Brokers' take: DBS expects Q&M to gain from Covid-19 turning endemic; raises target price to S$1

THE Covid-19 laboratory testing business of Q&M Dental Group will likely benefit from Covid-19 becoming endemic, as testing becomes the new norm in an endemic world, DBS Group Research said.

In a research note on Tuesday, DBS raised its target price on the dental group to S$1 from S$0.84, while maintaining its "buy" call on the counter.

Shares of Q&M were trading at 79.5 cents as at 2.49pm on Tuesday, down one cent or 1.2 per cent.

DBS raised its projections for the number of daily laboratory tests conducted by Q&M to 4,000 from 3,000, amid plans by the dental group to ramp up operations for its "exciting" new revenue stream.

Q&M, which was awarded a tender by the Health Promotion Board in May 2021 to provide Covid-19 swab and testing services, will likely have priority in getting allocated more tests by the Singapore government going forward, it said.

DBS expects Singapore will shift towards testing to become more preventive amid higher vaccination rates, due to possible reinfections from new variants and asymptomatic transmissions.

Singapore will likely also ramp up testing to remove quarantine measures that have been a "showstopper" for travel, the research team said, noting that there has been a scramble to restart international travel since aviation is a key component of the Singapore economy.

It added that the polymerase chain reaction test will unlikely be replaced since it is still considered the most accurate and sensitive method to test for Covid-19, and it should continue to be the test of choice as borders reopen due to higher risks.

Furthermore, Q&M's dental segment will likely also gain from domestic reopening, as Singaporeans have to visit local dental clinics instead of travel overseas for more affordable dental services while borders remain closed.

DBS said it remains bullish on Q&M's core dental business on the back of a bigger pool of local patients, since dental care is essential to Singaporeans.

Additionally, Q&M's aggressive organic growth strategy for its dental business has put it on track to obtain a significant portion of the dental market pie in the long run, amid more dentists joining the group and its artificial intelligence technology increasing customer stickiness.