Q&M needs to improve the profitability of under-performing clinics
PhillipCapital's Paul Chew has downgraded Q&M Dental Group from "buy" to "accumulate" following lower than expected earnings, along with a reduced target price of 34 cents from 47 cents.
Chew, in his Aug 27 note, points out that Q&M is facing operating cost pressures from staff, utilities and rent, as well as finance and development expenses.
"Q&M has not opened any new clinics this year. The aim is to raise the utilisation of existing clinics with dentists and improve skill sets, especially for the loss-making clinics," writes Chew.
Chew describes FY2023 as the year of consolidation following steady expansion of around a third in number of clinics up till Sept 2022.
Q&M, says Chew, now needs to focus on profitability by hiring new dentists, install new equipment and upgrade the "poorer performing dentists".
The chain's top 40% of the clinics bring in 90% of the revenue, notes Chew.
For the current FY2023 ending December, Chew has cut his PATMI estimate by 34% to $11.9 million, along with revenue trimmed by 4%.
Chew's new target price of 34 cents is pegged to 25x FY2023 earnings, which is inline with its industry peers.
Q&M changed hands at 29 cents as at 11.23 am, up 0.55%.