• Maintain NEUTRAL, with a slightly lower SGD0.62 Target Price, from SGD0.64, 7% upside, as the HK associate has taken a longer time than expected to breakeven.
• TalkMed Group Limited (SGX:5G3) reported a decent 4Q18, with its topline rising 25.2 y-o-y and PATMI increasing 16.4% y-o-y, mainly due to the return of its key contributor and CEO, Dr Ang.
• Going forward, we expect the group’s revenue and earnings to continue to improve.

Huge Potential in Mesenchymal Stem Cells (MSC)

• MSC are currently used overseas, in regenerative medicine and therapy, for aesthetic as well as other purposes. Management believes there is huge potential in this area. Its 60%-owned subsidiary, Stem Med Pte Ltd, 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 monetisation of such therapy in Singapore would likely only come when regulations are altered.

Losses From Associates Significantly Reduced; More Time Needed

• We note that losses from associates, mainly from the Hong Kong Integrated Oncology Centre and Integrated Imaging & Endoscopy Diagnostic Centre, of which TalkMed Group owns 30%, have reduced drastically by 49% y-o-y.
• We expect these associates to be in the black by 2H19 which is longer than we initially expected. As a result, we lowered by 5% our earnings for FY20F and FY21F.

Recovery on Track, But Valuations Remains High

• We estimate it would take Dr Ang at least until 2Q19 to ramp up his practice to close to full capacity.
• We remain NEUTRAL on the stock, as we think the major inflection point for TalkMed Group’s financial performance would be in 2H19F/FY20F. Our DCF-backed Target Price has been slightly lowered to SGD0.62, from SGD0.64, as we adjusted our earnings to reflect a longer breakeven period from the HK associate.
• We expect better quarters ahead from higher consultancy services as well as an improvement in margins.
• Key risk includes the non-renewal of its consultancy restatement agreement

Source: RHB Invest Research - 21 Feb 2019