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Companies hope for rosy outlook with injection of new aesthetic business

Samantha Chiew
Samantha Chiew10/18/2019 06:30 AM GMT+08  • 7 min read
Companies hope for rosy outlook with injection of new aesthetic business
SINGAPORE (Oct 17): People say money cannot buy self-esteem, but it sure can buy a whole new look. The aesthetic and wellness industry is booming, with the affluent market demanding to look their best, whether that means getting a new chin or looking year
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SINGAPORE (Oct 17): People say money cannot buy self-esteem, but it sure can buy a whole new look. The aesthetic and wellness industry is booming, with the affluent market demanding to look their best, whether that means getting a new chin or looking years younger (and lighter).

Some healthcare providers such as Singapore Medical Group (SMG) and Thomson Medical Group have added aesthetics to their range of specialist practices.

What is more interesting is that an increasing number of Singapore Exchange-listed companies are giving their businesses a complete makeover as they snap up aesthetic and wellness centres in a bid to revive their sagging share prices.

The most recent was Accrelist, which provides facial recognition verification services. On Sept 17, the company announced that it had ventured into the wellness and aesthetic industry with the acquisition of a 100% stake in The Wellness Clinic from Verita Healthcare Group for $17 million. The Wellness Clinic, located in Wheelock Place, specialises in non-surgical aesthetic treatments for dermatological conditions. =

Accrelist will fund the purchase with a combination of cash and new shares at a price of 12 cents each. Verita will provide Accrelist with a profit guarantee over three years, although the exact details are to be finalised. For the financial year ended June 30, 2019, The Wellness Clinic’s normalised profit after tax was about $1.41 million.

In October last year, Accrelist acquired Refresh Laser Clinics, a chain of four medical aesthetic clinics that were renamed under the Accrelist Medical Aesthetics (AM Aesthetics) brand. A fifth clinic was opened at Clementi Mall in June this year. Accrelist says the acquisition of The Wellness Clinic is in line with its medical aesthetic arm’s goal of targeting the affluent and that it has plans to expand in the region.

Terence Tea, executive chairman and managing director of Accrelist, says he intends to open four to eight more clinics in Singapore and Malaysia in the “foreseeable future”. “We aim to become one of Singapore’s largest medical aesthetic networks. We are also making encouraging progress in entering the Malaysian market with plans to launch three clinics later this year in major cities across Peninsular Malaysia.”

For JCG Investment Holdings, going into the aesthetic business is one of the few ways its new controlling shareholders are trying to grow the company from its original incarnation, China Medical (International) Group. On May 21, JCG announced that it was acquiring Beverly Wilshire Medical Centre, a Malaysia-based medical aesthetic group, for RM15.3 million ($5.02 million) worth of new JCG shares and warrants. This is on top of its existing medical aesthetics business in Taiwan and the legacy chain of clinics in China.

Lucrative market
Existing healthcare providers are also actively going into the aesthetic and beauty market. In a sense, the aesthetic business is a natural extension to the various medical specialities these companies already provide. SMG, for example, acquired an 85% stake in a company called Pheniks, which runs the SW1 Clinic chain.

The $6.5 million acquisition, announced in March last year, was funded via the issue of 6.05 million new SMG shares at 57.8 cents each and up to $3 million in cash over three years.

Since then, SW1 has made a positive contribution to SMG’s earnings. In 2QFY2019, SMG’s earnings rose 3.5% to $3.5 million, from $3.4 million in 2QFY2018, with revenue increasing 6.8% y-o-y to $23.1 million. The group attributed its revenue increase to higher contribution from its health business segment and diagnostic and aesthetic segment, with clinics from both segments showing healthy organic growth.

In 1HFY2019, SMG opened Singapore’s second SW1 Clinic in OUE Downtown, catering to the CBD crowd. The first SW1 Clinic is located in Paragon Medical Centre on Orchard Road. The group also opened a 4,000 sq ft aesthetic centre in Ho Chi Minh City.

In its results filing, SMG said, “While the group sees y-o-y growth in the aesthetic segment, we remain cautious on the growth of this business segment due to global uncertainty.”

Meanwhile, Thomson Medical Group has set up aesthetic clinics within its growing chain of hospitals as it seeks to diversify from its O&G services. Thomson’s upcoming Vantage Bay Healthcare City is located just 1km away from the Causeway and will comprise medical, wellness and educational facilities.

The medical facilities will comprise three hospitals — general, specialist and community — and a long-term care centre. The development will also have a health sciences education and training facility, along with a purpose-built urban wellness hotel and resort.

Appearances can be deceiving
The aesthetic business, however, is not always a sure-fire way of making money. JCG, for one, reported revenue of just $69,000 for 2Q2019, down from $105,000 in the year-earlier period. The company blames “poor market demand from China and weak market conditions in Taiwan” for the drop in revenue.

Some problems are more than skin deep and a facelift is not the solution. Similarly, having an aesthetic business will not provide a lifeline to a company if it is facing other problems. Epicentre Holdings, which used to be known for reselling Apple products, in February 2017 ventured into the aesthetic business with the acquisition of a 51% stake in Japan IPL Holdings for $3.1 million. The latter operates Japan IPL Express, a chain of aesthetic salons that specialise in hair removal and skin rejuvenation.

Epicentre, however, is now stuck in a hairy situation, as its CEO Lim Tiong Hian has been missing since May 24. It has received several statutory demands, including one for debts amounting to $1.6 million owed by the group to Lim, of which $1.3 million was assigned to Jonathan Lim, executive director of Japan IPL. Trading of Epicentre shares has been suspended since May.

Analysts are upbeat on the prospects for the aesthetic market, even though there are some figures suggesting that growth is not always as robust. In 2017, the total number of surgical and non-surgical cosmetic procedures remained flat at about 23.4 million, compared with the previous year, according to the latest results of the Global Aesthetic Survey published by the International Society of Aesthetic Plastic Surgery (ISAPS). There was a 4% y-o-y decline in the number of non-surgical procedures, but this was partially offset by a 5% increase in surgical procedures.

Lee Cai Ling of RHB Group Research likes the aesthetic business for its high margins, which range from 40% to 50%. The industry serves not only local customers but also tourists seeking premium-quality products and services, and expatriates, who have high demands. “Rising wages, coupled with the increasing demand and consciousness of health and beauty, are expected to lead to higher spending on health and beauty enhancement products and services,” she adds.

Ngoh Yi Sin of CGS-CIMB Research tells The Edge Singapore that companies that have ventured into aesthetics are likely to be viewed favourably. “Based on what we have seen in the past acquisitions of aesthetic companies, such companies can be more attractive, as they have higher net margins, especially those with more premium products and services, and revenue is more recurring in nature.”

However, Ngoh notes that the wellness industry is also dependent on the popularity of certain key doctors. And medical tourism, which contributes part of the revenue, is getting more competitive regionally. Meanwhile, cheaper products and services are constantly being introduced in the local market, which might make it more difficult to keep the wellness industry lucrative.

Nonetheless, when it comes to acquisitions and expansion into the aesthetic and wellness industry, analysts feel that this is a job better suited for those in the healthcare industry. “It is more beneficial for healthcare companies to branch into aesthetic and wellness clinics, as there are synergies to reap — cross-referrals of patients and so on — but it also depends on their strategy, whether to expand overseas or not, and execution,” says CIMB’s Ngoh. “I would also think it is harder for non-healthcare companies to be rerated for their expansion into aesthetic and wellness clinics — investors prefer pure healthcare plays, hence the higher price-to-earnings — given the lack of track record and presence of other non-related businesses.”

As for RHB’s Lee, she believes acquisitions generally help businesses to diversify their portfolios and bring in more resilient earnings. “However, we do think that it is crucial for the management to have an understanding of the industry. A lack of knowledge may cause financial losses to the companies,” she says.

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