TalkMed Group - RHB Invest 2017-04-26: Losses From Associates Reducing Significantly

TalkMed Group - RHB Invest 2017-04-26: Losses From Associates Reducing Significantly TALKMED GROUP LIMITED 5G3.SI

TalkMed Group - Losses From Associates Reducing Significantly

  • Talkmed’s losses from associates plunged 22.9% YoY in 1Q17. We expect losses to continue decreasing in the subsequent quarters and the company to break even by 4Q17. 
  • Despite a slowdown of medical tourists in Singapore, it still managed to grow revenue by 1.4% YoY, thanks to its credible positioning and targeted clientele. 
  • Going forward, we expect it to utilise its SGD70m war chest for M&A activities, as well as to expand its team of oncologists. 
  • Maintain BUY, with an unchanged DCF-backed TP of SGD2.07 implying 30x FY18F P/E.

Resilient despite foreign medical patients decreasing. 

  • Despite a decline in the number of foreign patients, TalkMed’s topline continued to grow by 1.4% organically YoY, compared to a decline faced by many of its privately-held peers. This was mainly due to its strong branding and positioning in oncology services, as well as the targeted clientele segment which are not as cost- conscious and are willing to pay more to get the best medical expertise and treatment. 
  • Going forward, with cancer still being the biggest killer in Singapore since 2010, coupled with the rise in demand for quality private healthcare in tandem with an ageing population, higher incomes and private insurance coverage, we believe TalkMed’s topline would continue to be resilient.

Associate losses reduced by 22.9% YoY in 1Q17. 

  • We previously highlighted that its associates are on the verge of turning around. In TalkMed’s 1Q17 results, losses from associates reduced substantially by 22.9% YoY. We understand that several initiatives were implemented to ramp up patient load in its Hong Kong associate. 
  • We expect losses at its associates to reduce to SGD2m (from SGD3.6m) in 2017, before turning around with an estimated SGD1.5m profit in 2018. It could also likely break even by 4Q17.

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

  • The group has 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 over SGD70m 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.

Maintain BUY, with an unchanged DCF-backed 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 remain confident of TalkMed’s prospects and expect the company to be resilient despite the weakening outlook of foreign medical tourist numbers in Singapore.
  • Key risks include a high dependency on key management personnel and the pending judgement on its court appeal of CEO, Dr Ang Peng Tiam.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.070 Same 2.070