PhillipCapital analyst Paul Chew has upgraded his call on Q&M to “buy” from “accumulate” as the company’s adjusted patmi for the FY2023 ended Dec 31, 2023, exceeded expectations at 121% of Chew’s forecasts.
In his March 18 report, Chew likes Q&M’s recovery in revenue and margins, noting that its revenue growth for the 2HFY2023 is the fastest over the past two years.
“Despite fewer clinics, revenue expanded from higher revenue per patient. Using data driven treatment, Q&M can ascertain and provide a more intensive treatment for patients. Margins recovered from operating leverage and a stable number of staff or nurses,” he writes.
However, FY2023, which saw the first decline in Q&M’s clinics in six years, is a concern.
“Q&M closed two clinics in Singapore. The restructuring was to close loss-making clinics. Q&M is still looking to expand its clinics but for larger sites,” Chew notes.
In FY2024, the analyst expects the company to see earnings growth.
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“Using [artificial intelligence or AI tool] EM2Ai tools and data, dentists can raise the treatment levels for the benefit of patients and improve the timelines or regularity of patient check-ups and treatments,” says the analyst.
“Other initiatives include training Malaysia clinics for more advanced treatments. Associate Aoxin Q&M 1D4 Dental turnaround is supported by government incentives in the healthcare sector. The 51% sale of EM2AI will also reduce the research and development (R&D) expenses borne by the company,” he adds.
“Apart from improved efficiencies in both revenue and cost, we believe data (or evidence-based) based treatment plans can differentiate Q&M from the competition and enjoy premium pricing.”
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In addition to his upgrade, Chew has raised his target price to 36 cents from 34 cents previously as he values the company at 20 times P/E of its FY2024 earnings, in line with its industry peers. Its listed associate, Aoxin Q&M Dental, which is unrated by PhillipCapital, is valued at market price with a 20% discount, notes Chew.
As at 10.44am, shares in Q&M are trading 0.5 cents lower or 2.04% down at 24 cents.
