SINGAPORE (Apr 27): RHB is maintaining its “neutral” call on TalkMed Group with a lower target price of 70 cents from 72 cents previously after the group reported a weak 1Q18 set of financial results.
To recap, the private healthcare services group saw its topline fall 25.7% on-year due to the eight-month suspension of its key revenue contributor and CEO, Ang Peng Tiam, who only resumed his medical duties last month on Mar 25.
See: TalkMed reports 37.2% fall in 1Q earnings to $5.1 mil
See: TalkMed CEO Ang Peng Tiam handed 8-month suspension for professional misconduct in 2010
See: TalkMed CEO Ang Peng Tiam resumes medical duties
In a Friday report, lead analyst Jarick Seet says he sees better quarters ahead for TalkMed with Ang’s return to the medical practice, although he thinks it would take at least six months for him to ramp up his practice to close to full capacity.
As such, he has adjusted his FY18 earnings forecasts downwards by 3%, and expects the major inflection point for the group’s financial performance to only take place somewhere between the second and third quarters of 2018.
“Despite 2Q18 being a relatively weak quarter, we believe it would be better than the performance recorded in 1Q18,” says Seet.
“We do expect more positive revenue and earnings in the subsequent quarters [after Ang’s return]. However, as it typically takes a doctor 1-2 quarters to reach a full utilisation rate, we expect Dr Ang to contribute significantly to group numbers by the end of 3Q18,” he adds.
Meanwhile, Seet thinks TalkMed’s management will continue to place merger and acquisition (M&A) plans among its top priorities given the group’s net cash position and robust war chest, with the likelihood of acquiring private clinics locally in both new and existing medical areas of specialisation.
He also sees a turnaround of contributions from the group’s loss-making associates in Hong Kong by end-FY18, which would in turn bump up the group’s full year earnings.
“We note that losses from associates – mainly from the Hong Kong Integrated Oncology Centre (HKIOC) and Integrated Imaging & Endoscopy Diagnostic Centre (HKIEDC), of which TalkMed owns 30% – have reduced drastically by 60% YoY. We expect them to be in the black by end-FY18,” says Seet.
As at 3.58pm, shares in TalkMed are trading 1.3% higher at 68 cents or 10.49 times FY19F book.
