“Despite fewer clinics, revenue expanded from higher revenue per patient. Using data driven treatment, Q&M can ascertain and provide a more intensive treatment for patients. Margins recovered from operating leverage and a stable number of staff or nurses,” he writes.
However, FY2023, which saw the first decline in Q&M’s clinics in six years, is a concern.
“Q&M closed two clinics in Singapore. The restructuring was to close loss-making clinics. Q&M is still looking to expand its clinics but for larger sites,” Chew notes.
In FY2024, the analyst expects the company to see earnings growth.
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“Using [artificial intelligence or AI tool] EM2Ai tools and data, dentists can raise the treatment levels for the benefit of patients and improve the timelines or regularity of patient check-ups and treatments,” says the analyst.
“Other initiatives include training Malaysia clinics for more advanced treatments. Associate Aoxin Q&MDental turnaround is supported by government incentives in the healthcare sector. The 51% sale of EM2AI will also reduce the research and development (R&D) expenses borne by the company,” he adds.
“Apart from improved efficiencies in both revenue and cost, we believe data (or evidence-based) based treatment plans can differentiate Q&M from the competition and enjoy premium pricing.”
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In addition to his upgrade, Chew has raised his target price to 36 cents from 34 cents previously as he values the company at 20 times P/E of its FY2024 earnings, in line with its industry peers. Its listed associate, Aoxin Q&M Dental, which is unrated by PhillipCapital, is valued at market price with a 20% discount, notes Chew.
As at 10.44am, shares in Q&M are trading 0.5 cents lower or 2.04% down at 24 cents.
