Should We Take A Bite In Q&M Dental Group (Singapore) Ltd?

Listed on 26 November 2009, Q&M Dental Group (Singapore) Ltd (Q&M) is now the largest private dental healthcare group in Singapore with a network of 100+ private dental clinics located in Singapore and Malaysia. On 11 December 2019, Q&M is valued at S$ 377.1 million in market capitalisation. Here, I’ll be covering 10 key things to know about Q&M before you invest:

• Revenue
  In 2018, Q&M had recorded S$ 119.9 million in group revenues, a drop of 22.6% from S$ 154.9 million in 2016, its highest revenue delivered in the 10-year period. The question is: ‘Is this due to poor business results achieved for the last two years?’
  
  
  

The answer is Nope.

The fall in group revenues is mainly attributable to a deconsolidated of Aoxin Q&M Dental Group Ltd (Aoxin) as Q&M had listed Aoxin onto the Catalist Board of the SGX on 26 April 2017. Subsequently, Q&M’s stakes in Aoxin was reduced from 100% to 45.94%, leading to the exclusion of Aoxin’s financial results to be reported as a subsidiary of Q&M. Instead, Aoxin’s profit contribution is reported as an associate.

Presently, Aoxin runs five dental hospitals and nine dental polyclinics in the Liaoning Province in China. Hence, Aoxin is not related to the actual business performance in Singapore and Malaysia. A closer look at Q&M in terms of geographical revenues would reveal the actual reasons for a back-to-back decline in group revenues despite having achieved growth in sales from Singapore and Malaysia in 2017 and 2018.

Revenue Figures in S$ ‘000

Year	Singapore	Malaysia	China	Q&M Group
2014	76,848	9,457	13,979	100,284
2015	87,925	7,939	28,133	123,997
2016	106,188	6,645	42,104	154,937
2017	108,968	6,745	7,779	123,492
2018	110,332	8,071	1,484	119,887

Source: Annual Reports of Q&M

• Profitability
  In 2018, Q&M has reported S$ 14.0 million in shareholders’ earnings. It is halved from S$ 28.3 million achieved in 2016. Why?
  
  
  

This is because Q&M has recorded two one-off gains in 2016 and 2017:

Figures in S$ ‘000

Year	One-Off  Gains	Source of Gains
2016	21,327	Disposal of 12.83% Interest in Aidite (Qinhuangdao) Technology Co. Ltd on 30 December 2016.
2017	17,102	Disposal of 54.06% Stake in Aoxin Q&M Dental Group Limited on 26 April 2017

If all other gains and losses are excluded, Q&M would have delivered a consistent growth in shareholders’ earnings for the past 10 years. It has grown from S$ 3.5 million in 2009 to S$ 12.7 million in 2018, which is a CAGR of 15.53% during the 10-year period.

• Balance Sheet Strength
  In Q3 2019, Q&M has S$ 69.2 million in net debt and a total of S$ 116.5 million in total equity. Thus, it has a Debt-to-Adjusted capital ratio of as much as 59.4%. Also, Q&M has S$ 48.0 million in current assets and S$ 23.4 million in current liabilities. It has a current ratio of 2.05 and thus, is able to meet its short-term liabilities.
  
  
• Major Shareholders
  Dr. Ng Chin Siau owns 1.5% direct and 52.2% indirect interests in Q&M, where he holds his indirect shareholdings in Quan Min Holdings Pte Ltd as of 18 March 2019. Dr. Ng Chin Hau is appointed as Group CEO of the dental healthcare group.
  
  Heritas Helios Investments Pte Ltd is the second largest shareholders of Q&M with 8.11% shareholdings in the company.
  
  
• Latest Development 1:
  Disposal of 36% interest of Aidite (Qinhuangdao) Technology Co. Ltd
  As of 10 October 2019, Q&M has announced a disposal of 36% stake in Aidite for a net sales proceeds of S$ 49 million. From it, Q&M would be recording S$ 19 million in net disposal gain and will retain itself a 12.3% interest in Aidite after this transaction.
  
• Latest Development 2:
  First Private Dentistry College in Singapore
  As of 17 October 2019, Q&M has officially opened Singapore’s first ever private dentistry college at City Square Mall, where it provides diploma studies in clinical dentistry.
  
  
  
• Latest Development 3:
  Continuous Network Expansion in Singapore and Malaysia
  As of 30 September 2019, Q&M operates 77 clinics in Singapore and 27 clinics in Malaysia. It had secured 9 new locations (4 in Singapore and 5 in Malaysia) to open new dental clinics. They would be opened starting in Q4 2019 and Q1 2020.
  
  
  
• Latest 12-Month Financial Results 
  For the last 12 months, Q&M has made S$ 125.5 million in revenue and S$ 15.4 million in earnings or 1.94 cents in earnings per share (EPS).
  
  Figures in S$ ‘000

Period	Group Revenue	Shareholders’ Earnings	Earnings per Share (EPS) (SG Cents)
Q4 2018	33,965	3,433	0.43
Q1 2019	29,908	3,580	0.45
Q2 2019	30,505	4,752	0.60
Q3 2019	31,103	3,642	0.46
Latest 12 Months	125,481	15,407	1.94

Source: Quarterly Reports of Q&M

• P/E Ratio
  As of 11 December 2019, Q&M is trading at S$ 0.48 a share. In the past 12 months, Q&M made 1.94 cents in EPS. Its current P/E Ratio is 24.74, which is the lowest P/E Ratio recorded for the last 10 years.
  
  
  

• P/B Ratio
  In Q3 2019, Q&M has net assets of 14.7 cents a share. Thus, its current P/B Ratio is 3.27, the lowest in 10 years.
  
  
  

• Dividend Yields
  In 2018, Q&M had paid out 0.82 in dividends per share (DPS). Thus, the company has a current dividend yield of 1.71% per annum.

VIA’s Verdict 

Here, I’ll like to end this write-up by answering two questions: 

1. Why stock price of a good business like Q&M can drop over the long-term? 

2. How all of us can avoid an investment into Q&M at the wrong price? 

First, as value investors, it is helpful to understand that your aim is to acquire or invest in shares of good businesses at their lowest possible prices. In this case, I find that Q&M is a business that has generated consistent growth in profits and  cash flows. However, the stock price is constantly valued at P/E Ratio of 30+. As a matter of fact, its P/E Ratio had reached as high as 50, 60, and even 70 for the last 10 years. A true value investor who aims to invest in good stocks at low P/E Ratio would opt for other stocks if they are of better quality and are cheaper in valuation. Hence, the fall in Q&M’s stock price would be long-term correction is logical for it is revalued to a far more acceptable P/E Ratio (maybe in its 20s and below) in the future. 

Source: Google Finance

Many who have bought into Q&M were suckered especially in 2015-2016 when its stock price has spiked up to around 80-90 cents per share. In most cases, the people who ‘invested’ are not exactly investors but were speculators who are in for the short run. They are not value investors who calculate P/E Ratio to assess the true worth of Q&M before buying, thus, jacked up its stock price. Now, they are slowly losing interest in Q&M as they gradually sell its shares over the last 4 years. 

The moral of the story is – Calculate P/E Ratio, P/B Ratio and Dividend Yields of a stock before investing into it to avoid overpaying for a good stock like Q&M as stated above. 

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