STOCK IN FOCUS

Q&M DENTAL GROUP (S) LTD 


Investment Highlights 
Developments boosting demand for Q&M Dental's services in Singapore:
Bene'ting from the Community Health Assist Scheme (CHAS): Q&M participates in CHAS, where Singaporeans (meeting certain age and income criteria) bene't from subsidized medical and dental care. The scheme is e'ective from 15 Jan 2012, and we expect this to increase demand for Q&M's basic dental services in Singapore, strengthening its recurrent income base.

Growing list of 300'strong corporate clients:  Just this year, Q&M signed MOUs with the National Taxi Association (NTA) and the NTUC's Attractions, Resorts and Entertainment Union (AREU) to provide dental healthcare to its members at a discount. The former has 11,000 taxi members and the latter about 400 tour guides. (The members may or may not be part of CHAS.)

Aggressive expansion plans in Singapore, China and to a lesser extent in  Malaysia: Q&M aims to 1) add 60 dental outlets in Singapore by 2015; 2) add 50 outlets and 20 dental labs in China by 2015; and 3) add 15 outlets in Malaysia by 2015. There is also a plan to list its China dental business in 5 years'a de'ned strategy to realize shareholder value. Q&M aims to raise funds from the equities market to fund these plans.

Trades at 23x trailing PER: based on FY2011 EPS of S$0.0166. Q&M has a dividend yield of 3.6% based on last close.

Key Risks 
Regulatory challenges in China:  China does not allow for 100% foreign ownership in healthcare, hence the JV investments Q&M is undertaking. In addition, licensing quotas for dental outlets per city are 'xed almost inde'nitely, and regulations allow for only one dental outlet within a 1-km radius. This is a strong barrier to entry, and is a boon to Q&M if it manages to obtain the licenses through its JV partners; Otherwise, a bane.

Rising labour and rental costs in Singapore:  As the dependency ratio ceiling for foreign workers has been reduced in the recent Budget 2012, Q&M may face higher employment costs going forward.    On the other hand, rental costs are generally rising in tandem with higher property prices. These add pressure to net pro't margins.


Keppel Corporation (S$10.72) 
Takes 20% stake in KrisEnergy  
Keppel Corporation is back in the o'shore oil and gas business by taking a one''fth stake in exploration & production player KrisEnergy (KE) for US$115mil. Under the deal, KE is now an associated company of KepCorp. As part of the deal, KepCorp, through its wholly owned subsidiary Devan International, has subscribed to 20mil new shares in KE, representing 20% in the enlarged share capital of KE.

The group said the cash consideration, funded through internal working capital, took into account KE's por''olio of South'east Asian oil and gas assets, production estimates, estimated capital expenditure and operating expenses.

The book value and NTA value of a 20% interest in KE, on a pro'forma, post'completion basis  ' excluding hydrocarbon reserves  ' were both US$59.5mil as at end'March this year. Additionally, Devan has been granted a call option to acquire a further 16mil shares, representing a 16% shareholding, in KE from parent KrisEnergy Holdings Limited, whose major shareholder is First Reserve, a leading global investment 'rm. The call option is exercisable no later than two years from the date of grant (being the date of subscription of the acquired shares).


CapitaLand (S$2.89) & Ascott REIT (S$1.15) 
Plot Cairnhill bonanza  


CapitaLand will "exchange" several properties with its own unit, Ascott Residence Trust (Ascott  REIT) in the coming months via a series of acquisitions and divestments. Ascott  Reit's Somerset Grand Cairnhill Singapore property is set to be sold to parent CapitaLand for redevelopment at a price of $359mil. This translates to a total land cost of about $1,100 to $1,200 psf after factoring in the estimated premium of $160mil to $180mil payable for a fresh 99'year lease and for the change of use to an integrated development with gross 'oor area (GFA) intensi'cation.

Once the site has been redeveloped into a 20'storey serviced residence (with a hotel licence) in 2017, CapitaLand plans to divest it back to Ascott  Reit for $405mil. The 'nished development will also include a 30'storey high'end residential o'ering (200 to 250 units) which will be sold by CapitaLand.

Ascott Reit is expected to see a 4.4% improvement in its pro forma NAV to $1.42 following the acquisitions of the two Ascott  properties and the prospective Cairnhill serviced residence.

Singapore Technologies Engineering (S$3.17)  
Wins $370m worth of contracts in Q2
Singapore Technologies Engineering said that its aerospace arm, ST Aerospace, has clinched $370mil worth of contracts in the 2Q12. During the quarter, ST Aero 'nalised a deal with Airbus, EADS and EADS EFW on an A330 passenger-to-freighter conversion programme. On the component total support front, ST Aero secured a 10'year contract to support a 'eet of Boeing 757s. ST Aero will also provide pilot training for 30 cadets for Tiger Airways. ST Engineering is a defence and engineering contractor.

Source: The Business Times