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Analysts see Q&M subsidiary's acquisition of Acumen as positive; Maybank KE lifts TP to $1.03

Felicia Tan
Felicia Tan8/20/2021 01:23 PM GMT+08  • 4 min read
Analysts see Q&M subsidiary's acquisition of Acumen as positive; Maybank KE lifts TP to $1.03
To Maybank Kim Eng, the demand for testing should remain firm as Singapore prepares to live with Covid-19.
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Analysts at CGS-CIMB Research, Maybank Kim Eng and PhillipCapital are remaining positive on Q&M with ‘add’ and ‘buy’ calls.

Maybank Kim Eng analyst Eric Ong has lifted Q&M’s target price estimate to $1.03 from 87 cents previously.

Q&M’s PATMI for the 2QFY2021 beat his expectations slightly due to the continued expansion of its dental clinics and its ramping up of testing operations.

That said, Ong has kept his earnings per share (EPS) forecasts largely unchanged, although his increased target price comes about as he rolls valuations forward to FY2022 still based on a price-to-earnings (P/E) of 22 times.

See also: Q&M posts 23% higher earnings of $8.4 mil for 2Q21; proposes 1-for-5 bonus issue

On Aug 16, Q&M’s 43.94%-owned associate Aoxin Q&M announced that it would be acquiring 49% of Acumen Diagnostics for a consideration of $29.4 million.

The deal will be financed via an allotment and issue of new shares at 23.1 cents apiece, representing a 31% premium to its last-closed price.

The acquisition implies an attractive FY2021 P/E of 3 times, says Ong.

It will also allow Aoxin to enter the medical diagnostics business in Singapore and boost its turnaround.

Following the completion of the acquisition, Q&M will have stakes of 33% and 67% in Aoxin and Acumen respectively.

To Ong, the demand for testing should remain firm as Singapore prepares to live with Covid-19.

As it is, the country has also prepared to gradually reopen its borders.

The group also says it sees new opportunities to support the government beyond PCR testing, including swabbing and vaccination services.

The way he sees it, Q&M fills the gap between public dental services that are affordable but require a long waiting time and premium services.

“[Its] group model enables dentists to concentrate on core duties and leverage the firm’s strong branding to attract patients,” he writes in an Aug 17 report.

Q&M also has a “healthy balance sheet with low gearing provides ample headroom for more organic expansion and accretive M&As,” he adds.

In an Aug 16 report, CGS-CIMB analysts Kenneth Tan and Lim Siew Khee have kept their target price at 97 cents, the same as their target price just three days before.

Tan and Lim say they see a potential valuation gain of some $28 million to be recognised on the back of the acquisition.

“We view the acquisition favourably given the cheap purchase consideration and positive contribution to Aoxin via high-margin testing,” they write.

PhillipCapital analyst Paul Chew has lowered his target price to 98 cents from $1 as he now pegs Acumen at an implied $60 million, according to the proposed purchase price by Aoxin for a 49% stake.

"We roll over our 25 times core P/E valuation to FY2022. Another 4 cents has been added from the market value of listed associate, Aoxin Q & M Dental, at a 20% discount," he writes in an Aug 23 report.

While Chew sees mostly positives on the counter's higher revenue and spike in earnings from PCR tests, he notes that Q&M's new clinic openings are below his forecast for now. The dental group opened seven new clinics in 1HFY2021 -- four in Singapore and three in Malaysia.

That said, he expects dental admissions to remain healthy in the 2HFY2021 due to the new clinics in Singapore. Chew also estimates Q&M to bring in lower PCR testing income in FY2022.

"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," he says.

For more stories about where the money flows, click here for our Capital section

As at 1.22pm, shares in Q&M are trading 0.5 cent lower or 0.63% down at 79.5 cents, or FY2021 P/B of 5.9 times and dividend yield of 5.0%, according to Maybank KE’s estimates.

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