Aoxin Q& M Dental Group QC7 0.00% is expecting to see a &ldquo significant overall improvement&rdquo to its results for the 1HFY2024.

 

To be sure, the group says it is anticipating to see a net profit for the period, compared to a net loss in the corresponding period the year before.

 

The improvement this year is mainly due to the higher revenue generated from primary healthcare and laboratory services as well as a general reduction in expenses.

 

The group will report its half-year results on or before Aug 14.

This includes payable dividends, share buybacks and shareholders&rsquo loans that add up to more than RM17 million

 

DENTAL group Q& M&rsquo s wholly owned Malaysian subsidiary, Q& M Dental Group (Malaysia) (QDGM), has been granted an arbitral award against three shareholders of Malaysia dental equipment supplier AR Dental Supplies.

 

In March 2013, QDGM entered into a sale and purchase agreement with shareholders Tye Chee Wah, Chong Vooi Seong and Chan Sing Cheong to acquire a 70 per cent stake in AR Dental Supplies.

 

QDGM had also entered into a shareholders agreement with Tye, Chong and Chan to govern their relationship as shareholders of AR Dental. It then entered into a memorandum of deposit with Pride Access &ndash an investment holding company owned by Tye, Chong and Chan &ndash in connection with a property owned by Pride Access, which was deposited as security on behalf of the trio.

 

In FY2021, QDGM commenced arbitration proceedings with the Singapore International Arbitration Centre against Tye, Chong, Chan and Pride Access. At that time, the contribution of AR Dental to the group&rsquo s total equity was only 3.8 per cent.

 

Under the arbitration filed, QDGM had sought &ndash among others &ndash a declaration that it had validly exercised its rights under the shareholders agreement requiring Tye, Chong and Chan to buy back QDGM&rsquo s 70 per cent stake in AR Dental. This includes interest and other payments relating to annual guaranteed dividends payable.

 

In a bourse filing on Monday (Jul 15), QDGM said the arbitration tribunal has issued an arbitral award in its favour that renders Tye, Chong and Chan jointly and severally liable to pay RM5.4 million (S$1.6 million) in dividends payable to QDGM.

 

Tye, Chong and Chan must also pay RM8.4 million to QDGM as per the buyback validly exercised by the latter. The trio must also pay interest of 10 per cent per annum on the sum of RM8.4 million from Jul 5, 2013 to the date of payment of RM8.4 million, less the proceeds of sale of the property under Pride Access which QDGM is to attempt to sell first.

 

In addition, Tye, Chong and Chan shall cause Pride Access to execute and deliver to QDGM the resolution of the board of directors and Pride Access&rsquo shareholders for the sale of the property.

 

AR Dental is also required to repay QDGM a sum of RM2.5 million under shareholders&rsquo loans.

 

Finally, Tye, Chong, Chan and Pride Access shall be jointly and severally liable to pay to QDGM an estimated RM545,000 in incurred legal costs and arbitration costs.

 

QDGM was represented by Shan Chambers. Following the arbitral tribunal&rsquo s decision, QDGM has instructed Shan Chambers to take the necessary steps for the recognition and enforcement of the award in Malaysia.

 

The dental group does not expect the award to have a material impact on its operations and financial performance for the financial year ended Dec 31, 2024.

 

As at Jul 15, the group has impaired its investment of RM6.3 million in AR Dental.

Dr Ong Siew Hwa, the CEO of Acumen Diagnostics, has been placed on a leave of absence by the company&rsquo s board of directors. Acumen is a subsidiary of Mainboard-listed Q& M Dental Group QC7 2.08% and an associated company of Catalist-listed Aoxin Q& M 1D4 0.00% Dental Group.

 

The move was made to facilitate investigations into Ong&rsquo s acquisition of an indirect interest in the assets of a supplier of Acumen as well as the ancillary issues arising from the acquisition.

 

Ong is also an executive director of Aoxin Q& M.

 

According to the statements from both Q& M and Aoxin Q& M, Ong has objected to being placed on a leave of absence as she does not agree that there is any cause for investigation into her acquisition. Ong has also provided an explanation to the Acumen board. The Acumen board has disagreed with her position.

 

During this time, the Acumen board has appointed Lua Chong Hui Joseph to assume Ong&rsquo s responsibilities. He is considered suitable for the appointment due to his background, education and training in molecular biology. He also has experience working in a translational scientific lab at Singapore&rsquo s National Heart Centre and has assisted Acumen&rsquo s management team in the company&rsquo s management and operations since 2020.

 

Both Q& M and Aoxin Q& M state that Ong&rsquo s leave of absence is not expected to have a &ldquo material adverse impact on their business and operations.

The dental chain operator&rsquo s immediate priority is to grow its core business, driven by a new digital platform

 

AFTER spending four years in development, dental group Q& M&rsquo s new artificial intelligence (AI) platform is ready to be put to the test.

 

In 2018, the mainboard-listed company set up subsidiary EM2AI to work on AI projects that can help improve service quality and standards for patients. This AI-powered orthopantomogram (OPG) scanner is one of such projects which have received the green light.

 

The model scans X-rays generated by an OPG scanner to detect dental conditions. It can also generate a comprehensive set of dental records for patients, which can be used to formulate treatment plans.

 

In 2022, the AI platform was approved by the Health Sciences Authority as a Class B medical device. With regulatory approval secured, the dental group has spent the past year trialling the technology, and has since rolled it out to its more than 100 clinics in Singapore and over 40 clinics in Malaysia.

 

Dentist-led services

The platform is part of Q& M&rsquo s overall push to improve service quality and standards, said chief executive officer Dr Ng Chin Siau and chief operating officer Dr Raymond Ang in an interview with The Business Times.

 

Currently, the business is patient-led, meaning they come in and decide which treatments they need, rather than the dentists. Therefore, most opt primarily for scaling and polishing services, because that is what they are familiar with.

 

&ldquo But actually, it should not be (this way). This is a clinical service,&rdquo said Dr Ang.

 

The AI platform is thus meant to address this, as it has simplified the process for taking OPG scans. With the press of a button, the assessment can be done within 15 to 20 seconds, compared to 15 to 20 minutes if done manually.

 

With this, dentists can also create proper treatment plans, with preventative care in mind, which will see patients come in more regularly for reviews.

 

&ldquo We do 14,000 scaling procedures every month. If we are able to get the patient to see the doctor, and the doctor can advise the patient to come back, we can multiply the scaling procedures by two to three times,&rdquo said Dr Ng, who estimates that this can grow the group&rsquo s revenue by 10 per cent.

 

&ldquo So this is a major pillar of growth, not just for my bottom line, but also for patients to be prevented from future dental diseases,&rdquo he added.

 

Doubling down on tech

Q& M : QC7 0% achieved robust earnings during the Covid-19 pandemic, on the back of its medical laboratory segment, following the acquisition of a 49 per cent stake in Acumen Diagnostics in 2021.

 

But growth has since stalled as demand for Covid-19 PCR tests have fallen. The group is thus banking on AI to resume momentum by growing its core business.

 

For the half year ended Dec 31, 2023, the group&rsquo s net profit more than quadrupled to S$6.2 million, from S$1.5 million the year earlier.

 

Revenue for the period edged up 6 per cent to S$95.6 million, from S$90.3 million the previous year.

 

By segment, revenue for its medical laboratory and dental equipment and supplies segment declined 15 per cent to S$6.7 million, from S$7.9 million the year before.

 

In contrast, its dental and medical clinics segment grew 8 per cent to S$88.9 million, from S$82.4 million in the corresponding year-ago period.

 

To keep the momentum going, Q& M will double down on harnessing technology to improve service quality &ndash not just with its own technologies, but through partnerships with other big distributors and manufacturers.

 

Earlier this year, the dental chain announced a tie-up with Align Technology to bring 100 sets of its iTero Lumina intraoral scanners to its Singapore clinics. The US-based medical device company manufactures popular clear aligner brand Invisalign.

 

This machine provides patients with 3D digital dental records. &ldquo Together with our OPG dental charting (which provides 2D records), these will be the most complete dental records that a patient can have,&rdquo said Dr Ng.

 

Dr Ng estimates that these two services can expand the group&rsquo s bottom line by at least 10 to 20 per cent. But, anticipating that there will be teething issues, he is &ldquo not putting a lot of hope to see immediate numbers&rdquo .

 

&ldquo But I hope to see better numbers next year onwards,&rdquo he noted.

 

Also in the pipeline are plans to commercialise the AI platform and sell it to other distributors. The group showcased the technology at the recent International Dental Exhibition, and hope to connect with big distributors.

 

Achieving sustainable growth

Focusing on service quality is Q& M&rsquo s way of achieving sustainable growth, said Dr Ang: &ldquo If you&rsquo ve got 100 clinics, opening another 50 more is not going to be that big, compared to having 1.4 million patients and everyone does one more round of cleaning &ndash that would be much more significant.&rdquo

 

Yet this does not mean that the group will stop considering other avenues of growth, said Dr Ang. Q& M will continue to expand its clinics, hire and recruit dentists and explore mergers and acquisitions opportunities.

 

On the M& A front, though, the company is more keen on opportunities aligned with its core business.

 

This is as it figures out what to do with Acumen now that the Covid-19 pandemic is over and demand for PCR tests have waned.

 

&ldquo We are looking into alternatives since the major numbers from PCR activities are gone,&rdquo said Dr Ng. The focus is to find other &ldquo higher-end&rdquo PCR tests which the lab can do, rather than regular blood tests.

 

The company may have got lucky with the Acumen acquisition during the pandemic, but right now, it wants to focus on opportunities which are in line with its main business.

 

&ldquo Instead of focusing on non-core aspects &ndash which yes, if the stars all aligned, we can do extremely well because of our operational abilities &ndash what&rsquo s going to make us more sustainable money in the long-run is still dental,&rdquo said Dr Ang.

The positive rating is attributed to the healthcare group&rsquo s business resilience, stabilising margins, and growth potential

 

KGI Securities has started coverage on Q& M Dental : QC7 0%with an &ldquo outperform&rdquo recommendation and a 12-month target price of S$0.35.

 

In a report on Thursday (May 30), KGI analyst Tang Kai Jie attributed the positive rating to Q& M&rsquo s business resilience and stabilising margins as well as growth potential. 

 

In his view, the private dental healthcare group is well-positioned for positive revenue growth and will be able to capture the majority of demand for dental services in the local market. 

 

The assigned price target implies an upside of more than 44 per cent based on Q& M&rsquo s closing price on May 29. It accounts for a terminal growth rate of 2 per cent and a weighted average cost of capital of 8.3 per cent. 

 

Tang also expects increased revenue per clinic as the group prioritises improving operational efficiency over expansion in the Singapore market, which consists of 106 dental clinics and five medical clinics. 

 

A joint venture agreement between EM2AI and Q& M Dental, which will introduce more capital for investing in artificial intelligence capabilities, is also predicted to drive growth for the healthcare group. 

Such moves emphasise the need for &ldquo private dental companies to focus on organic growth, improving efficiency and cost savings in their dental business, to gain an edge in the already saturated private dental market&rdquo , Tang said. 

 

The analyst expects Q& M Dental&rsquo s financials to &ldquo improve gradually after the normalisation of its business&rdquo post-pandemic. 

Q& M Dental Group announced that its FY2023 ended Dec 31, 2023 has increased by 2% y-o-y to $11.5 million from $11.3 million last year.

 

Revenue saw a marginal 1% increment to $182.7 million from $181.2 million a year ago.

 

For the 2HFY2023 period, earnings saw a significant 323% jump to $6.2 million from $1.5 million a year ago, while revenue gained 6% y-o-y to $95.6 million.

 

For both the FY2023 and 2HFY2023 periods, the growth was led by the group&rsquo s dental and medical clinics, mainly due to higher revenue contribution from Singapore dental clinics, offset by lower revenue contribution from the group&rsquo s medical clinics, disposal of the Shanghai Chuangyi in June 2023 as well as unfavourable impact of strong Singapore Dollars against Malaysian Ringgit from the group&rsquo s operation in Malaysia.

 

The growth in revenue was partially offset by lower contribution in the group&rsquo s medical laboratory and dental equipment & supplies segment, mainly due to lower revenue contribution from the dental equipment & supplies companies in Singapore and Malaysia offset by higher revenue contribution from the group&rsquo s medical laboratory business.

 

On a geographical basis, Singapore contributed to the group&rsquo s revenue and earnings growth, while the Malaysia and China markets offset that growth and saw lower contributions.

 

As at end December 2023, the group has 105 dental outlets, two less from 107 dental outlets last year, as well as no more dental outlets in China, compared to just one a year ago.

 

Meanwhile, unchanged from the previous year, it also has five medical outlets and one dental college in operations in Singapore, 44 dental outlets in Malaysia, a dental equipment & supplies distribution company and a medical laboratory company in Singapore and a dental equipment & supplies distribution company in Malaysia.

 

As at Dec 31, 2023, cash and cash equivalents stood at $34.0 million.

 

The board has declared a second interim dividend of 0.53 cent per share. Along with 0.16 cent paid out in 1HFY2023, the group would have paid out a total of 0.69 cent per share for FY2023, representing a payout ratio of 57%.

 

Concurrently, the group has announced the results from its 32.8% owned associate company Aoxin Q& M Dental, which is also listed separately on the Singapore Exchange S68 0.21% (SGX). For the FY2023 ended Dec 31, 2023 period, Aoxin Q& M recorded a loss of RMB 47.3 million ($9.0 million), narrowing the losses by 30.1% y-o-y from RMB 67.7 million.

 

Excluding impairment loss on investment in an associate, losses for FY2023 would have narrowed by 94.3% to RMB 431,000 from RMB 7.5 million a year ago.

 

Revenue for the period saw a 33.2% y-o-y increase to RMB 115.9 million, thanks to the recovery from Covid-19 for all business segments of the group.

 

Dr Ng Chin Siau, group CEO of Q& M says: &ldquo We are heartened by the improvement in the numbers overall for FY2023 despite the macroenvironment impact of relatively high inflation rate, high interest rates and a generally challenging business environment. The resilience of Q& M&rsquo s core healthcare business is once again being well-demonstrated and is a testament to strategies and processes we have put in place. We will continue to focus on organic growth within the group&rsquo s strong network in Singapore and Malaysia and also optimising our existing clinics to obtain better outcomes in service and overall productivity.&rdquo

 

PHILLIP Securities has downgraded its call on Q& M Dental Group : QC7 -1.72% to &ldquo accumulate&rdquo from &ldquo buy&rdquo , as it foresees negative operating leverage for the dental services provider amid elevated fixed costs.

 

A &ldquo buy&rdquo recommendation suggests projected total returns of over 20 per cent, while &ldquo accumulate&rdquo points to a lower return band of 5 per cent to 20 per cent.

 

The research house has cut its price target on the stock to S$0.34 from S$0.47, after reducing its FY2023 Patmi (profit after taxes and minority interests) estimates by 34 per cent to S$11.9 million, assuming lower revenue and higher operating expense assumptions.

 

It values the mainboard-listed group at 25 times price-to-earnings based on FY2023 estimates &ndash which is in line with industry peers &ndash and the group&rsquo s listed associate, Aoxin Q& M Dental : 1D4 -3.2%, at market price with a 20 per cent discount.

 

In a report on Monday (Aug 28), Phillip&rsquo s head of research Paul Chew noted that Q& M&rsquo s earnings for the first half fell short of expectations as the group came under operating cost pressures from higher staff costs, utilities, rent as well as finance and development expenditure.

 

Nonetheless, Chew believes the group&rsquo s recent expansion in its headcount will support its revenue in H2. 

 

He also highlighted how the group has not opened any new clinics this year, as it aims to improve the utilisation of its existing clinics with additional dentists and improved skill sets, especially for the loss-making outlets.

 

&ldquo After building out a record 34 clinics or 30 per cent more, Q& M needs to raise profitability by recruiting new dentists to fill its existing chain of clinics, installing new equipment and upgrading the poorer-performing dentists.

 

&ldquo Q& M will suffer from negative operating leverage as fixed costs have elevated.&rdquo

 

Shares in Q& M Dental QC7 -1.72% are &ldquo searching for the bottom&rdquo , says Maybank Securities analyst Eric Ong, after the dental healthcare group posted results for 1HFY2023 ended June that missed consensus forecasts.

 

The group&rsquo s 1HFY2023 net profit of $5.3 million, down 46% y-o-y, missed both Maybank and consensus expectations. While its core healthcare business remains resilient, this was offset by weakening ringgit for its Malaysian operations, higher finance costs and less contribution from medical laboratories, notes Ong.

 

To conserve cash, Q& M reduced its interim dividend per share (DPS) to 0.16 cents, down from 0.4 cents the year before.

 

In an Aug 23 note, Ong stays &ldquo hold&rdquo on Q& M with a lower target price of 31 cents from 37 cents previously.

 

Improving efficiency

 

Q& M aims to improve efficiency to cut costs and wastage, notes Ong. 1HFY2023 revenue from the core healthcare business was down 0.5% y-o-y to $83.3 million, mainly due to steady performance from Singapore dental clinics but offset by weaker sales from its medical clinics in Malaysia, as well as unfavourable foreign exchange impact of a strong Singapore dollar against the ringgit.

 

See also: Q& M reports 46% lower earnings of $5.3 mil in 1HFY2023 as medical lab segment sees lower demand for Covid-19 testing

 

Meanwhile, medical laboratory turnover fell 46.6% to $3.8 million due to less PCR testing. To mitigate rising staff and rental costs, the group plans to use central purchasing to cut wastage, and ensure more just-in-time ordering so that it can also reduce storage cost to improve efficiency, says Ong.

 

To achieve higher productivity and organic growth, Q& M aims to recruit more dentists, especially for its top-performing clinics.

 

It is also trying to develop and optimise its digital AI-guided clinical decision support system to provide more effective and suitable treatment plans for patients, according to management.

 

&ldquo While this may cater to the growing demand for high-value specialist dental healthcare services, we think gestation losses in this venture could continue to weigh on its earnings in the near term,&rdquo says Ong.

 

Post-pandemic pivots

 

Post-pandemic, Q& M is developing new tests for other medical purposes. Its medical laboratory business, Acumen Diagnostic, will seek to develop a new range of tests and solutions to maximise its intellectual property and research capabilities for various medical purposes, says Ong.

 

These include tests for sepsis, identification of bacteria pathogens and their associated antimicrobial resistance in hospitalised pneumonia.

 

&ldquo To be conservative, we have yet to assume any potential income stream from this pipeline given the lack of clear visibility on commercialisation and/or timeline,&rdquo adds Ong.

 

Ong cuts his FY2023-FY2025 earnings per share (EPS) forecasts by 25%-34% on slower dental topline growth, exacerbated by negative operating leverage.

 

At the end of 1HFY2023, EPS on a fully diluted basis stood at 0.56 cents. Ong&rsquo s forecasts place Q& M&rsquo s core EPS at 1.1 cents, 1.3 cents and 1.5 cents for FY2023, FY2024 and FY2025 respectively.

 

For more stories about where money flows, click here for Capital Section

 

Instead of Q& M, Ong prefers Raffles Medical BSL 0.00% within Singapore' s healthcare sector, with a &ldquo buy&rdquo call and $1.65 target price.

 

Meanwhile, CGS-CIMB Research is keeping &ldquo add&rdquo on Q& M with a lower target price of 35 cents from 42 cents previously.

 

Q& M is contemplating the early repayment of its outstanding loans as higher finance costs have eroded its profitability, note CGS-CIMB analysts Tay Wee Kuang and Kenneth Tan.

 

With Q& M&rsquo s &ldquo healthy&rdquo cash balance of $33.4 million, Tay and Tan think that an early repayment of its borrowings would be an efficient way to improve profitability amid a higher-for-longer interest rate environment.

 

That said, this could translate into subdued dividend payments in the near term, as reflected in its 1HFY2023 DPS, add Tay and Tan.

 

CGS-CIMB is taking into account Q& M&rsquo s slower growth as a result of its shift to focus on cost management and operational efficiencies. Q& M&rsquo s valuations remain &ldquo undemanding&rdquo at 17x P/E for 2024, at 1.5 standard deviation below mean.

Q& M DENTAL group on Monday (Aug 14) posted a 46 per cent fall in its net profit for the first half of the year ended June 2023 to S$5.3 million, from S$9.8 million a year ago.

 

Revenue shrank 4 per cent to S$87.1 million in H1 2023, from S$90.9 million last year.

 

The decline was attributed to a lower contribution to its Singapore medical clinics, coupled with the impact of the weakening ringgit for the group&rsquo s business in Malaysia. Its Singapore dental clinics, on the other hand, had higher revenue contributions.

 

Q& M&rsquo s other segment in the medical laboratory business also faced weaker demand for Covid-19 testing.

 

Earnings per share fell to 0.56 Singapore cent from 1.05 Singapore cents.

 

The company declared a first interim dividend of 0.16 Singapore cent per share, to be paid on Sep 13 after books closure on Aug 30.

 

Dr Ng Chin Siau, group chief executive of Q& M, said the company will focus on &ldquo organic growth&rdquo , following &ldquo significant expansion&rdquo of its dental clinic network across Singapore and Malaysia in 2022.

 

&ldquo We will continue to invest in technology and implement strategies that will enable us to further optimise productivity across our clinic network.&rdquo