Talkmed Group Ltd - RHB Invest 2017-02-28: Awakening Of The Oncology Giant

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TALKMED GROUP LIMITED 5G3.SI

Talkmed Group Ltd - Awakening Of The Oncology Giant

• We believe that TalkMed, a top private oncology specialist, is likely to awaken from its long slumber due to: 
  1. Substantially reduced losses projected at its associates, especially in Hong Kong, in 2017F; 
  2. Steps taken to improve share liquidity (proposed bonus issue); 
  3. Inorganic growth via acquisitions domestically; 
  4. Hiring of new doctors.
• With an exciting outlook and attractive dividend yield of 4-4.5%, we initiate coverage with BUY and a DCF-backed TP of SGD2.07 (45% upside), implying 2017F P/E of 32x. 
• We believe the stock remains substantially undervalued compared to its peers.

Tapping into PHS’ vast network. 

• With the signing of the consultancy restatement agreement with Parkway Hospital Singapore (PHS), Talkmed Group (TalkMed) is now able to leverage on the vast network of the Parkway Cancer Centre (PCC) through its patient base, utilising top-notch facilities and infrastructure while saving on marketing and advertising initiatives. 
• We understand that the contract was renewed in Oct 2016, extending it to 2021.

Associate losses to drastically reduce in 2017F, before turning around in 2018F. 

• In 2015, TalkMed partnered with TE Asia Healthcare Partners (TE Asia) to open Hong Kong Integrated Oncology Centre (HKIOC) and Integrated Imaging & Endoscopy Diagnostic Centre (HKIEDC), of which it owns 30%. We understand that several initiatives were implemented to ramp up patient load. 
• We expect losses at its associates to reduce to SGD2m (from SGD5m) in 2017F, before turning around with an estimated SGD1.5m profit in 2018F.

The awakening: Improving liquidity coupled with M&A plans. 

• The group kept a low profile over the past few years, with minimal results briefings and events with analysts and investors. We believe that all this is about to change, with management keen on being more active in meeting with analysts and institutional fund managers. 
• With a war chest of SGD50m and a net cash position, it would also likely acquire private clinics locally, either in existing medical fields or expand into new medical areas. 
• Initiatives such as its proposed 1-for-1 bonus issue should improve share trading liquidity.

Top notch private oncology player led by renowned Dr Ang Peng Tiam, 

• with over 30 years of experience in the field of medical oncology, and was the lead doctor that cured Singapore’s Prime Minister Mr Lee Hsien Loong of cancer. He was previously tasked with establishing the first department of medical oncology, and trained medical oncologists. 
• Currently, TalkMed has 13 doctors at eight clinics across several prominent private hospitals in Singapore.

Initiate with BUY and DCF-derived TP of SGD2.07. 

• With a track record of paying out more than 80% of its earnings as dividends over the past few years, coupled with several key initiatives to grow its business both organically and inorganically, we believe TalkMed is grossly undervalued currently. 
• Key risks include high dependency on key management personnel, and an unfavourable verdict from a disciplinary tribunal appeal involving Dr Ang.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-28

RHB Invest SGX Stock Analyst Report BUY Initiate BUY 2.07 Same 2.07