Talkmed Group Ltd - CIMB Research 2016-11-11: Revenue growth resumes

Talkmed Group Ltd - CIMB Research 2016-11-11: Revenue growth resumes TALKMED GROUP LIMITED 5G3.SI

Talkmed Group Ltd - Revenue growth resumes

  • 3Q16 and 9M16 core net profit slightly above expectations at 27% and 82% of our FY16 forecasts, respectively.
  • Associate HKIOC still loss-making (US$1.1m loss in 3Q); we now expect profitability only in FY18F.
  • Still holds net cash of US$36.6m; no debt.
  • A stable healthcare play, buoyed by long-term demand for oncology specialist services.
  • Currently trading at FY18F P/E of 16.0x, with dividend yield of 4.2-4.8%; we reiterate our Add recommendation.

3Q16 slightly above expectations 

  • TKMED reported 3Q16 revenue of US$12.2m, up 8.8% on the back of increased demand for its higher-intensity care. 9M16 revenue rose 5.8% yoy. As expected, employee expenses continued to increase due to the rising cost of healthcare professionals in Singapore. 
  • Employee benefits climbed 2.7% yoy in 3Q16 and 13.5% yoy in 9M16. Share of loss of associates also widened 33% yoy in 3Q16 to US$1.1m.

Balance sheet rock solid 

  • The company ended 3Q16 with net cash of US$36.6m and zero borrowings. 
  • Cash accounted for 89% of its current assets; the business needs no inventory. 
  • Net cash generated from operations was US$7.3m (119% of net profit) in 3Q16 and US$16.1m in 9M16 (118% of net profit). 
  • Capex was a negligible US$51,000 in 3Q16. The current ratio was a robust 5.8x in 3Q16.

We believe its associate will need more time to turn profitable 

  • In Jun 2015, 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. Patient visits have been encouraging, thanks to publicity efforts, but HKIOC remains loss-making due to high fixed costs (rental etc.). We now assume that this associate will only break even in FY18 (previously FY17F).

Reiterate Add, with a higher DCF-based target price of S$1.32 

  • We raise our FY16 revenue forecast to 3.0% yoy but widen our associate loss forecasts for FY16 and FY17. 
  • Given the high-margin services provided by TKMED, the additional revenue growth translates to 6-7% EPS increase over FY16F-18F. Hence, our DCF-based target price inches up to S$1.32 (WACC: 8.4%). 
  • Potential re-rating catalysts include faster-than-expected turnaround of its associate while the key risk to our Add call is the company’s high dependence on its CEO and founder Dr Ang. 

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-11-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.32 Up 1.260