CGS-CIMB Research is keeping its “add” call on Q&M Dental Group with a target price of 97 cents, following it recent stellar 1QFY2021 ended March results, which saw earnings increase by a whopping 618% y-o-y to $9.4 million, while revenue was 47% higher at $43.8 million, as the group enjoyed better business at its dental clinics. The earnings growth also included a one-off net gain of $4.3 million from the complete disposal of its stake in Aidite.

As at March 31, Q&M has a total of 85 dental outlets in Singapore, an increase from 80 outlets as at March 31 2020. The company runs an additional 5 medical outlets and 1 dental college.
Over at Malaysia, as at March 31, it runs a total of 36 dental outlets, versus 32 last year. It runs one dental outlet in China as well.

See: Q&M reports 618% surge in earnings for 1QFY21

Revenue contribution from equipment distribution and testing services in 1QFY2021 rose by 121% yy-o-y to $5 million, as the group continued to ramp up its testing operations.

Analyst Lim Siew Khee says, "Given that the average number of swab tests conducted in Singapore has risen to about 53,000 as at May 3 (vs 34,000 in Feb), we think that the group was able to successfully ramp up its testing operations and gain market share in 1QFY2021. While the group did not specify the breakdown of revenue between equipment distribution and testing services, we estimate that 1QFY2021 gross profit from testing was $2 million."

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"In view of the heightened pace of mandatory swab tests being carried out in Singapore, we factor in higher number of tests in our forecasts to 1,500/day (previously 800) or about 3% of total market share currently," adds Lim. 

Going forward, Lim expects the number of Covid-19 tests to continue growing on the back of preventative efforts by the Ministry of Health to reduce further spread of the virus. She believes that this is positive for Q&M as the group capitalises on greater demand for PCR testing.

Meanwhile, Q&M has opened five new dental clinics this year as of end-Apr, with three located in Singapore (in Tampines Hub, Compassvale Crescent, and Orchard Central) and two located in Malaysia (in Semenyih and Seremban). This brings the group’s total current outlet count in Singapore and Malaysia to 86 and 37 respectively.

Q&M has also secured locations for three new dental clinics to be opened in Singapore (in Bedok Reservoir, Jurong Yuhua, and Canberra), which are expected to commence operations in FY2021.

"Given the recently reinstated movement control order (MCO) in Malaysia, we reduce our FY2021
outlet expansion forecast in Malaysia to seven outlets (from 10 outlets)," adds Lim. 

Overall, Lim belives that Q&M could be a beneficiary from the recent tightening of testing measures in