Q&M Dental Group (Singapore), following an aggressive expansion, suffered from lower margins but its FY2023 might be the bottom and following a series of cost savings moves, the company is set to resume earnings growth.
"We believe new growth opportunities are appearing for Q&M," says Paul Chew of Phillip Securities in his Feb 11 note, where he has kept his "buy" call and 36 cents target price.
According to Chew, Q&M's aggressive expansion of 40 clinics between 2019 and 2022, translating into a 66% growth, has resulted in higher staff costs and underutilised dentists.
"Multiple cost initiatives have been implemented in 2024. Some of the cost-saving measures include sharing credit card payment charges, consolidating lab suppliers, and recovering consumable charges," says Chew.
Now, with operations back on a stable growth path, Chew believes that Q & M is ready for inorganic growth. China, in particular, is a market where foreign ownership of healthcare operations will allowed.
"We believe this is fertile ground for Q & M to embark on acquisitions with more attractive valuations that are earnings accretive. Furthermore, foreign ownership can benefit from premium pricing in healthcare services," says Chew.
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To this end, Q & M in October last year entered an MOU to acquire a 25% stake in Guangdong Delun Medical Group, which owns one dental hospital and 28 outpatient clinics.
According to Chew, there is another positive attribute for Q&M. The company has been developing AI-powered tools since 2018, giving its dentists automated charting and other functions.
Q&M now groups its AI capabilities under an entity called EM2AI, in which it owns 49%.
Last month, EM2AI signed a MOU to license the AI to be deployed in 1,000 dental clinics in Singapore, Malaysia, Thailand, and Vietnam, where dentists can better identify and diagnose dental issues.
At 4.43 pm, Q&M shares changed hands at 28 cents.
