■ Observed good working relationships with the Chinese. Expect greater penetration of dental hospitals & capacity expansion. Adjust FY15E/16-17E EPS by -9%/+3% for a 3- month delay in acquisitions/higher Aidite contributions.
■ Maintain BUY with higher TP of SGD1.05 from SGD1.02 after EPS increase. Still on 45x FY16 P/E. Expect catalysts from more acquisitions & capacity expansion.
Visited Dental Hospitals & Manufacturing Plant
We visited Q&M’s operations in Liaoning Province, including Aoxin’s three hospitals, the Liaoning Medical University (LMU) Stomatology Hospital No. 2 and Aidite’s manufacturing facilities. We were impressed with their scale and standards of operations.
We now expect greater contributions from Aidite as it aims to add two new production lines when its new facility is completed in Oct 2015. This is to meet overwhelming demand. We also think Aoxin has much more room for growth as two of its three hospitals are new. One just commenced operations a year ago while the other just completed its 3-month renovation. We raise FY16-17 EPS by 3% for higher Aidite contributions but reduce FY15 EPS by 9% for a 3- month delay in the completion of its four Singapore acquisitions.
We expect 2Q15 core earnings to be c.SGD2.2m, down QoQ due to MTN interest costs. However, YoY growth could be c.80%, from Aoxin’s & Aidite’s contributions. 4Q15 will be a catch-up quarter.
Smooth Integration, Followed by Further Expansion
We understand that Aoxin intends to replicate Q&M’s Singapore model of expanding through acquisitions and internally. It will turn its attention to the privatisation of public hospitals as this segment offers substantial growth potential. After our EPS adjustments, we raise TP to SGD1.05 from SGD1.02, still based on 45x FY16 EPS. This is 1SD above Q&M’s 5-year mean. We expect catalysts from more acquisitions and quicker-than-expected capacity expansion. (Read Report)
Source : Maybank Kim Eng Research