Following Q&M Dental Group’s latest 1HFY2021 ended June results, which recorded a 142% y-o-y increase in earnings of $21.5 million, CGS-CIMB Research is keeping its “add” call on the stock with an unchanged target price of 97 cents.
For the 2QFY2021 period, earnings were 23% higher y-o-y at $8.4 million, with revenue coming in 104% higher y-o-y at $51 million. According to the research house, earnings were in line with estimates, but revenue missed estimates due to lower-than-expected contribution from testing services, but EBIT margins from the medical laboratory & dental equipment segment came in higher than expected at 51%.
The group announced a proposed bonus share issuance of 1 bonus share for every 5 existing ordinary shares, while an interim dividend of 1 cent was declared in 2QFY2021.
See: Q&M posts 23% higher earnings of $8.4 mil for 2Q21; proposes 1-for-5 bonus issue
In an Aug 13 report, analyst Kenneth Tan, who is taking over the coverage on Q&M from Lim Siew Khee says, “We estimate that 2QFY2021 testing revenue increased to about $10 million (compared to an estimated $2 million in 1QFY2021) on the back of further ramp up in testing operations. We believe that the ramp-up was a combination of more tests awarded by the government, and heightened number of Covid-19 community cases recorded in 2QFY2021.”
As Singapore shifts towards an endemic approach to Covid-19, the analyst believes that testing demand should remain strong with the gradual reopening of borders. The emergence of new variants of the virus is also expected to further support testing demand. “We keep our daily test assumptions at 1,500, while factoring in higher margins and lower pricing,” adds Tan.
Meanwhile, the group has accelerated its expansion plans in Singapore, with two new clinics opened in 2QFY2021 (located in Orchard Central and Jurong Yuhua), bringing the group’s total outlet count in Singapore to 87 dental outlets (compared to 83 at end-FY2020). The group has also secured locations for six new dental clinics, which are scheduled to commence operations by 4QFY2021.
In Malaysia, Q&M slowed its expansion in view of disruptions from the movement control order (MCO) imposed. “We increase our FY2021 new outlet forecasts in Singapore to 15 (compared to management guidance of 20) in view of Q&M’s promising pace of expansion,” say Tan.
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As at 2.50pm, shares in Q&M are trading 4% lower at 82 cents or 4.9 times FY2021 book with a dividend yield of 4.2%.
Photo: Q&M Dental