TALKMED GROUP LIMITED
5G3.SI
Talkmed Group Ltd - Niche healthcare play
- Long-term healthcare business model with OPM of c.70% and minimal capex needs.
- Medical tourism temporarily hit by Singapore dollar’s appreciation.
- Inorganic expansion into stem cell and Hong Kong to generate rewards later.
- Cash-generative business to support dividend yields of 4.0-4.7% in FY15-17.
- Reiterate Add. Catalysts are earnings-accretive acquisitions, vs. key man risk.
■ Long-term healthcare play with high operating margins
- A medical oncology specialist, Talkmed operates a strong franchise that counts the collective medical expertise of its doctors as high entry barriers.
- Thanks to the consulting nature of its business and collaboration with Parkway Cancer Centre, its operating margins have consistently exceeded 70% and the business in Singapore has minimal capex needs.
■ Effects of AEC on medical tourism
- Besides riding on the increasing incidence of cancer in the region, Talkmed is also a medical tourism play with over 50% of revenue contributed by foreign patients, mainly from Indonesia, Malaysia and Vietnam.
- We see further opportunities from the Asean Economic Community (AEC) to benefit the company in the long run, but the stronger S$ against regional currencies will be a key pushback for medical tourists in the near term, should this trend persist.
■ Making inroads into complementary business and overseas
- Talkmed made two strategic investments in 2015
- a S$1.8m investment into Stem Med, a private stem cell bank in Singapore, and
- a 30% stake acquisition in Hong Kong Integrated Oncology Centre Holdings Limited (HKIOC) for S$11.5m.
- HKIOC is a specialty centre offering VIP chemo services. Both investments are currently in early phases and management expects to see meaningful income contribution from FY17 onwards.
■ Strong balance sheet, dividend yield of c.4%
- With a healthy balance sheet (no debt), strong free cash flow and relatively stable margins, the company is able to deliver a dividend payout ratio of 75%. This translates into an attractive dividend yield of 4.0-4.7% in FY15-17.
■ Maintain Add, inorganic expansion likely to be a potential catalyst
- We maintain our Add rating and DCF-based target price of S$1.30 (WACC: 8.4%).
- While Talkmed continues to seek new medical professionals, its CEO and founder Dr Ang still accounts for more than 60% of total revenue, which is a key risk in itself.
- Organic growth potential is limited, and re-rating catalysts will come from earning saccretive M&A activities and a faster-than-expected turnaround of the HKIOC business.
Jonathan Koh CFA
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
1.30
Same
1.30
