SINGAPORE (May 23): CIMB Research has issued an unrated report on Trendlines Group as an “intensely hands-on technology” incubator based in Israel, and as a stock that is currently trading at a discount to its global peers.
In a Tuesday note, analysts Ngoh Yi Sin and William Tng highlight the incubator’s experienced management team and strong financial backing from Israel’s government, with the group further seeking to add another 8-10 companies to its existing portfolio of 46.
“Management’s relentless efforts to increase overall portfolio value not only involves adding new companies annually and growing its Trendlines Labs, but also expansion into other geographical markets. Trendlines recently set up its first overseas subsidiary in Singapore (76.4%-owned Trendlines Medical Singapore), which adopts a similar investment model, and has clinched a partnership with Singapore General Hospital (SGH) to develop and conduct clinical trials,” say Ngoh and Tng.
They also believe the group’s two life science incubators and in-house innovation centre, Trendlines Labs, could serve as sources of recurring income.
“These contracted R&D services (along with potential future royalties) provide some steady income stream, which Trendlines builds on by raising follow-on capital for its portfolio companies. This allows Trendlines to charge a fee for the services it provides to other equity investors,” say the analysts.
Despite the group’s established record of operating history and divestments, Ngoh and Tng observe “lumpy” revenue which fell in FY16 due to changes in fair value of investments as well as the unpredictable timing of disposal gains.
“Investment exits can at times be opportunistic as management seeks to optimise each investment value, and this could weigh on its operating cash flow. Medtech companies typically take 6-7 years to achieve commercialisation, vs. the 3-4 years for agtech firms,” they explain.
As at 1:36pm, shares of Trendlines are trading 0.7% lower at 15 cents.
