Monday, August 5, 2013

Q&M Dental : Into the North East Part of China (SIAS)

Q&M Dental
Increase Exposure
• Intrinsic Value S$0.435
• Prev Closing Price S$0.310
Into the North East Part of China

Q&M Dental Group (Singapore) Ltd (Q&M) 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 has been cautious in its venture into China. It currently has 10 clinics in China (4 in Beijing, 4 in Nanjing and 2 in Shanghai). Our understanding from the management is that they have conducted a preliminary round of due diligence on Aoxin and is currently quite comfortable with the assets. That said, we reckon there is a fair chance that the acquisition will be completed by the end of this financial year. This acquisition is priced at about 9.7X P/E and will contribute about 25% to their FY14 bottom line.

This acquisition will be funded via internal cash and loan facility from IFC and/or issuance of Q&M shares. The company had S$29.8m cash equivalents as of end March 2013. Overall, we believe this acquisition will help to lift Q&M’s profitability to a higher level.

Recently, Q&M also sold a clinic in Clementi for S$5m. The book value of the asset is S$3.75m and hence, approximately S$1.25m gain from sale of asset will be recognized in the previous quarter results. We assume that the acquisition of Aoxin will be completed by the end of this year and that Q&M will generate about S$73m revenue and S$7m PAT in FY14. Recommend Increase Exposure with an intrinsic value of S$0.435.

Source/Extract/Excerpts/来源/转贴/摘录: SIAS-Research,
Publish date: 31/07/13

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