Q&M Dental

Q&M Dental: 3Q11 slightly below expectations.
Revenue rose 23% to $12m, on the back of organic growth and maiden contribution from 5 new clinics over the year. However net profit was down 3% yoy to 40.8m, due to one-off salary cycle adjustment (certain salary claims were paid earlier), and higher depreciation from the new clinics. Excluding the salary cycle adjustment, net profit would have grown 14% yoy to $1m.

Sias notes that to date, Q&M’s deals in China are still pending and these entities are estimated to generate abt Rmb 40-60m profit annually. Estimates total acquisition cost of btwn $50-70m for Q&M’s stakes. Notes the existing cash balance and US$10m senior loan and US$5m convertible loan from IFC will help ease some of the financing needs, but other fund raising methods such as TDR and private placement are still undergoing discussion. Adds, growth plans in Spore are likely to continue with 4-5 new outlets annually.
The house keeps its Overweight rating with TP $1.