Aoxin Q & M Dental Group Ltd (Aoxin), the first dental services and equipment provider in China, is scheduled to debut on Catalist tomorrow. Aoxin is one of the leading providers of private dental services/dental equipment and supplies in Liaoning Province, Northern China.

China’s healthcare expenditure is expected to grow at an average annual rate of 11.8% on the back of rising affluence, ageing population, urbanisation and government public healthcare reforms. Aoxin intends to use the bulk of the IPO proceeds to expand the business through organic growth, M&A, JV and partnerships.

SGX lists 20 Health Care Equipment and Services stocks with a combined market capitalisation of S$25.0 billion. Excluding secondary listings, these stocks averaged a total return of 17.3% in the YTD.

Overview and Drivers of China’s Dental Services Industry

According to a Deloitte report, healthcare expenditure in China is projected to grow at an average rate of 11.8% a year from 2014 to 2018, reaching US$892 billion by 2018. China’s healthcare spending alone made up 5.4% of the country’s gross domestic product (GDP) in 2013.  Some drivers of the healthcare industry in China include increasing incomes, government public healthcare reforms, ageing population and urbanisation.

In its offer document, Aoxin has identified some drivers that could impact China’s dental services industry:

  • Rising income and educational levels – China has seen rising income levels with GDP per capita gaining to US$7,925 in 2015 from US$2,673 in 2007, while health expenditure per capita has increased to US$420 in 2014 from US$115 in 2007. Higher income and educational levels will result in increased awareness of dental hygiene and growing demand for dental services and equipment.
  • Ageing population – China’s ageing population (aged 65 and above) is expected to increase to 10.1% in 2014 from 7.6% in 2004, which will lead to increased demand for dental services specific to the elderly.

Aoxin Q & M Dental Group’s Catalist IPO

Aoxin is scheduled to be the first dental services equipment provider in China to list on the SGX tomorrow. The company is a spin-off from SGX-listed Q & M Dental Group (Q & M), which will own 43.9% of its shares. Dr Ng Chin Siau, CEO of Q & M, had also previously mentioned in 2015 during a kopi-C interview that the company had plans to spin off its two Chinese entities. Some key extracts from the Offer Document include:

Business Strategies and Future Plans

  • Expand their business through organic growth, mergers and acquisitions, joint ventures and partnerships.
  • Enhance their infrastructure to be at the forefront of the dental services industry.

Company Strengths by Company

  • Established and reputable business in the Liaoning Province, Northern PRC with strong brand recognition of the Aoxin and Q & M brands.
  • Experienced and committed key management team.
  • Convenient location of the dental centres which are located in city centres and comprehensive suite of dental services that include “VIP” rooms staffed by more senior dentists, dedicated paediatric dental sections, and specialised dental sections which cater for English and Korean speaking patients.
  • Ability to attract and retain skilled, experienced and qualified dental professionals through collaboration with Jinzhou Medical University.

Financials from Offer Document

  • According to the audited pro forma financial statements, the company generated RMB 61.5 million in revenue, while net profit from continuing operations was RMB 4.9 million for the nine months ending 30 September 2016.
  • Revenue breakdown by segment (audited 9M2016)
    • Primary Healthcare (74.6% of total revenue) – comprises mainly fees received from private patients for clinical consultation and dental treatment procedures, laboratory charges to the dental centres the company manages. Also includes dental centre management fees from private or government-owned dental centres
    • Dental Equipment & Supplies Distribution (25.4% of total revenue) – comprises sales receipts from distribution of dental equipment and supplies (e.g. dental chairs, ultrasound scanners, dental prosthesis, dental supplies, dental instruments and consumables to hospitals, clinics, distributors and laboratories).

 

  • Profit before tax margin by segment (audited 9M2016)
    • Primary Healthcare– this segment generated a profit before tax (PBT) margin of 17.9% (or RMB 8.2 million).
    • Dental Equipment & Supplies Distribution – this segment generated a PBT margin of 7.0% (or RMB1.1 million).
    • Total group’s PBT margin was at 15.2% (or RMB 9.3 million).

Valuation

  • According to the Offer Document, Aoxin’s unaudited pro forma EPS in FY15 was at S$0.59 cents (based on the pre-placement share capital shares). This implies a FY15 price-to-earnings (P/E) ratio of 33.7x, or 37.7x (assuming the Service Agreement had been in place since the beginning of FY2015) based on the placement price of S$0.20.
  • This compares with the average market capitalisation-weighted 29.4x P/E ratio of the 20 Health Care Providers & Services and Health Care Equipment and supplies stocks listed on SGX.

SGX’s Health Care Equipment and Services Stocks 

There are 20 stocks categorised as Health Care Equipment and Services by the Global Industry Classification Standard (GICS®) that are listed on SGX. This cluster of stocks has a combined market capitalisation of about S$25.0 billion, with businesses ranging from healthcare equipment and medical products to owners and providers of patient healthcare service.

Excluding secondary listings, SGX’s Health Care Equipment and Services stocks have market cap-weighted average total returns of 17.3% in the year-to-date and 37.9% in the last one year.

The table below details SGX’s 20 Health Care Equipment and Services stocks sorted by market capitalisation. Click on each stock to visit its profile page on SGX StockFacts.

Name SGX Code Market Cap S$M Price Last Close S$ Total Return YTD % Total Return 1 Yr % P/E P/B Dvd Ind Yld % GICS® Sub-Industry Name
IHH Healthcare1 Q0F 15,846 1.925 -10.0 -15.9 N/A N/A 0.5 Health Care Facilities
Raffles Medical Grp BSL 2,478 1.415 -1.0 -6.3 35.1 3.6 1.4 Health Care Facilities
Top Glove Corp1 BVA 2,068 1.650 1.6 N/A N/A N/A 2.9 Health Care Supplies
Talkmed Grp 5G3 1,173 1.785 75.0 100.8 31.4 18.5 2.6 Health Care Services
RHT Health Trust RF1U 750 0.930 1.6 31.7 5.9 1.1 7.7 Health Care Facilities
Q&M Dental Grp QC7 554 0.695 -2.8 -2.3 19.8 4.8 1.6 Health Care Services
Health Management Intl 588 509 0.620 -2.7 86.7 57.0 6.6 0.4 Health Care Facilities
Singapore O&G 41X 327 1.370 16.6 74.6 36.7 7.8 2.3 Health Care Facilities
Cordlife Grp P8A 263 1.015 3.6 -28.3 N/A 2.1 N/A Health Care Services
Singapore Medical Grp 5OT 253 0.600 37.9 275.0 72.2 8.0 N/A Health Care Services
Intl Healthway Corp 5WA 176 0.106 112.0 37.7 N/A 0.8 N/A Health Care Facilities
ISEC Healthcare 40T 158 0.305 3.4 10.9 23.5 2.6 0.4 Health Care Facilities
Healthway Medical Corp 5NG 103 0.042 27.3 31.3 N/A 0.7 N/A Health Care Services
HC Surgical Specialists 1B1 85 0.580 -2.9 N/A 20.9 26.6 3.1 Health Care Services
Vicplas Intl 569 63 0.126 16.8 25.2 12.5 1.1 6.0 Health Care Equipment
Techcomp Hldgs1 T43 55 0.200 -9.1 N/A 10.4 0.5 N/A Health Care Distributors
UG Healthcare Corp 41A 48 0.250 -12.3 -27.1 13.2 1.3 2.3 Health Care Supplies
QT Vascular 5I0 38 0.030 -62.5 -72.0 N/A N/A N/A Health Care Equipment
AsiaMedic 505 32 0.083 23.9 13.7 N/A 2.4 N/A Health Care Services
Medtecs Intl Corp 546 27 0.050 8.7 -2.0 19.2 0.3 N/A Health Care Supplies
Average2 17.3 37.9 29.4 6.5 2.8

Source: SGX, Bloomberg & SGX StockFacts (data as of 24 April 2017)

Note 1: Secondary Listed Stocks on SGX

Note 2: Average Values are Market-Capitalisation weighted with the exception of Dividend Indicated Yield which is a simple average. Secondary Listings are excluded in deriving the average values.

Additional Information from Offer Document (click here)

Company Background

Aoxin is one of the leading providers of private dental services and dental equipment and supplies in the Liaoning Province, Northern PRC. As at the latest practicable date, the company has 240 dental professionals (113 dentists and 127 dental surgery assistants), and operate and/or manage 11 dental centres, 4 dental hospitals and 7 polyclinics. These establishments are in 4 different cities in the Liaoning Province (Shenyang, Huludao, Panjin and Gaizhou). The company also has a dental equipment and supplies distribution network which covers the Liaoning, Heilongjiang and Jilin Provinces in the Northern PRC.

Business Overview – 2 Segments

  • Provision of private dental services – which includes, amongst others, practice of stomatology and general dentistry, endodontics, orthodontics, periodontics, prosthodontics, dental implantology, oral and maxillofacial surgery, aesthetic dentistry and paedodontics, as well as the management of dental centres for and on behalf of other owners.
  • Distribution of dental equipment and supplies – which includes, amongst others, distribution of equipment and supplies used in the provision of dental services.

IPO Details

  • Placement price at S$0.20
  • 57.0 million new shares by way of placement
  • Estimated IPO market capitalisation (based on placement price and post placement share capital assuming the completion of the Honour subscription) at S$74.4 million
  • Use of placement gross proceeds (S$11.4 million)
  • S$6.4 million – Expansion of business through organic growth, M&A, JV and partnerships
  • S$2.7 million – Enhancement of infrastructure and working capital purposes
  • S$2.3 million – Listing expenses

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