Q&M poised for strong profit growth on back of aggressive overseas expansion plans

Its business model is almost recession-proof.

Undervalued Q&M dental is poised for strong earnings growth in the coming years, thanks to its continuing expansion in overseas markets and its resilient business model.

CIMB initiated coverage on Q&M with the belief that it is under-researched and undervalued, reflecting the market’s lack of appreciation for its almost recession-proof business model, backed by both its strong dentistry franchise and overseas expansion plans.

“A large chunk of its future earnings (c.S$72m) is guaranteed for a decade, which is unprecedented for most lucrative healthcare businesses.%. We like Q&M for its strong recurring domestic earnings and international expansion plans. Re-rating catalysts are the opening of more clinics, higher charges, expansion through acquisitions, joint ventures and/or strategic alliances, as well as the listing of its overseas dental business,” noted CIMB.

Here’s more from CIMB:

Around 46% of the Singapore population visits the dentist at least once a year. Here, the dentist-to-population ratio is 1:3,000 (which is below developed nations’ratio of 1:1,100). This ratio means that there is little competition in this business. 

At the very least, we know that dentists rarely engage in price wars to garner patients. Dental expenditure is necessary and charges for dental services are not the lowest of all healthcare services. Q&M is in a sweet spot, with over 60 dental outlets island-wide to tap the population’s dentistry needs.

The company’s plan to grow organically by adding five new clinics p.a. will yield higher revenue. Since Jul 2014, Q&M has successfully completed the acquisition of the dental practice of one Dental practice in Singapore, a Dental hospitals group and a dental ceramic manufacturer in China. 

The profit guarantees for these three deals would ensure that Q&Mreceives c.S$72m over 12 years. These exclude another two MOUs signed, where the targets offer profit guarantees of S$20m over 12 years.