Q&M Dental Group (SGX: QC7) is the largest private dental group in Singapore in addition to having a presence in Malaysia and China. Since its initial public offering in 2009, the company has been aggressively expanding both its local and international business. That aggressiveness has manifested itself in the company’s top-line growth; between 2009 and the 12 months ended 31 March 2014, Q&M’s revenue has grown at a compounded annualised rate of 23.9% to S$75.5 million. With such growth, prospects do seem bright for the company. However, there is a catch for investors wanting to hop on…
Since its initial public offering in 2009, the company has been aggressively expanding both its local and international business. That aggressiveness has manifested itself in the company’s top-line growth; between 2009 and the 12 months ended 31 March 2014, Q&M’s revenue has grown at a compounded annualised rate of 23.9% to S$75.5 million. With such growth, prospects do seem bright for the company.
However, there is a catch for investors wanting to hop on for the ride: The company is carrying a lofty trailing price/earnings (PE) ratio of 44. What this means is, the market expects great growth from the company going forward. It has grown fast in the past – can it do so in the future in order to meet its investors’ expectations?
Where’s the growth coming from?
Currently, the company’s largest market is Singapore, where it has 55 clinics, according to its webpage. With that network, it has only managed to control roughly 8% of Singapore’s dental market. But interestingly, despite that seemingly small market share, Q&M’s growth plans aren’t concentrated on Singapore. The company is only planning to increase its number of clinics island-wide to 60 by 2015, a growth rate of roughly 4.4%; this might be a sign of saturation in Singapore’s dental market.
To expand its business, Q&M’s setting its sights on China and Malaysia. On the China-expansion front, the company had recently completed its S$21.7 million acquisition of a 60% stake in the China-based Aoxin Stomatology Group. Q&M’s latest acquisition target operates three dental hospitals, three dental clinics, and one training centre in China. At last count, Q&M’s business in China (excluding the latest purchase) is represented by seven dental clinics, one dental centre, and one mobile dental clinic in Beijing and Nanjing. The company also has two clinics in Shanghai.
Besides pursuing more dental and healthcare practices internationally, Q&M is also moving into other parts of healthcare such as health screening services and aesthetic & laser services. The company’s also trying to integrate its business by expanding into dental supplies and equipment distribution in Malaysia. In Singapore’s northern neighbour, Q&M also runs eight clinics.
With all said, it’s easy to see how the company’s focus on growth is on elsewhere besides Singapore. But there’s one risk that investors might need to take note with the company’s growth: It is expanding mainly through joint ventures or acquisitions.
This might post some challenges to Q&M in terms of the integration of different businesses into one corporate umbrella. If Q&M is unable to successfully infuse its corporate culture (which includes the control of service quality) into its acquisitions and partners, it might just create many challenges for the company in the future.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.