Monday, 20 June 2022

Investment Into Q&M Medical Group- Further Diversification Away From REITs Centric Portfolios

Recently, I have decided to invest into the Q&M Medical Group with my main rationale being the diversification of my REIT-centric equity portfolios as well as investing for growth instead of relying solely on an income-focused approach. I have thus added Q&M into my Portfolio 3 parked under Tiger Brokers. The low trading fees offered by Tiger Brokers (relative to traditional trading platform) makes it easier to invest into more equities at bite-size level and at a much more reasonable and sane cost per transaction. There are some interesting developments in Q&M which I like and hence I decided to take up a small investment into it- I should elaborate more below.
1. Investment into Q&M
I have purchased around 8,100 units of Q&M at around S$4K. With the relaxation of anti-COVID measures and the assumption that COVID vaccines and herd immunity will prevent another total lockdown in Singapore and Malaysia (I mentioned Malaysia as Q&M now has a material presence there), I would think that Q&M Medical Group should be able to produce a more robust set of earnings of its dental clinics as it is coming off the previous FY2021 low due to COVID restrictions of available procedures. 

The most fascinating part about Q&M is that it just acquired a testing business, Acumen on 16th August 2021 which has the potential for spinning off into a listing at NASDAQ. This splendid diagnostics business help drive results for the past quarter for its offsite PCR COVID testing after being granted a license by the Singapore Ministry of Health on 16th December 2022. The results for  the Lab segment for 2022 Q1 thus increased 80% relative to 2021 Q1. But we now know what happened subsequently-all PCR and ART tests volume came down as the government declared COVID to be endemic and for everyone to live with it just like the common flu. So I will expect Q1 2022 Acumen testing activities to plunge drastically going into Q2 2022 and onwards. Saying that, the Acumen PCR technology is also being developed for infectious diseases, sepsis and cancer marker PCR tests etc and there is tremendous market potential for such services.

Another interesting part to note is that Q&M seems to be more aggressive growing its network of clinics in not just Singapore but also in Malaysia. The Q&M management has an ambitious target of growing 30 franchise dental clinics every year from FY2021.  Even if we assume they only managed to open half the targeted clinics, this is still an impressive growth rate of around 13%-15% per annum. 

2. Bonus share given but do not despair if you missed this bonus disbursement previously
On 13th August 2021, Q&M proposes a 1 for 5 bonus share- 20% additional issuance of net assets as bonus shares. Its share price hit a high of S$0.835 per share. If we normalise this, the share price then would be S$0.668 per share taken into account bonus shares. However, current share price has since plummeted to S$0.455 per share as at 20 June 2022 which is at a 32% discount to those who purchased during the bonus share issuance period.

Also, based on Q&M's annualised dividend of S$0.016 (using latest Q1 FY2022 quarterly dividend of S$0.004 per share as proxy) on S$0.455 per share, this is a dividend yield of 3.52% per annum. This thus gives some realised return to shareholders while waiting for the growth story to develop and crystallize. 
Parting thoughts
Summarising, Q&M seems to have a few major catalysts for growth being strategized by its dynamic management team lead by its CEO, Dr Ng Chin Siau. The potential NASDAQ listing for Acumen Diagnostics as well as the aggressive opening of new dental clinics bodes well for its future growth. 

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