Brokers' take: UOBKH initiates on Q&M with 'buy' on growth potential in dental, Covid-19 testing businesses

Q&M DENTAL Group will likely post record core earnings in 2021 boosted by its dental and Covid-19 testing businesses, UOB Kay Hian said on Tuesday in a research note.

The research team initiated coverage on the dental group with a "buy" call and target price of S$0.94, expecting the two businesses to deliver robust growth and provide the dental group with a leadership position in the niche dental industry. It also noted that Q&M offers higher growth, return on equity and dividend yield compared to its peers.

Q&M, the largest operator of private dental outlets in Singapore, posted strong revenue growth in H2 of 2020 and Q1 of 2021 despite the Covid-19 pandemic, likely due to its aggressive expansion with new outlets since 2019, UOBKH said.

It expects the dental group will continue to add 10 new outlets in Singapore each year, which should boost an 18 per cent on-year growth in core earnings in 2021.

Strong demand from local patients will also likely continue due to a reluctance to travel overseas for dental treatment, the research team added.

Q&M's Covid-19 testing business is also another growth engine for the group, UOBKH noted. The group in September 2020 started conducting Covid-19 testing and selling diagnostic test kits in Singapore through its 51 per cent-owned subsidiary Acumen Diagnostics.

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Acumen will likely accelerate growth moving forward as it has been appointed by the Health Promotion Board to be a panel service provider to provide Covid-19 swab and testing services, the research team said.

The testing business should also remain for the long term, UOBKH added, noting that the Singapore government expects the pandemic will last for four to five years, and also the Republic is still testing all inbound travellers, individuals serving stay-home notices, as well as workers in the construction, marine and process sectors regularly.

Shares of Q&M closed at S$0.785 on Tuesday, up 2.5 Singapore cents or 3.29 per cent.