Wednesday, July 31, 2013
Q&M Dental: Group recently announced a MOU to acquire 60% stake in Aoxin Stomatology Group (Aoxin, based in Shenyang), for RMB108m. A management company will be incorporated to manage all the six hospitals and clinics in the entity and the seller agrees to provide a profit guarantee of RMB133m over the next 12 years. The seller will also pledge his remaining 40% stake in the management company for the performance of the profit guarantee. Q&M had been cautious in its venture into China. It currently has 10 clinics in China (4 in Beijing, 4 in Nanjing and 2 in Shanghai). SIAS reckon there is a fair chance that the acquisition will be completed by the end of this FY. This acquisition is priced at about 9.7X P/E and will contribute about 25% to group's FY14 bottom line. The acquisition will be funded via internal cash and loan facility from IFC and/or issuance of Q&M shares. The company had $29.8m cash equivalents as of end Mar 2013. Overall, SIAS believe this acquisition will help to lift Q&M’s profitability to a higher level. SIAS recommend INCREASE EXPOSURE with a TP of $0.435.