Implanting in China
Q&M’s two recently-completed acquisitions of Aoxin and Aidite have catapulted it to the major league of China’s private dental industry. It now owns three dental hospitals, three dental clinics and the second-largest dental zirconium producer in China. Some 17%/31%/31% of FY14E/15E/16E profits may come from China, with more to come as it expands via more acquisitions and organic growth. Private healthcare, including dental, has considerable growth prospects in China, from:
1) government encouragement of private-sector involvement as part of healthcare reforms;
2) a low penetration rate; and
3) growing affluence which should lift demand for higher-value services.
Still growing at the roots
In Singapore, growth should be sustained by:
1) the opening of new dental outlets;
2) the potential acquisition of stand-alone dental practices;
3) narrowing medical clinic losses; and
4) government subsidies for private dental treatments.
Singapore should still contribute a large chunk of revenue and profits but we expect this to diminish as China’s importance grows.
Growing recognition; Maintain BUY
We were the first on the Street to initiate coverage in 2013. With more coverage, investors’ awareness of this growth stock is picking up. Maintain BUY and SGD0.50 TP, based on 39x fully-diluted FY15E EPS, its five-year average. Catalysts are expected from more earnings-accretive M&As in China.
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