Trendlines Group - DBS Research 2016-02-26: Decent portfolio growth masked by poor earnings

Trendlines Group - DBS Research 2016-02-26: Decent portfolio growth masked by poor earnings THE TRENDLINES GROUP LTD 42T.SI 

Trendlines Group - Decent portfolio growth masked by poor earnings 

  • Portfolio Value growth of 12% y-o-y was largely in line with our expectations. 
  • One-off, non-cash IPO-related expenses impacted the bottom line adversely. 
  • Exit from one of the three most valuable portfolio companies remains a key catalyst in FY16. 
  • Maintain BUY with an unchanged TP of S$0.28. 

Leading Technology incubator in Israel. 

  • Trendlines (TTGL) is a seed-stage investor in medical device developers and agriculture technology start-ups. 
  • Increasing ageing population and growing demand for sophisticated medical devices will spur investments in medical device developers. 
  • Rising global demand for food and clean water will help attract funds for Agtech. 
  • TTGL intends to expand its business to Singapore, Germany and China in FY16. 

Growth in FY15 book value was largely in line with our estimates. 

  • Fair value (FV) of investments in portfolio companies increased 12% y-o-y to US$84.5m versus our US$86.5m estimate. This came from incorporation of five new portfolio companies in FY15 and gains in FVs of 15 portfolio companies partially offset by declines in FV of 18 portfolio companies. 
  • However, bottom line was hit by one-off non-cash expense from conversion of Redeemable Convertible Bonds (RCL) into the shares at the IPO. 
  • Excluding this one-off expense, Trendlines would have reported a net profit of US$2m. 

Three portfolio companies have engaged investment banks to explore M&A option. 

  • We expect TTGL to successfully exit from one of the three portfolio companies in FY16F. 
  • In the past, TTGL has exited at 3x-67x the book value of the portfolio companies. 
  • We forecast a CAGR of 16% in the portfolio value over FY15-17F versus 18% average over FY11-14. 
  • With net cash of US$19m, TTGL can operate for another two years even if TTGL is not able to exit from any of its investments. 


  • Based on FY16F P/BV of 1.1x (versus selected peers trading at 1.3x) and an estimated book value per share of S$0.25 in FY16F, we estimate a one-year target price of S$0.28. 

Key Risks to Our View: 

  • Failure to exit from existing investments may lead to negative cash flow and losses hurting its book value. TTGL operates in a high risk-high reward technology startups space and writedowns of portfolio value can not be ruled out.

Sachin Mittal DBS Vickers | 2016-02-26
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.28 Same 0.28