1. health and fitness
2. dental care

Q & M Dental Group
A Proxy To China’s Growing Dental Market
20 April 2015
SINGAPORE | CONSUMER | INITATION



We initiate coverage on Q&M Dental Group with an “Accumulate” rating and S$0.78
target price.
This is a Singapore roll up story in the dental scene. It has grown from one clinic in 1996
to 60 dental outlets by end-2014. We think it can grow further.
China is possibly a boon for dental companies. There is increased government spending
on healthcare, shortage of dentists and opening of the medical industry to private
players. We think Q&M can ride on this trend to expand in China.
ACCUMULATE (Initiation)
SGD 0.72
SGD 0.01
SGD 0.78
9.4%
CLOSING PRICE
FORECAST DIV
TARGET PRICE
TOTAL RETURN
COMPANY DATA
O/S SHA RES (M N) :
Investment merits
 A Roll Up Story In Singapore’s Dental Scene – Q&M has expanded from one clinic in
1996 to 60 dental outlets by end-2014. We expect it to grow by another five stores per
year for FY15F/16F. Additionally, we see headroom for dentists and higher government
expenditure on healthcare.


China To Be Q&M’s Next Growth Phase – China’s dental landscape offers positive signs:
1) Increased healthcare expenditure, 2) Shortage of dentists for its population vs other
developed nations, and 3) Opening up of the healthcare industry to private players.
Q&M has entered the Chinese market mainly via acquisitions. We expect this to
continue, and it has the means to with S$200 mn from its unutilised medium term note.
Three-pronged Revenue Growth Strategy – With recent acquisitions, Q&M has
diversified into manufacturing and distribution of dental equipment and supplies. These
segments are expected to grow at faster pace than its mainstay dental and medical
clinics.
779
M A RKET CA P (USD mn / SGD mn) :
416 / 561
52 - WK HI/LO (SGD) :
0.76 / 0.38
3M A verage Daily T/O (mn) :
2.29
MAJOR SHAREHOLDERS (%)
Dr Ng Chin Siau
53.48%
Heritas Helio s Investmetns P te. Ltd
9.33%
Ko h ShunJie, Kelvin
5.16%
PRICE PERFORMANCE (%)
1M T H
3 M TH
1Y R
COM P A NY
37.1
54.8
92.6
STI RETURN
4.83
7.16
11.74
PRICE VS. STI
1.00
0.75
Risks
 Below-expected execution in China
 Rise in labour cost
 Saturation of dental outlets in Singapore
Investment Actions
We initiate coverage on Q&M with an "Accumulate" rating and S$0.78 target price. The
valuation is based on a P/E ratio of 46.7x and FY15F EPS. This implies an upside of 9.4%.
0.50
0.25
Apr-14
Jul-14
Oct-14
QNM SP EQUITY
Jan-15
Apr-15
FSSTI index
So urce: B lo o mberg, P SR
KEY FINANCIALS
SG D M N
F Y 13
F Y 14
F Y 15F
F Y 16 F
Revenue
71
100
136
171
EB ITDA
9
15
24
33
NP A T (adj.)
6
9
13
19
EP S (S Cents)
0.93
1.20
1.66
2.41
P ER, x (adj.)
34.8
29.2
43.4
29.9
4.9
3.3
7.0
6.5
DP S (S Cents)
1.1
0.7
1.2
1.7
Div Yield, %
3%
2%
2%
2%
17%
14%
16%
23%
P /B V, x
ROE, %
So urce: Co mpany Data, P SR est.
Valuation Method
P/E
Shane Goh
(+65 6531 5440)
Investment Analyst
[email protected]
Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
MCI (P) 019/11/2014
Ref. No.: SG2014_0119
Q&M DENTAL GROUP INITIATION
Company Background
Q&M Dental Group started in 1996 with a single clinic in Bukit Batok. It is Singapore’s
largest private dental healthcare group with a patient pool more than 600,000. It
operates 60 dental outlets, one mobile dental clinic and six medical clinics in the
country. Q&M also operates eight dental outlets in Malaysia and seven in China.
Investment Thesis
We are positive on Q&M as it rides on the growing dental market in Singapore and
China. Its organic and inorganic growth drivers have been successful over the years.
In our view, the company would continue this path moving forward.
A Roll Up Story In Singapore’s Dental Scene
Q&M is consolidating the dental industry in Singapore. From a single clinic in 1996, it
has grown both organically and through acquisitions to reach 60 dental outlets by
end-2014. We estimate that Q&M has ~9% of the private dental market share by
clinics in 2014.
Figure 1: Q&M has an estimated ~9% of Singapore private dental clinics
Source: Singapore Dental Council, Company, Phillip Securities Research (Singapore) Estimates
In our view, a roll up of service-oriented medical companies provides three key
benefits: 1) Focused brand building efforts, 2) Economies of scale, and 3) Knowledge
sharing.
Focused brand building efforts
An individual clinic may not spend heavily on marketing and advertising as it is not
economically effective. Also, people tend to visit clinics close to their homes for
convenience sake. This restricts the geographical perimeter a clinic would target.
Under a single brand, marketing dollars across several clinics can be consolidated.
Also, Q&M’s clinics are located near transportation amenities. About 86% of the
clinics are within a 10-minte walking distance from MRT stations. This allows it to
position its advertisements in prime spots with high footfall near its clinics.
A customer may view an advertisement in one area, but visit another clinic near his
home instead. This helps Q&M maximise its marketing dollars when conducting their
marketing campaigns.
Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Economies of scale
Most general dental clinics have similar basic tools and consumables. Under a single
brand with multiple clinics, Q&M has bargaining power during purchase. This helps
lower its cost of consumables and supplies used dental and medical clinics. In FY10, it
was 8.5% of clinical revenue. By FY14, it fell 50 basis points to 8%.
Knowledge sharing
By acquiring specialised dental clinics, Q&M is able to extract technical know-how
from the dentists. It would then impart the skills to its other clinics and dentists. This
improves the group’s capabilities and enables their clinics to offer more/better
services.
Haven’t we seen this before?
The roll up story is not new. In the US, there were 100 hospital mergers and
acquisitions in 2012. Closer to home, Parkway Group is an example. It has 17
hospitals and more than 3,000 beds throughout Asia. In Singapore, it operates four
hospitals, of which three through obtained via acquisitions.
Figure 2: Key History of Parkway Group in Singapore
Year Corporate Development
1987 Parkway entered the healthcare business when it acquired Gleneagles Hospital in Singapore
1995
Parkway acquired Mount Elizabeth Hospital and East Shore Hospital (now known as Parkway East Hospital) and the Shenton Medical
Group (now known as the Parkway Shenton) primary care clinic chain in Singapore.
2008
Parkway won a land bid to build Mount Elizabeth Novena Hospital in Singapore.
2012
Parkway opened Mount Elizabeth Novena Specialist Centre and Hospital, a 14-storey complex.
Source: IHH Healthcare Bhd website
In Q&M’s case, ~18% of its dental outlets were acquired. We think this trend will
continue in parts of Singapore where many dental clinics exist. Instead of competing
head-on, Q&M could offer to acquire the profitable clinics. This would reduce capital
expenditure related to store openings while helping to secure a prized location and
proven dental practice.
Headroom For More Dentists In Singapore
We estimate that Singapore can take on an additional 767 dentists based on its
current population size of 5.5 mn. This is up 42% from the present strength of 1,821.
Q&M has 9.3% of Singapore’s dentists under its charge. If the percentage is
maintained, it implies that Q&M could potentially take on 71 more dentists.
Singapore’s dentist to population ratio has been falling over the years. In 2001, it was
1:3,800. By 2013, it narrowed to 1:2,960. However, the ratio is still higher compared
to other developed countries.
The average dentist to population ratio among developed markets is 1:1,630. This
implies that 1,534 more dentists would have to be added in order for Singapore to
attain this ratio. This offers room to increase the dentist headcount in Singapore.
Due to the cosmopolitan nature of Singapore, it is likely the shops, including clinics,
are opened for long hours. Adjusting for this cultural difference, we have assumed a
50% haircut, and arrived at a potential 767 increase in dentist headcount.
Page | 3 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Figure 3: Q&M’s dentists account for 9.3% of Singapore’s total headcount in 2013
Source: Singapore Dental Council, Company, Phillip Securities Research (Singapore) Estimates
Figure 4: Singapore’s dentist to population ratio has been falling over the years…
Source: Singapore Dental Council
Figure 5: …however, it’s still higher than other developed countries
Source: World Health Organisation, American Dental Association, Singapore Dental Council, Phillip
Securities Research (Singapore)
Page | 4 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Government Eases Dental Costs
Cost is a big consideration when it comes to medical services. Particularly, for services
that we view can avoid, such as dental care. The government has stepped in to
shoulder a larger portion of expenses. Healthcare expenditure as percentage of GDP
has increase from 0.8% in FY06 to 1.9% in FY14.
Figure 6: Singapore public healthcare expenditure rose to 1.9% of GDP in FY14
Source: Ministry of Health, Phillip Securities Research (Singapore)
The Community Health Assist Scheme (CHAS) was introduced by Singapore’s Ministry
of Health in 2000. It provides lower- and middle-income households with subsidies
for medical and dental care. The scheme has undergone several enhancements over
the years.
Presently, all Singapore citizens (regardless of age) who meet the household monthly
income per person of S$1,800 and below can qualify for CHAS. In Sep-14, the
government introduced the Pioneer Generation Package. About 450,000 Singapore
citizens are expected to benefit from this move.
Figure 7: Current CHAS eligibility criteria and subsidies
Blue Health Assist Card Orange Health Assist Card Pioneer Generation Card
Eligibility Criteria
Monthly income
S$1,100 and below
S$1,101 to S$1,800
Annual Value of
residence (for
S$13,000 and below
S$13,001 to S$21,000
households with
no income)
CHAS Subsidies
Selected dental
S$11 to S$256.50 per
S$65.50 to S$170.50 per
services
procedure (dependent procedure (for crowning,
on procedure)
denture & root canal
treatments only)
Source: Ministry of Health, Phillip Securities Research (Singapore)
Page | 5 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Not applicable
Not applicable
S$21 to S$266.50 per
procedure (dependent
on procedure)
Q&M DENTAL GROUP INITIATION
Figure 8: Recent CHAS enhancements
Time
2009
Description
Scheme extended to cover more chronic conditions
Jan-12
Creation of two subsidy tiers: Blue Tier and Orange Tier
Qualifying age: Lowered from 65 years old to 40 years
Income criteria: Raised from S$800 to S$1,500 per capita monthly household income
Jan-14
Qualifying age: Removed. CHAS applies to all, regardless of age
Annual Value of residence criterion for households without income: Raised from S$13,000 to S$21,000
Blue Tier income criterion: Raised from S$900 and below, to S$1,100 and below
Orange Tier income criterion: Raised from S$901 to S$1,500, to S$1,101 to S$1,800
Source: Ministry of Health
Q&M offers additional subsidies on top of CHAS’ subsidies for simple procedures
including scaling and polishing. The move is part of Q&M’s on-going social initiatives.
We view this move positively as it is a low-cost method to gain new customers. It
allows customers to sample Q&M’s services without a huge commitment. This offers
Q&M an opportunity to develop them into return customers by providing quality
service.
Figure 9: Further subsidies provided by Q&M
CHAS Blue Health Assist and Pioneer Generation Cardholders
Type of Dental
Amount subsidised Sterilisation and
Net amount
Treatment
Q&M listed price CHAS / PG subsidies
by Q&M
disposable fee payable by patient
Consultation
S$21.40 - S$32.10 S$20.50 - S$30.50
Up to S$10.20
S$12.10 - S$12.80
(without treatment)
S$10.70
Scaling and polishing S$69.55 - S$144.45 S$41.00 - S$83.50
Up to S$55.10
S$13.55 - S$16.55
Filing (per tooth) S$53.50 - S$128.10 S$20.50 - S$78.50
Up to S$44.10
S$12.10 - S$16.20
Source: Company, Phillip Securities Research (Singapore)
Price-wise, Q&M is competitive. We think it has room to increase prices in
procedures where it is at the lower end of the market such as full dentures.
Figure 10: Dental prices in Singapore
Procedure
Item
Public Institutions Private Dental Clinics
Crowns (Capping)
Single Unit
S$650 - S$773
Full Dentures
Per Arch
S$521 - S$723
Impacted Wisdom Tooth Surgery
Per Tooth
S$600 - S$822
Implants
Per Unit
S$1,377 - S$1,895
Orthodontics (Braces)
Two Jaws, Non-Surgical S$3,000 - S$4,870
Root Canal Treatment - Anterior Tooth
Per Tooth
S$264 - S$351
Root Canal Treatment - Molar Tooth
Per Tooth
S$649 - S$818
Root Canal Treatment - Pre-molar Tooth
Per Tooth
S$404 - S$500
Source: Ministry of Health, Phillip Securities Research (Singapore)
Page | 6 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
S$400 - S$1,605
S$250 - S$1,500
S$250 - S$1,900
S$800 - S$5,000
S$3,480 - S$8,000
S$200 - S$600
S$200 - S$1,200
S$200 - S$800
Q&M
General Pracitioner Specialist
S$642 - S$1,605
From S$803
From S$535
S$482 - S$1,017
S$856
S$2,140 (Conventional)
From S$4,280
S$428 - S$482
S$835 - S$942
S$642 - S$856 S$1,156 - S$1,284
S$535 - S$642
S$942 - S$1,049
Q&M DENTAL GROUP INITIATION
Singapore Growth Via Organic Means and Acquisitions
We estimate that Q&M will open five to six outlets per year in Singapore. This implies
that Q&M will have 70 outlets by FY16F. An emphasis will be placed on the east side
of the country. Management shared that it intends to expand general dentistry clinics
organically. It would use acquisition only for specialist clinics.
In its acquisitions, Q&M looks for four items: 1) Skills that it currently does not
possess, 2) Profit guarantee, 3) Equity financed preferred, and 4) Lock up period for
the shares.
Post-acquisition, Q&M seeks to promote knowledge transfer among the group. This
will enhance the skills of dentists in all the clinics under Q&M’s charge and increase
their service offerings. A profit guarantee ensures that Q&M has an income floor
from the purchase.
By issuing shares to buy out the clinic, the seller, usually the lead dentist/CEO, will
have an incentive to succeed and grow with the group. The lock up period serves to
provide Q&M with an assurance that the dentist will remain with the group long
enough to impart its skills and know-how to the rest of the group.
An example is the purchase of Foo & Associates Pte. Ltd. in FY14. The deal was
financed fully by equity. It provides Q&M with a profit guarantee of S$0.5 mn per
year for 10 years.
The CEO signed a 10-year service agreement with Q&M. The founder is one of the
pioneers in computer-aided design and computer-aided manufacturing (CAD CAM)
dentistry. The acquisition would boost Q&M’s CAD CAM proficiency and technology.
Page | 7 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
China To Be Q&M’s Next Growth Phase
We expect China to be the main growth driver for Q&M. it forayed into China in 2010.
Since then, it has acquired stakes in clinics, hospitals and moved upstream by taking
an interest in a dental supplies manufacturer.
In China, health expenditure per capita jumped 5.7x between 2000 and 2012. Health
expenditure made up 5.2% of GDP in 2012, up from 4.6% in 2000. However, it lags
the vast majority of developed nations.
Figure 11: China lags developed nations in health expenditure as percentage of GDP
Source: OECD Health Statistics 2013
We expect the health expenditure to continue increasing as the Chinese government
shifts away from industrial and manufacturing growth engines to a consumer-driven
economy.
Figure 12: China health expenditure per capita & percentage of GDP has been
rising...
Source: China Statistical Yearbook 2013
The Chinese government is footing more of the bill now. In 2000, out-of-pocket
expenditure made up 59% of total healthcare expenditure. By 2012, it had fallen to
34%. In contrast, government and social sources increased from 41% to 66%.
Page | 8 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Figure 13: …driven by government and social sources
Source: China Statistical Yearbook 2013
There is room for more dentists in China. With a ratio of 5,556 people per dentist,
China lags ratios seen in other developed nations.
Figure 14: China lags developed markets
Source: World Health Organisation, American Dental Association, Singapore Dental Council
In early 2012, Chen Zhu, China’s then minister of health, shared the government’s
goal to have 20% of all hospital beds across the country to be privately owned by
2015.
Based on China’s Ministry of Health, private funded hospitals made up 9% in 2011.
The shift would benefit overseas players looking for a slice of China’s healthcare
market.
Q&M has made headway in this area. In 2012, it acquired an 80% stake in two dental
clinics in Shanghai, China. In 2014, it acquired a 60% stake in Aoxin Stomatology
Group (Aoxin) in Shenyang, China, and a 51% interest in Qinhuangdao Aidite High
Technical Ceramic Co., Ltd. (Aidite) in Hebei, China.
At the point of acquisition, Aoxin owned three dental hospitals and three dental
clinics. Aidite manufactures zirconium oxide blocks, which are used to fabricate
dental prosthesis such as ceramic tooth. The purchase enables Q&M to move
upstream and produce supplies its clinics use, resulting in cost savings.
Page | 9 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
These deals were transacted attractively for Q&M. Both deals have profit guarantee
over 12 years. If the profit guarantees are not met, Q&M can claim profit from its
other shareholders to make up the shortfall.
Also, Aoxin and Aidite must maintain one year of their guaranteed profit reserves in
cash escrow account. This is security for any guaranteed-profit shortfall.
In the worst case scenario, where Aoxin and Aidite are unable to meet the profit
guarantee targets, Q&M can acquire all the remaining shares and assume full
ownership of the two companies. Q&M has shared that it looking to list its China
businesses sometime down the road.
Covering all the bases
Management has highlighted two criteria in its acquisition targets.

Ground knowledge – Q&M knows what a clinic needs; both hardware and
software. But it needs someone who understands the people they’re serving.

Location – Majority of China’s healthcare market is government funded. Breaking
in on its own is not easy. Q&M prefers to take stakes in existing hospitals and
clinics, and improve their equipment and services.
But two factors still remain – demand of customers and supply of dentists.
Q&M look to acquire hospitals and clinics that accept “yibao”. “Yibao” is a
government plan that subsidises healthcare cost. There are two tiers.
In the basic tier, citizens are given a fixed sum to spend each year. These can be spent
on any basic needs, including dental check up. In the advance tier, the government
would subsidise ~60-70% of procedures.
Q&M collects the money upfront for the basic tier. Payment for the advanced tier is
received within 30 days. This lowers the collection risk faced by the company.
On the supply side, Q&M has tied up with Liaoning Medical University. Q&M
sponsors RMB0.5 mn per year from 2014 to 2016 to a fund set up by the school. The
fund is used to support research by research by postgraduate students, provide
bursaries to students from low income families and also for study trips and basic skill
training.
This allows Q&M to reach out to potential hires prior to graduation and ensure an
ample supply of dentists to run its hospitals and clinics.
Looking ahead, management has shared that it would focus expansion plans in North
East China. This will be driven by JVs, such as Aoxin and Aidite. It has S$200 mn in
unutilised medium term note available to execute its plans.
Page | 10 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Assumptions
Three-pronged Revenue Growth Strategy
We expect a 36%/25% top line growth for FY15F/FY16F. This will be driven by all
three business segments.

Dental and medical clinics – We expect an additional 5 stores per year in
Singapore. Management has shared its intention to reach 15 clinics in Malaysia
by end-2015. However, we expect a lower figure as it focuses on its China
expansion. In China, we expect 2 outlets openings per year. We note that China
growth would be mainly driven by partnerships/JVs. This will result in lumpy
clinic additions.

Dental equipment and supplies distribution – We expect higher revenue

Dental supplies manufacturing – We expect higher contribution for FY15F as
Q&M only recorded 4.5 months of revenue in 2014 following its acquisition of
Aidite in mid Aug-14.
Figure 15: Distribution and manufacturing set to increase revenue contribution
Source: Company, Phillip Securities Research (Singapore) Estimates
Employee benefits to remain largest cost component
We expect personnel expense to remain as the biggest cost component; albeit at a
smaller percentage. Rising cost of sales will increase its share of the cost pie.
Employee benefits expense
Employee benefits expense is Q&M’s largest cost component. It consists of: 1)
professional fees paid to dentists and oral health therapists, 2) salaries of dental
surgery assistants, laboratory support staff, finance, administrative and marketing
staff, and 3) directors’ fees.
Dentists and oral health therapists are typically remunerated on a variable basis,
dependent on services provided and sale of oral care products. This creates incentive
for them to increase sales and aligns their interests with Q&M’s.
However, total employee benefits expense has fallen from 69.4% of total cost in FY10
to 60.7% in FY14. This is due to increases in other cost components following the
acquisitions of other businesses and cheaper labour in Malaysia and China.
Page | 11 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Also, we understand that commissions paid to dentists in China are lower compared
to Singapore.
We expect employee benefits expense to remain as Q&M’s largest cost component,
albeit at a smaller percentage of revenue, as non-clinical revenue increases and
overseas clinics contribute more to the top line.
Cost of sales
Cost of sales as a percentage of total cost has increased from 9.3% in FY10 to 17.5%
in FY14. This is due to higher revenue contributions from non-clinical business over
the years.
Cost of sales varies greatly over Q&M’s business units. In FY14, consumables and
supplies used in dental and medical clinics formed 8% of clinical revenue. Cost of
sales for its distribution business came in at 71.1% of distribution revenue. Cost of
sales for its manufacturing unit was 34.1% of its manufacturing revenue.
Q&M has made the conscious effort to expand upstream in order to control its dental
supplies and downstream to distribute its supplies. We expect non-clinical revenue
contribution to increase moving forward. As such, we expect cost of sales as a
percentage of total cost to increase in tandem.
Rental
Q&M prefers to rent when expanding. In Singapore, it seeks three-year leases with an
extension option.
Rental expense as a percentage of total cost has decreased from 11.4% in FY10 to
9.5% in FY14, as Q&M expands outside of Singapore. It enjoys cheaper rent in
Malaysia and owns the dental hospitals and dental equipment manufacturing
facilities in China. We expect it to fall further as Q&M continues its overseas
expansion plans.
Figure 16: Q&M’s cost structure
Source: Company, Phillip Securities Research (Singapore) Estimates
Page | 12 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Risks
Below-expected execution in China – Our thesis assumes a high growth rate in China.
If Q&M is unable to proceed with its expansion plans as planned, revenue growth
could lower than expected.
Rise in labour cost – As personnel expenses constitutes Q&M’s largest cost
component, any unforeseen hike in wages will lead to higher total cost bore by the
company and shrink its margins.
Saturation of dental outlets in Singapore – If other dental operators open clinics
faster than expected, Q&M may face limited growth opportunities in Singapore due
to market saturation. This will lead to a slower-than-expected top line growth for
Singapore.
Page | 13 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Valuation
Our target price for Q&M is S$0.78. This is based on a P/E ratio of 46.7x and FY15F
EPS. This implies a 9.4% upside based its last traded price.
We value Q&M using a simple P/E average of its peers. As Q&M offers exposure to
the growing China dental market, we have added a 10% premium. This gives us a P/E
ratio of 46.7x.
Figure 17: Q&M’s peer comparison table
Item
EPS FY15F
Simple Average P/E FY15F (Excl. QNM)
Add 10% premium due exposure to
fast growing China dental market
Actual P/E multiple used
Target price (S$)
FY15F dividends
Closing price
Potential upside
Company
1.66
42.5
10%
46.7
0.78
0.01
0.72
9.4%
Bloomberg Mkt Cap
EV
EV/EBITDA EV/EBITDA EV/EBITDA P/E
Ticker
(SGD mn) (SGD mn)
TTM
FY1
FY2
TTM
QNM SP
553
558
36.5
23.0
16.9
58.6
P/E
FY1
43.4
P/E
FY2
29.9
Net D/E
(%)
Net Cash
ROA
(%)
8.1
ROE
(%)
14.0
P/B
Singapore
Raffles Medical Group Ltd
Talkmed Group Ltd
IHH Healthcare Bhd
Average
RFMD SP
TKMED SP
IHH SP
2,215
667
17,346
2,079
616
18,732
23.9
13.3
22.5
19.9
21.1
12.7
23.1
19.0
17.9
12.1
20.1
16.7
32.4
17.1
63.6
37.7
29.3
16.4
49.3
31.7
25.9
15.6
40.6
27.4
Net Cash
Net Cash
8.5
8.5
11.0
83.3
2.7
32.3
13.4
123.1
4.0
46.8
4.1
13.4
2.5
6.7
China
Aier Eye Hospital Group Co
Topchoice Medical Invs Corp
Average
300015 CH
600763 CH
6,195
2,916
6,057
2,873
47.0
85.6
66.3
38.7
46.6
42.6
31.7
36.0
33.9
86.6
126.0
106.3
68.7
90.5
79.6
52.3
70.1
61.2
Net Cash
Net Cash
-
13.2
16.2
14.7
16.8
19.5
18.1
13.9
21.8
17.9
Q & M Dental Group
7.2
India
Apollo Hospitals Enterprise Ltd
APHS IN
4,237
4,431
27.4
26.5
21.8
61.3
53.0
42.7
30.6
6.2
11.1
6.5
Hong Kong
Phoenix Healthcare Group Co. Ltd
1515 HK
2,177
1,971
30.4
27.4
20.7
42.5
39.0
30.3
Net Cash
11.1
14.2
6.1
BH TB
4,649
4,606
25.4
25.4
21.0
21.0
18.3
18.3
40.5
40.5
35.6
35.6
30.5
30.5
Net Cash
-
15.0
15.0
26.7
26.7
10.2
10.2
KPJ MK
1,599
1,996
16.2
15.3
13.8
30.9
30.9
28.8
70.7
4.5
11.9
3.4
US
Concord Medical Services Holdings Ltd. CCM US
Average
395
486
6.0
6.0
2.9
2.9
3.3
3.3
17.0
17.0
12.2
12.2
11.1
11.1
23.6
23.6
3.5
3.5
6.3
6.3
1.0
1.0
29.8
23.5
19.6
51.8
42.5
34.8
33.3
16.7
24.7
8.3
Thailand
Bumrungrad Hospital Public Co Ltd
Average
Malaysia
KPJ Healthcare Bhd
Simple Average (Excl. QNM)
Source: Bloomberg, Phillip Securities Research (Singapore) Estimates
On a side note, we like to highlight one key comparable – Topchoice Medical
Investment Corp. The firm provides dental and oral health care services with a focus
in Hangzhou, China.
It is trading at 126x P/E. The stock has had a great run in the past few years. Year-todate, the stock has risen 75%. Last year, it gained 50%. In 2013, it climbed 55%. We
view this is a sign of positive investor interest in China’s dental market. In our
opinion, Q&M offers a similar investment opportunity into this market.
However, we note that Topchoice has grown faster than Q&M in the past few years
and commands higher margins as well. Thus, a premium over Q&M is expected.
Page | 14 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Company Background
Q&M Dental Group (Q&M) started in 1996 with a single clinic in Bukit Batok. It is
Singapore’s largest private dental healthcare group with a patient pool more than
600,000. It operates 60 dental outlets, one mobile dental clinic and six medical clinics
in the country. Q&M also operates eight dental outlets in Malaysia and seven in
China. It listed on the Singapore exchange on 26 Nov-09.
Q&M’s dental clinics are located in the heartlands, near major traffic spots such as
train stations and bus interchanges. This is to be close to their customers.
Figure 18: Q&M’s dental outlets in Singapore
Source: Company
Q&M derives 77% of its revenue from Singapore. Malaysia makes up 9% of its top line
while China contributes 14%.
Figure 19: 77% of Q&M’s revenue comes from Singapore
Source: Company
Page | 15 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Q&M has grown rapidly over the years. Since inception with one clinic in 1996, it has
expanded mainly organically to reach 60 dental outlets (excluding one mobile dental
clinic) by end-2014.
Figure 20: Q&M’s had 60 dental outlets in Singapore at end-2014
Source: Company
Shareholding Structure
Source: Company
Key Management Team
Name
Dr Ng Chin Siau
Chief Executive
Officer
Dr Ng Jet Wei
Deputy Chief
Executive Officer
Dr Ng Chin Siau
Chief Executive
Officer (China)
Description
Dr Ng Chin Siau founded Q&M in Nov-96. He is
responsible for the group’s corporate direction. Presently,
he splits his time between Singapore and China.
Dr Ng Jet Wei is responsible for Q&M’s Malaysia’s
business. He also oversees Q&M’s dental equipment and
supplies business and dental laboratory services.
Dr Cheah Kim Fee heads up Q&M’s expansion into the
private dental healthcare industry in China.
Source: Company
Page | 16 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Figure 21: Q&M’s corporate history
Year
1996
Corporate Development
Q&M started its first clinic in Bukit Batok.
1999
Opened four clinics: Kallang, Sembawang, Sim Place and Toa Payoh
2000
Opened five clinics: Bukit Panjang, Clementi Central, Hougang Plaza, Jurong East Central and Serangoon Central
2001
Opened two clinics: Khatib, Yishun Central
Opened one dental laboratory
2002
Opened four clinics: Bukit Timah, Clementi Central, Jelapang and Tiong Bahru
2003
Opened five clinics: Braddell, Old Airport Road, Pasir Ris, Sembawang MRT, Toa Payoh Central
2004
Opened five clinics: Admiralty, Ang Mo Kio Central, Boon Lay, Hougang, Serangoon Central
Acquired two clinics: Gombak and Hougang
2005
Acquired four clinics: Elias Mall, Hougang Mall, Serangoon North, Tiong Bahru
2006
Opened one clinic: Marsiling
Closed one clinic: Hougang
2008
Opened two clinics: Boon Lay and Gombak
Acquired one clinic: Killiney Road
Opened one dental centre: City Square Mall
2009
Opened two clinics: Sembawang and Tampines
2010
Opened three clinics: Serangoon (2) and Novena
Opened one dental centre: Orchard
Formed JVs with four entities in China: Aiyashi Dental Clinics, Dan De Dentral Group, Yiwu He Cheng Dental Equipment Co. Ltd. and
Shenzhen New Perfect Exact Research Co. Ltd. Total profit guarantees of Rmb14 mn per year
Acquired 70% stake in Dental Wellness (Molek) Sdn Bhd in Johor Bahru, Malaysia. Vendor provided six-year profit undertaking
2011
Opened six clinics: Bukit Batok, Boon Lay MRT, Holland Village, Marine Parade, River Valley and Simei MRT
Opened one dental centre: Bugis Village
Acquired Quantumleap Healthcare Pte Ltd, strengthening Q&M's dental equipment and supplies distribution arm
Received US$15 mn investment from International Finance Corporation, a member of World Bank.
2012
Opened four clinics: Bedok Central, Eunos MRT, Tampines MRT, Toh Yi
Opened one dental centre: Raffles Place
Acquired two clinics: Orchard (2)
Acquired 72.57% of Singapore Medical Group
Acquired 70% stake in D & D Dental Sdn. Bhd., which operates a dental dental in Kuala Lumpur, Malaysia
Acquired 80% stake in Shanghai Chuangyi Investment and Management Co., Ltd.
Purchased two properties: Clementi and Jurong East Central
2013
Opened 10 outlets: Buangkok MRT, Mount Elizabeth Novena Hospital (2), Raffles Place (3), Serangoon (2), Tampines (2)
Opened one dental centre: Novena
Acquired one clinic: City Square Mall
Closed three outlets: Boon Lay, Bugis Village and Sun Plaza
Acquired 70% stake in AR Dental Supplies Sdn. Bhd.
2014
Acquired 60% stake in Aoxin Stomatology Group in Shenyang, China. Vendor provided profit guarantee for 12 years.
Acquired 51% stake in Qinhuangdao Aidite High Technical Ceramic Co., Ltd. in Hebei, China. The second largest dental ceramic
manufacturer, specialising in ceramic and zirconium oxide blocks in China. Vendor provided profit guarantee for 12 years.
Acquired 70% stake in NG GK Dental Surgery (Melaka) Sdn. Bhd.
Acquired 100% stake in Foo & Associates Pte. Ltd.
Source: Company, Phillip Securities Research (Singapore)
Page | 17 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Financials
Income Statement
Y/E Dec, SGD mn
Revenue
EBITDA
Depreciation & Amortis ation
EBIT
Net Finance Inc/(Exp)
Profit before tax
Taxation
Net profit before NCI
Non-controlling interes t
Net profit, reported
FY12
FY13
57
7
(2)
5
(0)
5
(0)
5
(0)
5
71
9
(2)
7
(0)
7
(0)
7
(0)
6
FY14 FY15F FY16F
100
15
(3)
12
(0)
12
(1)
11
(2)
9
136
24
(4)
20
(2)
18
(2)
16
(3)
13
171
33
(5)
28
(2)
26
(3)
23
(5)
19
Per share data (SGD Cents)
Y/E Dec
EPS, reported
DPS
BVPS
FY12
FY13
0.91
0.68
5.24
0.93
1.10
6.65
FY12
FY13
CFO
Profit before tax
Depreciation & Amortis ation
WC changes
Net finance inc/(exp)
Tax paid
Others
Cashflow from ops
CFI
CAPEX, net
Others
Cashflow from investments
CFF
Share is s uance, net
Loans , net of repayments
Dividends
Others
Cashflow from financing
Net change in cash
CCE, end
FY12
FY13
ASSETS
PPE
Others
Total non-current assets
Accounts receivables
Cas h
Inventories
Others
Total current assets
Total Assets
FY14 FY15F FY16F
17
6
23
6
18
1
1
27
49
15
10
26
8
29
4
1
42
68
37
36
74
16
36
9
6
67
141
47
36
84
27
38
18
6
88
172
60
36
97
35
41
23
6
105
202
LIABILITIES
Accounts payables
Short term loans
Others
Total current liabilities
Long term loans
Others
Total non-current liabilities
Total Liabilities
10
1
0
11
9
1
10
20
11
0
0
11
9
1
10
21
21
4
1
26
29
1
30
56
45
4
1
50
29
1
30
80
65
4
1
70
29
1
30
99
EQUITY
Non-controlling interes ts
Shareholder Equity
0
29
1
46
8
77
12
81
16
86
Y/E Dec
FY12
FY13
FY14 FY15F FY16F
P/E (X), adj.
P/B (X)
EV/EBITDA (X), adj.
Dividend Yield (%)
89.4
15.5
63.7
0.8%
34.8
4.9
24.4
3.4%
29.2
3.3
16.6
2.1%
43.4
7.0
23.0
1.6%
29.9
6.5
16.9
2.3%
19.4%
12.0%
7.5%
9.2%
24.7%
31.6%
32.0%
29.2%
40.9%
63.2%
68.8%
32.6%
35.7%
61.7%
66.7%
50.9%
25.4%
36.2%
37.4%
45.1%
12.3%
9.6%
8.8%
13.0%
10.2%
9.1%
15.0%
12.2%
8.5%
17.9%
15.0%
9.5%
19.4%
16.4%
11.0%
17.8%
11.7%
17.2%
11.1%
14.0%
8.2%
16.4%
8.3%
22.5%
10.0%
(9)
(20)
(3)
(5)
(8)
FY14 FY15F FY16F
1.20
0.73
10.72
1.66
1.16
10.34
2.41
1.69
11.06
Cash Flow
Y/E Dec, SGD mn
Balance Sheet
Y/E Dec, SGD mn
Valuation Ratios
FY14 FY15F FY16F
5
2
2
7
2
-3
12
3
-3
18
4
5
26
5
6
0
0
0
9
0
0
-1
4
0
-1
-1
10
2
-2
0
27
2
-3
0
36
-10
-1
-11
2
-5
-4
-17
-21
-38
-14
0
-14
-18
0
-18
0
8
17
-1
13
29
0
0
0
0
-4
3
7
5
18
-6
0
10
10
29
-7
-1
35
7
36
-9
-2
-11
2
38
-13
-2
-15
3
41
Growth & Margins (%)
Growth
Revenue
EBITDA
EBIT
Net profit, adj.
Margins
EBITDA margin
EBIT margin
Net profit margin
Key Ratios
ROE (%)
ROA (%)
Net Debt / (Cas h)
Net Gearing (X)
Net Cash Net Cash Net Cash Net Cash Net Cash
Source: Company, Phillip Securities Res earch (Singapore) Es timates
*Forward multiples & yields bas ed on current market price; his torical multiples & yields bas ed on his torical market price.
Page | 18 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Ratings History
Market Price
Target Price
1.00
0.50
Source: Bl oomberg, PSR
0.00
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
1
2
3
4
5
PSR Rating System
Total Returns
Recommendation
Rating
> +20%
Buy
1
+5% to +20%
Accumul a te
2
-5% to +5%
Neutra l
3
-5% to -20%
Reduce
4
<-20%
Sel l
5
Remarks
We do not ba s e our recommenda ti ons enti rel y on the a bove qua nti ta ti ve
return ba nds . We cons i der qua l i ta ti ve fa ctors l i ke (but not l i mi ted to) a s tock's
ri s k rewa rd profi l e, ma rket s enti ment, recent ra te of s ha re pri ce a ppreci a ti on,
pres ence or a bs ence of s tock pri ce ca ta l ys ts , a nd s pecul a ti ve undertones
s urroundi ng the s tock, before ma ki ng our fi na l recommenda ti on
Page | 19 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Contact Information (Singapore Research Team)
Management
Chan Wai Chee
(CEO, Research - Special Opportunities)
[email protected]
Research Operations Officer
Jaelyn Chin
[email protected]
Macro | Equities
Soh Lin Sin
[email protected]
Bakhteyar
[email protected]
Osama
Market Analyst | Equities
Kenneth Koh
[email protected]
US Equities
Wong Yong Kai
Finance | Offshore Marine
Benjamin
Ong
[email protected]
Real Estate
REITs
Transport & Logistics
Richard
[email protected]
Leow, CFTe
Consumer
Caroline Tay
Shane Goh
[email protected]
Dehong Tan
[email protected]
[email protected]
[email protected]
Contact Information (Regional Member Companies)
MALAYSIA
Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3 Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450
Kuala Lumpur
Tel +603 2162 8841
Fax +603 2166 5099
Website: www.poems.com.my
HONG KONG
Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway
Hong Kong
Tel +852 2277 6600
Fax +852 2868 5307
Websites: www.phillip.com.hk
JAPAN
Phillip Securities Japan, Ltd.
4-2 Nihonbashi Kabuto-cho Chuo-ku,
Tokyo 103-0026
Tel +81-3 3666 2101
Fax +81-3 3666 6090
Website: www.phillip.co.jp
INDONESIA
PT Phillip Securities Indonesia
ANZ Tower Level 23B,
Jl Jend Sudirman Kav 33A
Jakarta 10220 – Indonesia
Tel +62-21 5790 0800
Fax +62-21 5790 0809
Website: www.phillip.co.id
CHINA
Phillip Financial Advisory (Shanghai) Co Ltd
No 550 Yan An East Road,
Ocean Tower Unit 2318,
Postal code 200001
Tel +86-21 5169 9200
Fax +86-21 6351 2940
Website: www.phillip.com.cn
THAILAND
Phillip Securities (Thailand) Public Co. Ltd
15th Floor, Vorawat Building,
849 Silom Road, Silom, Bangrak,
Bangkok 10500 Thailand
Tel +66-2 6351700 / 22680999
Fax +66-2 22680921
Website www.phillip.co.th
FRANCE
King & Shaxson Capital Limited
3rd Floor, 35 Rue de la Bienfaisance 75008
Paris France
Tel +33-1 45633100
Fax +33-1 45636017
Website: www.kingandshaxson.com
UNITED KINGDOM
King & Shaxson Capital Limited
6th Floor, Candlewick House,
120 Cannon Street,
London, EC4N 6AS
Tel +44-20 7426 5950
Fax +44-20 7626 1757
Website: www.kingandshaxson.com
UNITED STATES
Phillip Futures Inc
141 W Jackson Blvd Ste 3050
The Chicago Board of Trade Building
Chicago, IL 60604 USA
Tel +1-312 356 9000
Fax +1-312 356 9005
Website: www.phillipusa.com
AUSTRALIA
Phillip Capital Limited
Level 12, 15 William Street,
Melbourne, Victoria 3000, Australia
Tel +61-03 9629 8288
Fax +61-03 9629 8882
Website: www.phillipcapital.com.au
SRI LANKA
Asha Phillip Securities Limited
No-10 Prince Alfred Tower,
Alfred House Gardens,
Colombo 03, Sri Lanka
Tel: (94) 11 2429 100
Fax: (94) 11 2429 199
Website: www.ashaphillip.net
TURKEY
PhillipCapital Menkul Degerler
Dr. Cemil Bengü Cad. Hak Is Merkezi
No. 2 Kat. 6A Caglayan
34403 Istanbul, Turkey
Tel: 0212 296 84 84
Fax: 0212 233 69 29
Website: www.phillipcapital.com.tr
DUBAI
Phillip Futures DMCC
Member of the Dubai Gold and
Commodities Exchange (DGCX)
Unit No 601, Plot No 58, White Crown Bldg,
Sheikh Zayed Road, P.O.Box 212291
Dubai-UAE
Tel: +971-4-3325052 / Fax: + 971-4-3328895
Website: www.phillipcapital.in
SINGAPORE
Phillip Securities Pte Ltd
Raffles City Tower
250, North Bridge Road #06-00
Singapore 179101
Tel +65 6533 6001
Fax +65 6535 6631
Website: www.poems.com.sg
INDIA
PhillipCapital (India) Private Limited
No.1, 18th Floor
Urmi Estate
95, Ganpatrao Kadam Marg
Lower Parel West, Mumbai 400-013
Maharashtra, India
Tel: +91-22-2300 2999 / Fax: +91-22-2300 2969
Website: www.phillipcapital.in
Page | 20 | PHILLIP SECURITIES RESEARCH (SINGAPORE)
Q&M DENTAL GROUP INITIATION
Important Information
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Page | 21 | PHILLIP SECURITIES RESEARCH (SINGAPORE)