Brokers’ take: CGS-CIMB upgrades Q&M Dental to ‘add’, says valuation now ‘attractive’
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Ry-Anne Lim
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CGS-CIMB on Wednesday (Oct 12) raised its call on Q&M Dental Group to “add” from “hold”, as it views the current valuation of the group as “attractive”.
This follows news of its medical technology subsidiary, Acumen Diagnostics, winning a tender from the Ministry of Health to operate one of the sites allocated for Joint Testing and Vaccination Centres.
The 15-month contract, which will commence on Nov 21, 2022, is estimated to be worth S$3.6 million in revenue.
CGS-CIMB expects the recent tender win to alleviate Acumen Diagnostics’ short-term woes in commercialising diagnostics tests.
“(This) could lift Acumen back to profitability and present Q&M Dental Group with an opportunity to expand its offerings to include vaccination services in the future,” it said.
The research team has maintained its target price on the stock at S$0.44. This represents a potential upside of about 33.3 per cent from the counter’s Tuesday closing price of S$0.33.
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CGS-CIMB analysts highlighted the price target’s valuation as pegged to 20 times Q&M Dental’s FY2023 earnings estimates, which is one standard deviation above its five-year historical mean.
In comparison, they note that the stock is trading at 15 times its price-to-earnings at S$0.33 – this is close to two standard deviations below its five-year historical mean and near its all-time low of a multiple of 13.7 times, which CGS-CIMB views as “attractive”.
The research house is expecting a 22 per cent and 68 per cent year-on-year decline in the group’s revenue and net profit for Q3 2022, to S$45 million and $4.5 million, respectively.
The projected decline is due to a comparative earnings peak during the Covid-19 pandemic last year, which resulted in a higher revenue base for the company.
“Stripping off pandemic-related contributions, revenue run rate was likely comparable both year-on-year and quarter-on-quarter, which we believe exhibits the resilience of Q&M Dental Group’s dental core business,” it said.
While CGS-CIMB’s FY2023 earnings estimates account for “negligible contribution” from Q&M Dental subsidiary Acumen Diagnostics, the research house said it expects continued improvements in the group’s core dental business.
As at 3.01pm on Thursday, shares of Q&M Dental Group were trading 1.5 per cent or S$0.005 lower at S$0.34.
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