Q&M Dental Group announces new 3Y SGD Senior Notes at an IPG of 4.35%.

Q&M Dental Group (“Q&M”) plans to issue new SGD 3-year Senior Notes at an initial price guidance (“IPG”) of 4.35%. The new bond is expected to be issued on 3^rd July 2025. Q&M indicated that the net proceeds will be used for general corporate purposes, including financing acquisitions and/or investments, business expansions, refinancing of borrowings, financing of working capital, and capital expenditure requirements. We wish to note that this new issuance is available only for accredited and institutional investors.

Established in 1996, Q&M is one of the biggest private dental groups in Singapore, with additional dental clinics in Malaysia. Additionally, Q&M is also a substantial shareholder of SGX-listed Aoxin Q&M Dental Group (c.32.8% ownership) which operates dental clinics and hospitals primarily in the north-eastern region of the People’s Republic of China (“PRC”). As of 31^st December 2024, Q&M has 106 dental clinics in Singapore, 38 dental clinics in Malaysia, and Aoxin Q&M Dental Group Limited (“Aoxin Q&M”) has 16 dental centres in China.

For the full year of 2024 (“FY24”), gross revenue declined slightly by 1.1% year on year (“YoY”) to SGD 180.7m in FY24 (FY23: SGD 182.7m). This was due to their medical laboratory business following the expiry of their clinical laboratory service license. Q&M operates mostly within Singapore, with Singapore accounting for 92.6% of FY24 revenue (SGD 167.3m), and Malaysia with the remaining 7.4% (SGD 13.4m).

When considering only their core dental business, Q&M’s revenue grew marginally by 0.5% to SGD 173.8m in FY24 (FY23: SGD 173.0m) due to higher patient volumes in both Malaysia and premium service offerings.

Q&M also recorded an 18.0% YoY growth in net profit to SGD 13.1m in FY24 (FY23: SGD 11.1m). Net profit growth was mainly due to both lower employee benefits expenses and dental supplies expenses, of which the former is due to Q&M sharing administrative charges with their dentists.

In our view, Q&M is seen to have strong financials coupled with consistent core profits due to their strong market share within the Singapore dental care market. Even in a softening economic growth backdrop, we expect demand for dental care (an essential service) to remain resilient and sticky. Beyond FY25, Q&M’s plan to embark on regional M&A fueled expansion in Singapore and Malaysia serves as an upside for growth. Per management, the company plans to leverage inorganic growth to significantly grow their number of clinics and consolidate market leadership in FY25 and beyond - M&A has been mentioned as a primary reason for this issuance as well.

Q&M reported an 8.2% YoY decline in total debt to SGD 73.7m as of FY24 (FY23: SGD 80.3m) due to the repayment of bank loan principal in FY24. Consequently, net debt / equity improved to 36.3% in FY24 (FY23: 45.0%) giving the company a healthy buffer to their loan covenant of 200.0% net debt / equity for this bond issue. We expect this buffer to narrow after the debt issuance.

EBITDA interest coverage ratio improved to 7.1x as of FY24 (FY23: 6.6x) from both EBITDA growth and a decline in financing costs due to the falling interest rate environment. The company has a healthy buffer compared to their current loan covenant of 1.75x interest coverage ratio. Similarly, this buffer will narrow after the new debt issuance.

As for the debt maturity profile (before the new issuance), most of Q&M’s SGD 73.7m debt (c.88.2%) is due for repayment within 5 years. We think that financing needs are manageable considering 1) the strong cash position that Q&M currently has (FY24: SGD 34.3m), 2) the strong operating cash flow in the last few years (FY24: SGD 40.1m, FY23: SGD 33.3m, FY22: SGD 33.6m). Post-issuance, we expect a more front-loaded debt maturity, with the bulk of maturity in 2028.

Table 1: Comparing against peers

We expect Q&M’s credit profile to moderate after the debt issuance. That said, we remain positive on its profit outlook as their core dental business continues to grow, while further upside may come from its intended M&A expansion.

Given that the Dentistry industry is niche, noticeable non-rated bond peers would have to be from peripheral industries such as healthcare and the general Singapore bond market instead. When comparing the issuance to other suitable peers such as Thompson Medical and Singapore Medical Group, we note that the IPG of 4.35% seems rather attractive, especially against the latter. Outside of the healthcare space, Q&M’s IPG is still attractive when compared to SGD corporate bonds with a similar tenor (Table 1). That said, we expect the final price guidance (“FPG”) to adjust downwards from the IPG.

Considering Q&M’s credit profile and relatively attractive IPG, we recommend this issuance for investors that are comfortable with the near-term maturity.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in TMGSP 5.500% 31May2028 Corp (SGD). The analyst who produced this report holds a NIL position in the abovementioned securities.

Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!