Excerpts from analyst's report

DBS Vickers analyst: Sachin Mittal

What’s New?
Trendlines’ bid to renew its agtech incubator licence in Israel has been denied. The company's 85%-owned subsidiary, Trendlines Agtech Ltd, has on March 15, 2016 received a notice from the Office of the Chief Scientist of the Israel Ministry of Economy (OCS) that the license to operate an incubator in the Judea and Samaria region of Israel has been awarded to a competitive bidder and not to Trendlines Agtech.

Trendlines has submitted a request to the OCS for permission to expand the mandate of its medical tech (medtech) incubator Trendlines Medical-Misgav Ltd - which has an incubator franchise until Dec 31, 2023 - to include agtech investments. It will also continue to apply for financial support from the OCS for its agtech investments. 

CIMB3.16Trendlines Group Co-Chairman Steve Rhodes presenting the company story to CIMB remisiers. NextInsight file photo.


Our View
Not a material loss. Trendlines management hopes to bundle agtech investments with its medtech incense, valid till 2023. In the worst case scenario of agtech license being denied, existing agtech portfolio companies will still continue to receive funding and only new agtech companies will be affected.

sachin mittal1.16
"Investors should focus on potential exit opportunities in 2016
. In 2016, we expect most of the potential exits to come from medtech companies. While three medtech companies have engaged investment bankers to find potential buyers, one of them is in an advanced stage and could stage exit in the next 3-4 months."

-- Analyst Sachin Mittal (seen in the above NextInsight file photo speaking with Trendlines Group Co-Chairman Steve Rhodes)

Trendlines will still have access to some funding programs of the government for new companies which may be 40-50% less than those that come with the agtech license.

Given that medtech companies comprise an estimated 70%-80% of Trendlines portfolio value, this should not be a big concern in our view.

No change to our S$0.28 TP and BUY recommendation. We have a S$0.28 TP for Trendlines based on FY16F P/BV of 1.1x (versus selected peers trading at 1.3x) pegged to an estimated book value per share of S$0.25 in FY16F.

Key risk will be failure to exit from existing investments leading to negative cash flow and losses hurting its book value.


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