Talkmed Group Ltd - CIMB Research 2016-08-04: In-line quarter

TALKMED GROUP LIMITED 5G3.SI

Talkmed Group Ltd - In-line quarter

2Q16 and 1H16 core net profit in line at 25% and 46% of our FY16 forecasts, respectively.
Associate HKIOC still loss-making at US$1.0m; expected to break even in FY17.
Interim DPS of 2.28 Scts (81% payout ratio). Still in net cash of US$41.6m with no debt.
A stable healthcare play with long-term demand for oncology specialist services.

Currently trading at FY17F P/E of 17.5x, with dividend yield of 4.2-4.6%; we reiterate our Add recommendation.

TKMED reported 2Q16 revenue of US$13.0m, which grew 8.7% on the back of higher- intensity care required by patients.
1H16 revenue rose 4.3% yoy.
As expected, employee expenses continued to increase due to the rising cost of healthcare professionals in Singapore.
Employee benefits climbed 17.2% yoy in 2Q16 and 19.8% yoy in 1H16. Share of loss of associates also widened 113% yoy in 2Q16 to US$0.4m.

The company ended 2Q16 with net cash of US$41.6m with zero borrowings. Cash accounted for 87% of its current assets; the business needs no inventory.
Net cash generated from operations was US$6.4m (86.4% of net profit) in 2Q16 and US$16.1m in 1H16 (117% of net profit).
Capex was a negligible US$59,000 in 1H16. The current ratio was a robust 5.6x.

TKMED acquired a 30% stake in Hong Kong Integrated Oncology Centre Holdings Limited (HKIOC) – an integrated oncology specialist offering both diagnostics and treatment services in Hong Kong – in Jun 15.
Patient visits have been encouraging, thanks to publicity efforts, but HKIOC remains loss-making due to high fixed costs (rental, etc.).
We conservatively assume this associate will break even in FY17.

In 2010, a complaint against Dr Ang was lodged with the Singapore Medical Council. The company recently updated investors that that Dr Ang was acquitted of two charges but was found liable on two others. Dr Ang was fined US$18,591, censured and ordered to provide a written undertaking not to engage in similar conduct. Dr Ang has sought legal counsel and has decided to appeal against the decision.
According to TKMED’s announcement, the day-to-day operations of the company are not affected.

To be conservative, we widen our associate loss forecasts and bump up our employee benefits projections, leading to a 3.7-4.6% fall in FY16-17 EPS estimates.
Our DCF- based target price hence inches down to S$1.26 (WACC: 8.4%). Reiterate Add.
Potential re-rating catalysts include a faster-than-expected turnaround of its associate while the key risk is the company’s high dependence on its CEO and founder, Dr Ang.

William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-08-04

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.26 Down 1.29