Q&M Dental

Q&M Dental: announced that it entered into three JVs in China, to spearhead its expansion into the region. It has proposed to acquire stakes in He Cheng, a Zhejiang-based company that produces crowns, bridges and other orthodontics products for RMB 26.4m. It will also invest in Dan De (S$1.5m) and Aiyashi (S$1.8m), which operate dental clinics in Nanjing and Beijing respectively…

Negative price reaction could be due to the following reasons:
i) selling on news,
ii) execution risk given that Q&M does not have prior experience operating in China,
iii) rather high valuations associated with the transactions. Each is priced at over 5x NTA,
iv) Q&M does not have control over the JVs, and appears to be only a passive partner offering “strategic advice” and financial management assistance. Hence the success of these JVs is dependent on Q&M's JV partners (or dentists).