TALKMED GROUP LIMITED (SGX:5G3)
TalkMed Group - Recovery Not Imminent; Downgrade To NEUTRAL
- Travel restrictions barring all short-term global visitors from entering Singapore has caused the stoppage of international medical tourists – this forms the bulk of TalkMed’s portfolio of patients.
- We think recovery will not be imminent, as the formation of travel bubbles with other countries will likely be slow. As a result, we lower our TalkMed's FY20F-21F earnings forecast by 13%.
- Downgrade TalkMed to NEUTRAL from Buy with a lower DCF-backed S$0.49 target price from S$0.53, 9% upside and c.3% yield.
A drop in medical tourist volumes.
- With ongoing travel restrictions to tamper the spread of COVID-19, medical tourist numbers have sharply plunged as well. This has impacted TalkMed (SGX:5G3), as it has a significant portion of tourists that come from overseas, especially countries like Indonesia. As a result, we have factored in a drop in medical tourists for the company till end December, resulting in a much weaker 2020.
- As at 3Q20, TalkMed's revenue dipped 23.1% y-o-y due to lower number of patient visits, especially from overseas.
Lower yields likely to correlate with decreased earnings.
- We expect management to continue to reward shareholders like it has done in the past, with dividends likely to be sustainable and of a similar payout ratio ( > 80%). However, as TalkMed's FY20F earnings are expected to decline, dividends will also likely decrease to 2.7%.
Huge potential in mesenchymal stem cells (MSCs).
- MSCs are currently used in regenerative medicine and therapy overseas, as well as for aesthetic and other purposes. Management believes there is huge potential in this area. TalkMed's 60%-owned subsidiary, 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 this therapy here will likely come only when the regulations are altered, in our view.
Strong balance sheet to weather through this crisis.
- If not for COVID-19, TalkMed's earnings recovery would have continued, as we understand that Executive Director and CEO Dr Ang Peng Tiam’s utilisation also increased significantly y-o-y. However, we believe this COVID-19 situation will be resolved eventually, but at a slower pace and recovery will not be imminent.
- Having said that, TalkMed has a net cash balance sheet with solid positive to tide through this crisis.
- See TalkMed Share Price; TalkMed Target Price; TalkMed Analyst Reports; TalkMed Dividend History; TalkMed Announcements; TalkMed Latest News.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-18
SGX Stock
Analyst Report
0.49
DOWN
0.530
