Q&M Dental Group -
Intrinsic Value S$0.420
Prev Closing Price S$0.320
Next Move into China
Q&M Dental Group Limited (Q&M) recently announced that its wholly owned subsidiary has entered into a non-binding MOU to acquire a 51% stake in Qinhuangdao Aidite High Technical Ceramic Co., Ltd (Aidite), a specialized dental materials manufacturer, for RMB76.5m.
This acquisition is in-line with our previous thoughts about Q&M - speeding up their acquisition spree in China and resuming their ambition of creating a separate listed company which offers private dental-related services in China. In addition, the proposed acquisition has many terms that are favorable to Q&M.
Though we believe that the deal is highly value accretive to Q&M, the deal is still at its preliminary stage. Hence, we adopt a more conservative approach and will revalue the company when more information is available. Maintain Increase Exposure with an intrinsic value of S$0.420.
Aidite was founded in 2007 and currently develops and manufactures zirconia dental ceramics. The company has passed several quality tests and is able to export to major markets such as the US, Canada, Europe, Middle East and other countries.
Some of the key terms of the proposed acquisition are extremely favorable to Q&M.
Firstly, the sellers will provide a profit guarantee that Q&M China will receive dividend of at least RMB159m over 12 years starting from 2014 and the sellers will pledge their remaining 49% stake in Aidite as surety for the performance of the profit guarantee.
Secondly, the sellers will inject RMB35m into Aidite as working capital and CAPEX, meaning that the sellers will only receive RMB41.5m of cash.
That said, the deal is still at its preliminary stage. The MOU is non-binding and Q&M will carry out their due diligence process on Aidite. The expected date of completion of the proposal is around 1 May 2014.
Publish date: 20/11/13