DBS downgrades Q&M to 'hold', lowers TP to 53 cents on delayed expansion plans

On the back of Q&M's “disappointing” results, DBS has cut its earnings for the FY2022 and FY2023 by 31% and 33% respectively.

DBS Group Research analysts Tabitha Foo and Paul Yong have lowered their call on Q&M to “hold” from “buy” previously as the group’s expansion plans have been delayed.

In their report, the analysts have also lowered their target price estimate to 53 cents from 72 cents. The new target price is based on 22x (-0.25 standard deviation or s.d.) FY2023 P/E for its core dental business.

During the 1HFY2022 ended June, Q&M’s revenue fell by 4% y-o-y to $90.9 million while net profit fell by 45% y-o-y to $9.9 million.

On the back of the “disappointing” results, Foo and Yong have cut their earnings for the FY2022 and FY2023 by 31% and 33% respectively.

That said, the analysts continue to remain positive on the primary healthcare segment in the long-term as the group has a “clear expansion strategy” for the next 10 years and has been “aggressively executing its plan”.

“However, we lower our forecasts slightly to 10 new clinics a year in Singapore and we push back our trajectory of seeing the fruits of organic growth to FY2023 to FY2024,” they write.

At its current levels, the analysts deem Q&M’s valuations as “fair” for now at an FY2023 P/E of 18x, 0.5 s.d. below its five-year average.

“As our new forecasts assume it will take a few years for Q&M’s bottom-line to reach FY2020 levels, valuations seem aligned with its fundamentals currently. We believe that a solid earnings momentum from the core dental business will drive its share price re-rating,” the analysts say.

That said, they add that they remain conservative on the core dental business as they await the ramp up in profitability for the new clinics.

Shares in Q&M closed 0.5 cent lower or 1.14% down at 43.5 cents on Aug 16.

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