Wednesday, June 27, 2012

Q&M Dental

Q&M Dental: Key takeaways from investor meeting. 1) Growing revenue: Q&M Dental has consistently grown its revenue -- from $26.4m in 2007 to $47.8m last year. From 51 now, the target is to have 60 outlets in SG by 2015. In Msia, the target is to grow from 3 currently to 15 by 2015. The main growth driver is China, where Q&M plans to invest RMB 400m to have 50 dental clinics and 20 laboratories by 2015 through JV’s mainly and, partly, its own Q&M dental clinics in Shanghai. 2) Vertical integration: A little-known aspect of Q&M is its vertical integration: It owns dental laboratories and two distributors of dental supplies and equipment, this translates into cost savings and economies of scale. 3) Market dominance: Q&M has 8-9% of clinics and 10% of dentists in SG, but it is the dental practice to go to for 17% of the population who visit dentists at least once a yr. And it offers the full range of dental services, including specialist services. 4) Profit margin: Margin eased to 9.6% in 2011 from 10.4% in 2010 and 12.6% in 2009. Key reasons: a) Expenses in maintaining a team (legal, accounting and management) in China and professional fees for due diligence of prospective joint ventures; b) Professional fees as a listed company since IPO in Nov 2009. 5) China contribution: Existing 2 PRC JV’s in Beijing and Nanjing will provide strong incremental earnings from this yr. Q&M is working on several JVs and targeting to achieve an aggregate profit of RMB 80m from China, and to seek an IPO for the PRC business either in China or Hong Kong in 3-5 yrs. 6) Why pursue China business? It offers too big a growth potential to ignore. Take for example a proposed joint venture with Shanxi Meiyuan Medical Technology, which owns 2 dental hospitals, 6 clinics and 20 dental laboratories. It employs about 130 dentists. Compare that to Q&M's 150 dentists in Singapore. If the JV materialises, Q&M would double in size. The business potential in China is reflected in the fact that only 8% of the population in coastal cities visit dentists at least once a year. The percentage has lots of room to grow -- consider that in SG, the figure is 46%. 7) Fund raising: Q&M, though it has grown from 38 to 51 clinics since IPO in 2009, still had (as of end-2011) $12m of the $20m IPO money raised. It needs more money to acquire stakes in China and for M&A activities in Singapore. No timeline has been announced. 8 ) Stock valuation: While some readers opined that the Q&M historical PE (of 45X recently) is on the high side, the Q&M management pointed out that dental and medical peers trade in roughly the same PE range on various stock exchanges. Q&M's future profit growth suggests that the prospective PE is certainly lower.

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