TALKMED GROUP LIMITED
5G3.SI
TalkMed Group - A Better Than Expected 3Q17
- TalkMed reported better-than-expected 3Q17 results, with 9M17 PATMI forming up 84% of our estimates.
- It was able to mitigate the suspension of Dr Ang by handing over his existing patients to other oncologists within the group. As a result, we raise our FY17F PATMI by 4%, resulting in a higher DCF-backed SGD0.72 TP (from SGD0.69) that implies 29x FY18F P/E. However, with TalkMed's share price exceeding our previous TP and only a 1% upside, we downgrade TalkMed to NEUTRAL (from Buy).
Suspension of key doctor mitigated.
- TalkMed Group (TalkMed) has taken steps to minimise the disruption to its patients, businesses and profitability following the 8-month suspension of CEO Dr Ang Peng Tiam by the Singapore Medical Council (SMC). These include handing over all of Dr Ang’s existing cases to other senior doctors at TalkMed, including COO Dr Khoo Kei Siong. As a result, the group has been able to mitigate the drop in earnings. This is despite Dr Ang being a key contributor to TalkMed’s FY16 profitability ( > 50%).
- We note that 3Q17 NPAT only dropped 17.2% YoY.
M&As still a high possibility.
- With a war chest of > SGD65m and being in a net cash position, the group is also likely to acquire local private clinics, either in the existing medical field or via expansion into new medical-based areas. As a result, we do expect M&A plans to still be one of the top priorities on management’s agenda.
Huge potential in Mesenchymal stem cells (MSCs).
- MSCs are usually are found in bone marrow. However, they can also be isolated from other tissues. This includes cord and adipose (fat) tissues. MSCs are currently used in regenerative medicine and therapy overseas for aesthetic and other purposes.
- TalkMed sees huge potential use in this area, in which 60%-owned subsidiary Stem Med Pte Ltd (Stem Med) has embarked on a research and clinical programme for MSC use in this region. However, we understand that cellular therapy in Singapore can only be approved under the auspices of clinical trials. Hence the main monetisation of these therapies domestically would only likely come when there are changes in the regulations.
Downgrade to NEUTRAL (from Buy) with a slightly higher DCF-backed TP of SGD0.72 (from SGD0.69).
- Due to better-than-expected 3Q17 results – which saw 9M17 PATMI forming up 84% of our estimates – we raise our FY17F PATMI by 4%. This results in a higher DCF-backed SGD0.72 TP, which implies 29x FY18F P/E. However, with the share price exceeding our previous TP – and only a 1% upside – we downgrade TalkMed to NEUTRAL.
- We do still expect Dr Ang’s suspension and the drop in earnings to be just a small bump in the group’s longer-term outlook, especially with M&As a key possibility in the near future.
- Key risks include the non-renewal of its consultancy restatement agreement.
Jarick Seet
RHB Invest
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http://www.rhbinvest.com.sg/
2017-11-08
RHB Invest
SGX Stock
Analyst Report
0.72
Up
0.690
