Quantum Health Group Limited

QTM Details

Dispatch of Scheme Booklet: Quantum Health Group Limited (ASX: QTM) specializes in the distribution and services of medical products in the areas of oncology, nuclear medicine, radiology, and female healthcare markets. It operates the segments of the environmental and medical division. On 8 November 2021, QTM and Paragon Care Limited (ASX: PGC) signed a scheme of implementation deed for merger via an all-scrip transaction. In an update on the proposed acquisition, the companies declared the release of a scheme booklet to the shareholders and conduct a scheme meeting as ordered by the Supreme Court of NSW. QTM will hold an online scheme meeting at 3:00 PM on 27 January 2022.

AGM Presentation Highlights:

• The company held ~$11.94 million in cash and cash equivalents and ~$7.95 million in total debt as of 30 June 2021.
• QTM witnessed a 5-year CAGR of ~29.8% in the Group EBITDA and ~4.5% CAGR in revenue from FY16-FY21.
• It reported that Carestream Health acquisitions have led to an increase in the ongoing service revenues and gross profit margin in FY21.

The Trend of EBITDA & Revenue Growth from FY16-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces credit risk, liquidity risk, and market risk on its financial instruments. It faces regulatory hurdles, overseas market expansion, acquisition, and synergy risks.

Outlook:

• The combined entity is anticipated to have a Proforma-EBITDA of $37 million for FY21 and robust recurring revenue streams. If the proposed merger scheme advances to implementation, Mr. John Walstab is expected to be the CEO of QTM.
• The merged company will explore avenues for cross-selling and up-sell of the expanded product portfolio to the combined customer base in the Asia Pacific. It will also seek growth opportunities for Immulab, PGC’s proprietary diagnostics products.

Stock Recommendation: The stock of QTM gave a positive return of ~52.63% in the past six months and a positive return of ~55.35% in the past year. The stock is currently trading above the 52-weeks’ average price level band of $0.044 - $0.105. The stock of QTM has a support level of ~$0.077 and a resistance level of ~$0.104. On a TTM basis, the stock of QTM is trading at a price-to-earnings multiple of 14.1x, higher than the industry (Healthcare) average of 8.9x, thus seems overvalued. Considering the current trading levels, decent returns in the past six months and the past year, valuation on a TTM basis, ongoing merger development with PGC, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.087, as of 12 January 2022, 12:04 PM (GMT+10), Sydney, Eastern Australia.

QTM Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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