TalkMed Group - RHB Invest 2017-06-29: A Key Risk Comes To Pass

TALKMED GROUP LIMITED 5G3.SI

TalkMed Group - A Key Risk Comes To Pass

Talkmed’s key man Dr Ang has been given an eight-month suspension by the court starting 25 Jul 2017.
Steps to minimise this disruption have been taken with his current cases being handed to other senior doctors in the company. However, we do expect earnings to be negatively impacted.
We accordingly lower our FY17-18 forecasts by 18% and 15%. As a result, our DCF-backed TP is lowered to SGD0.73 (from SGD1.03, 12% upside) based on 30x FY18F P/E.

On the bright side, Dr Ang can now fully focus on other growth opportunities for the group ie M&A(s).
Maintain BUY.

One of the key risks in our investment thesis was realised when Dr Ang Peng Tiam received an eight-month suspension by the Supreme Court, which would commence on 25 Jul 2017.

The management has taken steps to minimise the disruption to its patients, business as well as profitability, such as handing over all of Dr Ang’s existing cases to other senior doctors in TalkMed, including Dr Khoo Kei Siong (COO of TalkMed). However, we expects affect its profitability to still be negatively impacted by this suspension, due to Dr Ang being a key contributor to the group’s profitability.
As a result of this suspension and taking into consideration that 1H17 is already over, coupled with the management steps taken to mitigate the disruption, we lower our FY17F-18F earnings by 18% and 15% respectively.

On the bright side, this would free Dr Ang’s time to rethink about the group’s future direction and firm up any M&A opportunities currently in the works.
With a war chest of over SGD70m and a net cash position, it would also likely acquire private clinics locally, either in the existing medical field or expand into new medical areas. As a result, we do expect M&A plans to hasten as this would make up for any loss of revenue during this period.
In addition, this would also allow enable Dr Ang to finally meet with potential institutional investors as well.

We think that this suspension is a short term roadblock in the group’s long term future as it would likely have a temporary impact to the group’s profitability.
We also think that this suspension is likely to give Dr Ang time and space to focus on Talkmed’s future direction. It would also allow him to focus and execute any M&A plans in the pipeline. However, we do expect earnings to be negatively impacted by 18% for FY17F and have lowered our FY17 estimates accordingly. As a result, our DCF-backed TP is lowered to SGD0.73 based on a 30x FY18F P/E.
We remain confident of Talkmed’s prospects and expect it to be resilient despite the weakening outlook of foreign medical tourists in Singapore.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-06-29

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.73 Down 1.035