M closed 3 cents higher or 4.88% up at 64 cents on Nov 29.
Photo: Albert Chua/The Edge Singapore