TalkMed Group - RHB Invest 2018-02-21: Better-Than-Expected 2017 Results

TALKMED GROUP LIMITED 5G3.SI

TalkMed Group - Better-Than-Expected 2017 Results

TalkMed’s 2017 PATMI was above expectations, coming in at SGD32.03m, and down by just 15.4% y-o-y despite its key doctor being suspended during the period. It was able to mitigate this by handing over his existing patients to other oncologists within the group. We believe this is also a strong testament to the capabilities of the other oncologists within the group.
Dr Ang is expected to be back by 26 Mar 2018. Hence, we continue to expect a weaker 1Q18F ahead, due to the absence of Dr Ang.

Maintain NEUTRAL with an unchanged DCF-derived Target Price of SGD0.72 (7% upside).

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 12 other specialist doctors in TalkMed, including Dr Khoo Kei Siong (COO of TalkMed). As a result, TalkMed was able to mitigate the drop in earnings despite Dr Ang being a key contributor to the group’s profitability (over 50% in 2016).
2017’s topline declined by only 11%, with PATMI dipping 14.3% y-o-y – this is much better than our previous expectations.
We think that this is a strong testament to the capabilities of the other oncologists within the group and the resilience of the group in the absence of Dr Ang.

Mesenchymal stem cells (MSCs) are currently used in regenerative medicine and therapy overseas for aesthetics as well as other purposes. TalkMed’s management sees huge potential in this area, where its 60%-owned subsidiary, StemMed, has embarked on a research and clinical programme for MSC use in the region.
However, we understand that in Singapore, cellular therapy can only be approved under the auspices of clinical trials. Hence the main monetisation of these therapies in Singapore will likely only come when the regulation changes, in our view.

With a war chest of over SGD65m 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 remain one of the top priorities on the management’s agenda.

A final dividend of SGD0.0137 was declared to reward shareholders. This, coupled with its interim dividend of SGD0.00761, amounts to 87.4% of 2017’s PATMI being paid to reward shareholders.
Dr Ang is still serving his 8-month suspension, which commenced on 25 Jul 2017. He is expected to be back on 26 Mar 2018, or towards the end of 1Q18. We also expect some lead time needed for Dr Ang to ramp up to full utilisation again. As a result, we are expecting a weaker 1Q18F ahead vs 1Q17.
Hence, we maintain our NEUTRAL rating with an unchanged DCF-derived Target Price of SGD0.72 (WACC: 5.4%, TG: 1%).
Key risks include the non-renewal of its consultancy restatement agreement.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-21

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.720 Same 0.720