SINGAPORE (Feb 21): RHB is maintaining its "neutral" call on TalkMed as CEO Dr Ang Peng Tiam is still serving his eight-month suspension, which started on Jul 25 2017 and is expected to be back on March 26 or towards the end of 1Q18.

RHB also expects Dr Ang to take some time before ramping up to full utilisation again.

"As a result, we are expecting a weaker 1Q18 ahead vs 1Q17. Hence, we maintain our "neutral" rating with an unchanged DCF-derived target price of 72 cents," says analyst Jarick Seet in a Wednesday report.

Management has taken steps to minimise the disruption to its patients, business as well as profitability, such as handing over all of Dr Ang’s existing cases to 12 other specialist doctors in TalkMed, including Dr Khoo Kei Siong who is the COO.

"As a result, TalkMed was able to mitigate the drop in earnings despite Dr Ang being a key contributor to the group’s profitability," says Seet, adding that Ang contributed over half the group's earnings in 2016.

In FY2017, TalkMed's topline declined by only 11%, with PATMI dipping 14.3% y-o-y, which according to RHB, is much better than its previous expectations.

<hr/><a href="https://www.theedgesingapore.com/talkmed-reports-19-fall-4q17-earnings-82-mil-lower-sales" target="_blank">See: TalkMed reports 19% fall in 4Q17 earnings to $8.2 mil on lower sales</a><hr/>

"We think that this is a strong testament to the capabilities of the other oncologists within the group and the resilience of the group in the absence of Dr Ang," says Seet.

Meanwhile, RHB sees huge potential mesenchymal stem cells (MSCs) which are currently used in regenerative medicine and therapy overseas for aesthetics as well as other purposes.

StemMed, 60% owned by TalkMed, has embarked on a research and clinical programme for MSC use in the region.

However, RHB understands that in Singapore, cellular therapy can only be approved under the auspices of clinical trials.

"Hence the main monetisation of these therapies in Singapore will likely only come when the regulation changes, in our view," says Seet.

With a war chest of over $65 million and a net cash position, TalkMed could also acquire private clinics locally, either in the existing medical field or expand into new medical areas.

As a result, Seet expects M&A plans to remain one of the top priorities on the management’s agenda.

As at 4.12pm, shares in TalkMed are trading at 68 cents or 23 times FY18 recurring earnings.

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