• Q&M Dental's 1Q21 net profit was in line with expectations at S$9m (+618% y-o-y). We estimate COVID tests formed 15% (~S$2m) of Q&M Dental’s group gross profit.
• We up Q&M Dental's earnings per share forecast by 4-12% for FY21-23F to account for higher number of lab tests to reflect heightened daily COVID-19 tests in Singapore (53k in May 21).
• Q&M Dental's target price is up to S$0.97 (previously S$0.92), still based on 20x FY22F P/E. Key catalysts include higher-than-expected number of tests conducted.

Strong Performance From Dental Clinics

• Q&M Dental (SGX:QC7)’s 1Q21 reported net profit was in line with expectations at S$9m (+618% y-o-y), forming 29% of our FY21F forecast. The group recorded a 1Q21 revenue of S$44m (+47% y-o-y), above our expectations due to stronger-than-expected contributions from dental and medical clinics (S$39m, +41% y-o-y).
• Gross margin for the quarter was 30%, slightly lower than our expectations of 31% due to higher-than-expected staff expenses incurred.
• Q&M Dental recorded a one-off net gain of S$4.3m from the complete disposal of its stake in Aidite. In addition, Q&M Dental declared an interim dividend of S$0.01 for the quarter.

Up Our Test Numbers Assumptions

• Revenue contribution from equipment distribution and testing services in 1Q21 rose to pace of mandatory swab tests being carried out in Singapore, we factor in higher number of tests in our forecasts to 1,500/day (previously 800) or ~3% of total market share currently.

Opened 3 New Outlets in Singapore, 2 in Malaysia

• Q&M Dental has opened five new dental clinics this movement control order (MCO) in Malaysia, we reduce our FY21F outlet expansion forecast in Malaysia to 7 outlets (from 10 outlets).

Reiterate ADD With Higher Target Price of S$0.97, Still on 20x FY22F P/E

• We think Q&M Dental could be a beneficiary from the recent tightening of testing measures in Singapore. Our target price for Q&M Dental is based on a ~25% discount to peers for its smaller market cap.

• Key downside risks: increasing competitive pressure, rising employee costs.
• Potential re-rating catalysts: higher-than-expected number of tests performed.

Source: CGS-CIMB Research - 11 May 2021