TalkMed Group - RHB Invest 2019-11-15: Earnings Recovery On Track; Maintain BUY

TALKMED GROUP LIMITED (SGX:5G3)

TalkMed Group - Earnings Recovery On Track; Maintain BUY

Maintain BUY with an unchanged DCF-backed Target Price of SGD0.62, 22% upside plus c.5% yield.
TALKMED GROUP (SGX:5G3)'s 3Q earnings surged 8.2% y-o-y. Topline rose 13.3% y-o-y and PATMI increased 8.2% y-o-y, mainly due to the return of its key contributor and CEO, Dr Ang Peng Tiam. See TalkMed Announcements.
Going forward, we expect revenue and earnings to improve in subsequent quarters, with the increased contribution from Dr Ang to pre-suspension levels.

With the recovery in earnings, we expect management to continue to reward shareholders as it has done in the past. As a result, we expect FY19F dividend yield at 4.8%, which is attractive for a medical stock. See TalkMed Dividend History.

MSCs are currently used in regenerative medicine and therapy overseas, for aesthetic as well as other purposes. Management believes that there is a huge potential in this area. Its 60%-owned subsidiary, Stem Med Pte Ltd (Stem Med), 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. As such, the main monetisation of these therapies in Singapore would likely come when regulations are altered.

Earnings recovery has continued and we understand that Dr Ang’s utilisation also increased significantly y-o-y. As he is a key contributor to TalkMed’s earnings, we expect subsequent quarters to continue to show strong earnings growth as his utilisation increases further, accompanied by better net margins.
Dividend yield should also pick up to about 4.8% for FY19F as earnings continue to improve while the company pays out 70-80% of its PATMI. As a result, we maintain our BUY call, with an unchanged DCF-backed Target Price of SGD0.62. See TalkMed Share Price; TalkMed Target Price.
Key risk includes the non-renewal of its consultancy restatement agreement.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-11-15

SGX Stock Analyst Report BUY MAINTAIN BUY 0.620 SAME 0.620