• Singapore has implemented enhanced testing measures given the increase in COVID-19 cases. We project a ramp-up in Q&M Dental (SGX:QC7)’s 2H21F testing revenue.
• Dental operations should remain strong in 2H21F due to continued tight border controls and seasonal strength.
• Q&M Dental's recently completed bonus issuance should boost share liquidity. Reiterate ADD with revised target price of S$0.89, now based on 22x FY22F P/E (from 20x).

New COVID-19 Clusters to Support Q&M's 2H21F Testing Revenue

• Daily new COVID-19 cases rose in July and Aug 2021 on the back of new clusters formed (KTV lounges, Jurong Fishery Port, worker dormitories), with average daily new cases recorded at 77/85 for Jul/Aug 2021 (vs. 29/18 in May/Jun 2021). The situation deteriorated in Sep, with average daily new cases increasing approximately fourfold to 360. As announced on 6 Sep 2021 by the Singapore government, testing measures will be enhanced, with
  1. increased scope and frequency of rostered routine testing for employees in higher-risk settings, and
  2. individuals issued with a health risk warning required to undergo PCR testing and self-isolate.
• We believe that the heightened number of COVID-19 cases should support Q&M Dental’s 2H21F testing revenue. In addition, we believe Q&M Dental is gaining testing market share on the back of more tests awarded by the government in view of its reliable testing track record.

Q&M's Dental Operations Continue to Benefit From Tight Border Controls

• We expect core dental operations to continue book dental appointments closer to the end of the year, in our view. New outlets opened in 1H21 should also begin to ramp up.

Revise Q&M's Target Price to S$0.89 Post Bonus Issuance

• Q&M Dental completed its 1:5 bonus share acquisition of Acumen could boost Q&M Dental’s FY22F/23F EPS further. As such, we raise our FY22F P/E multiple to 22x (~15% discount to peers, previously 20x, ~25% discount), which revises our target price to S$0.89.

• Q&M Dental's valuations look higher-than-expected tests and quicker Aoxin Q&M turnaround.
• Downside risks include intensifying competitive pressure.

Source: CGS-CIMB Research - 15 Sep 2021