SINGAPORE (March 6): Maybank Kim Eng Research has downgraded its rating on Q&M Dental from “buy” to “hold”, lowering its target price on the stock to 71 cents from $1 previously on the group’s FY16 core earnings miss.

To recap, Q&M last Wednesday posted full year earnings of $28.3 million, which was more than double as compared to the previous financial year on a one-off gain from its spin-off of Aidite, the group’s manufacturing arm.

Core earnings, however, missed Maybank’s forecast by 12% due to higher-than-expected costs, amid integration of mergers and acquisitions (M&As) and spin-off of the group’s subsidiaries.

(See also: Q&M Dental full year earnings more than double to $28.3 mil on one-off gain)

The higher costs  were due to losses incurred from the group’s medical segment; assets written off from the unsuccessful start-up of a new dental clinic; as well as a goodwill impairment of $4.1 million for businesses in Malaysia and Singapore, due to a weaker Malaysian ringgit and a premium paid for a Singapore M&A.

“On the positive side, core earnings grew by a commendable 23% YoY, after adjusting for various one-off items. To account for higher integration costs and earnings dilution from spin-off of two subsidiaries, we cut FY17-18E EPS by 19-28%,” shares analyst John Cheong in a Monday report.

Other key positives include healthy topline growth, a higher dividend, and a good performance delivered from Aidite after increasing its capacity.

Religare has been appointed to perform a strategic review of the group’s business, and Cheong believes the market’s anticipation of this could support Q&M’s share price going forward.

(See also: Q&M Dental Group undertakes strategic review of business)

“A positive outcome from the review could pose further upside to our target price,” he adds.

As at 11am, shares of Q&M are trading flat at 70 cents.