April 1, 2020

A drop in number of medical tourists

The ongoing travel restrictions aimed at stopping the spread of COVID-19, decreased the number of medical tourists. This further has impacted TalkMed’s operations as the company is reliant on foreign patients, especially those from Indonesia. As a result, we factored in a drop in the number of medical tourists until the end of June 2020, which would result in a much weaker performance in 2020F for TalkMed.

Attractive yield of c.4% with a net cash balance sheet

We expect the management to continue to reward the company shareholders. Management declared a total of 2.3 cents per share in dividends, including an interim dividend for FY19, vs 1.83 cents per share in FY18, a 25.6% increase YoY. For FY19, the dividend payout ratio was 84.5% and we expect this ratio to remain unchanged, which would result in a c.4% yield in FY20F.

Huge potential for mesenchymal stem cells (MSCs) based therapies

MSCs are currently used overseas in regenerative medicine and therapy, for aesthetic as well as other purposes and management believes there is a huge potential in this area. TalkMed’s 60%-owned subsidiary Stem Med Pte Ltd, has embarked on a research and clinical programme for the use of MSCs-based therapies in the region. However, we understand that in Singapore, a cellular therapy can only be approved under the auspices of clinical trials. As such, monetisation of such therapies in Singapore, would only be possible after regulations are changed.

Strong balance sheet to weather through this crisis

Before the COVID19 crisis began, the earnings recovery for TalkMed was underway as we understand that Dr. Ang’s utilisation increased significantly YoY. We estimate the COVID-19 pandemic to stop by the end of June 2020. Until then, we assess that the company’s net cash balance sheet and its solid positive operating cashflow should help buffer this crisis.

Maintain BUY with a lower DCF-derived TP of SGD0.53 from SGD0.62, 23% upside and c.4% yield. The current travel restrictions in place, which do not allow international visitors on short-term trips to enter Singapore, resulted in a halt of foreign medical tourism which is the bulk of TalkMed’s portfolio. As a result, we lower FY20F PATMI by 14% and continue to monitor the way COVID-19 impacts TalkMed’s operations. The company has a strong net cash balance sheet, an attractive dividend yield and is capable to withstand this situation.

Maintain BUY by RHB. Share price closed at $0.43.