Acquiring up-north
- Proposed acquisition of six dental clinics in Penang for SGD4.4m, at 13.7x forward P/E.
- Profit guarantee of SGD0.32m pa, with 5% CAGR for the next 12 years. Raise FY16-17 EPS by 1.3-1.5%.
- Maintain BUY with catalysts expected from more acquisitions. Lift TP by 1% to SGD1.02, still at 45x FY16 EPS.
Enhancing presence in Malaysia
- Q&M is acquiring 60% of the Smilebay group of dental clinics in Penang, Malaysia for SGD4.4m. 63% of the consideration will be in the form of cash, with the rest in new shares issued at SGD0.72.
- This 6-clinic dental group, founded by Dr Yong Peng San in 1999, marks Q&M’s first venture into the state of Penang in Malaysia.
- The acquisition will increase its network of dental clinics in Malaysia to 14, up from 8 previously (Johor, KL and Malacca).
- Q&M and Smilebay intend to tap on each other’s expertise and strengths to further penetrate the Malaysia market.
- 8 senior dentists have signed 6-12 year service agreements.
Raise EPS by 1.3-1.5%
- Based on the 12-year profit guarantee, the acquisition is expected to contribute at least SGD0.32m a year in earnings to Q&M, with 5% CAGR, from FY16 onwards. This assumes the deal completes before the end of FY15.
- We raise FY16-17 EPS by 1.3-1.5%.
Maintain BUY; catalysts from more acquisitions
- Maintain BUY with TP lifted to SGD1.02 from SGD1.01 after our EPS changes.
- This is still at 45x FY16 EPS, 1SD above its 5-year mean to capture Q&M’s strong earnings trajectory, consistent M&A track record and the scarcity value of healthcare plays with its unique business model.
- We understand that there are more opportunities knocking on Q&M’s door, following its strengthened M&A track record and enlarged network.
- With SGD26m of cash remaining from its recent MTN issue, we expect more acquisitions that could potentially boost FY16-17 EPS by another 15-18%.
(John Cheong, Gregory Yap)
Source: http://www.maybank-ke.com.sg
