Q&M Dental

Q&M Dental: Making further inroads into China

The acquisition trail continues, as Q&M announced that it has signed an MOU to acquire a 60% stake in Panjin City Dental Clinics for Rmb10.4m and a 60% stake in Gaizhou City Dental for Rmb2.0m.

The acquisition comes with guarantees over a 12-year period that the profit of the Panjin City Dental Clinics shall not be less than Rmb20.3m and dividends paid will be not less than Rmb12.2m; and that the profit of Gaizhou City Dental Clinic shall not be less than Rmb520k and dividends paid will be not less than Rmb312k.

Separately, Q&M has proposed to enter into a partnership with Liaoning Medical University (LMU) to
privatise LMU Stomatology Hospital No. 2. Founded in 1988, the hospital is accredited by the Chinese national health insurance, and provides full stomatology services and acts as a training centre for LMU students. It houses 48 dentists on an 11,000 sf floor area with more than 100 dental chairs.

Based on their profit guarantees, Maybank-KE estimate that the three clinics could contribute at least $0.2m a year in earnings to Q&M, from FY16 onwards, while contributions from LMU Stomatology Hospital No. 2 could be higher, at ~$0.8m a year based on the house estimates.

Overall, Maybank-KE is maintaining its Buy call with TP lifted to $1.01 from $1.00 after EPS changes. This is still at 45x FY16 EPS, 1SD above its 5-year mean to capture its strong earnings trajectory, M&A track record and scarcity value. With $28m of cash remaining from its recent MTN, the house expects more acquisitions going forward.