TMC Life Sciences Berhad (TMCLS) is a growing financial healthcare group that’s been listed on the Main Market of Bursa Malaysia Securities Berhad since 2005. It operates an integrated healthcare platform that owns a hospital division, TMC Fertility Centre, and TMC Care Pharmacy. Its holding company, Thomson Medical Group Limited, is listed in Singapore.
Under the hospital division, its flagship hospital, Thomson Hospital Kota Damansara (formerly known as Tropicana Medical Centre) has a capacity of 205 beds. It employs more than 100 consultant specialists and can cater to over 21,000 admissions annually.
Construction of another flagship hospital, Thomson Iskandar Medical Hub is currently under way in the proposed Vantage Bay Healthcare City in Johor Bahru which is located near the Johor-Singapore Causeway.
TMCLS looks poised for its next phase of growth and I was interested to learn more about the company’s direction in the short to medium term. Therefore, I took the opportunity to attend in its 2019 annual general meeting.
Here are 10 things I learned from the 2019 TMC Life Sciences AGM:
1. Revenue has grown steadily from RM86.5 million in 2014 to RM169.0 million in 2018 at a compound annual growth rate (CAGR) of 18.23%. TMCLS’s revenue rose by 11.4% from 2017 to 2018. The hike in revenue was due to the rise in the number of admissions, outpatients, and surgeries.
2. In 2018, TMCLS’s net profit increased 6.9% year-on-year to RM27.8 million. If recognition of RM4.5 million worth of deferred tax assets in 2017 was excluded, net profit growth in 2018 would be 29%. TMCLS made a loss between 2009 and 2012, but since 2014 its net profit has been growing at an impressive CAGR of 43.8%.
3. There was a 8% and 3% increase in the number of admissions and surgery respectively from 2017 to 2018. CFO Wong Yu Chee shared that the increase in the number of surgeries was an indicator of the higher complexity of surgeries that TMCLS is able to handle.
4. TMCLS recently set forth an expansion plan to increase its overall capacity from 205 to 1,100 beds. It has set aside RM142 million for capital expenditure; a bulk of which will be used for expansion of its flagship hospital Thomson Hospital Kota Damansara (THKD). THKD will triple its current capacity from 205 to 600 beds by 2020. Currently, 10% of construction works have been completed. TMCLS is also building the new Thomson Iskandar Medical Hub which will house the 500-bed Hospital Iskandariah, specialist medical suites, health and wellness facilities, and the proposed medical and allied health school. Piling works have begun on Thomson Iskandar Medical Hub and are estimated to be completed by the third quarter of 2019. Both construction projects are on track in terms of progress and budget according to CEO Roy Quek Hong Sheng. In addition, the expansion of TMC Fertility Centres Kota Damansara and Puchong will be completed by end 2019.
5. A shareholder asked about the potential customer base in Johor Bahru and the recruitment of specialist doctors there. The CEO responded that Thomson Iskandar Medical Hub would serve not just Johorians, but also patients from surrounding states and Singapore. The medical hub is a five-minute drive from the Johor-Singapore Causeway and Singaporean patients will also be allowed to use their MediSave account (Singapore’s national medical savings scheme) at the medical hub. TMCLS will also consider hiring Malaysian doctors who currently work in Singapore and Singaporean doctors provided with special permits. TMCLS can also refer patients from Singapore to fertility clinics in Johor Bahru and foresees referrals to grow in the future once the system is in place. Healthcare in Johor is still underserved in general.
6. As a response to a shareholder’s query, Quek mentioned Thomson Hospital Kota Damansara expansion would require approximately a three to five-year ramp-up period, which is typically shorter than what a new hospital would need. At the present stage, the number of outpatients are not affected by the construction. On average, the bed utilisation rate stands at about 70%. Two hundred beds will be fully operationalised within the first year after the completion of the expansion.
7. Shareholders were surprised to hear the announcement about changes in TMCLS directorships a day before the AGM. Two executive directors and two independent non-executive directors would be appointed to the board on 25 January 2019, and Wan Nadiah Binti Wan Mohd Abdullah Yaakob would replace Quek as the next CEO starting 1 February 2019. Quek demonstrated confidence in Nadiah and said that the changes were essential to bring in local expertise to own the Malaysian operations and as part of TMCLS’s succession planning.
8. A shareholder expressed his worry that TMCLS only had slightly above RM200 million in cash to fund the construction works. Quek reassured the shareholder and pointed out that TMCLS was still an income-generating business and could raise an additional RM650 million once warrants were exercised. It also has additional financing facilities from local banks. In addition, its parent company in Singapore has an outstanding warrant exercise that can raise up to S$850 million. It is worth noting that TMCLS has sufficient funding alternatives to absorb the construction costs, but the warrants will dilute share ownership upon exercise.
9. The management does not intend to venture into the confinement care business for now. Profitability of the confinement care business remains questionable as mothers here tend to stay home with their family and domestic helpers, but the opportunity may be explored in the future with a partner. The management recognises TMCLS’s core competency in reproductive treatments such as in-vitro fertilisation (IVF) and will focus on increasing its market share within the reproductive treatment circle.
10. The CEO believes that demand for private healthcare will remain strong despite a slowdown in global growth as people generally go for the best healthcare services they can afford. Medical tourism remains steady as approximately 10% and 20% of patients in its hospital division and facility centres respectively are foreigners. He added that healthcare is a people business and not just about maintaining a transactional relationship with patients. This relationship-building is crucial for TMCLS to stand out from its competitors.
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In the light of yr revelations, I am still puzzled why the stock fails to garner investors’ interest. The daily volume of transaction is low while the stock price refuses to move up. Is it in light of the the company not being able to scale up in the immediate term ?
The company actually made losses between 2008 and 2012. Its financial results improved afterwards, but a quick look at some of its indicators such as its average ROE after 2013 still shows that it’s at a single digit.
There are still a number of uncertainties in terms of the company’s outlook such as the changes in directorships, new hospitals, etc. These could be the reasons that the company’s share price has gone sideways a little bit as shareholders are not sure how the results will pan out.