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Thomson Medical back in the black but new projects need gestation and valuations are lofty

Amala Balakrishner
Amala Balakrishner • 5 min read
Thomson Medical back in the black but new projects need gestation and valuations are lofty
SINGAPORE (Mar 15): In its first full year following the completion of its reverse takeover (RTO) deal in 2017, Thomson Medical Group, formerly known as Rowsley, has turned profitable as contributions from the newly acquired medical business kick in whi
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SINGAPORE (Mar 15): In its first full year following the completion of its reverse takeover (RTO) deal in 2017, Thomson Medical Group, formerly known as Rowsley, has turned profitable as contributions from the newly acquired medical business kick in while a lower impairment loss was made on goodwill for its underperforming real-estate business.

Its earnings may be nothing to shout about for now, but the company is moving ahead to generate growth from a broader range of medical services, delivered in new markets such as Malaysia.

At the results briefing, Roy Quek, the group CEO, said he was “happy” with the turnaround. This current year, the company will deliver on a wider range of services and will be profitable “for sure”, he added.

For FY4Q2018 ended Dec 31, the company reported losses of nearly $4.5 million compared with losses of $37.7 million in the year-earlier quarter. Revenue in the same quarter was up 7% to $56.1 million.

For FY2018, the company chalked up earnings of $2.2 million, reversing losses of $22.3 million in FY2017. Revenue was up 7% y-o-y to $215.6 million, thanks to higher patient numbers; moreover, each patient had paid more on average. To mark its turnaround, the company plans to pay a special dividend of 0.025 cent a share.

Thomson Medical is the product of a reverse takeover deal by Rowsley that was first announced in late 2017. Peter Lim, one-time remisier king, was behind both entities. Rowsley paid $1.9 billion for Thomson Medical and the KL-listed TMC Life Sciences by issuing 25.3 billion new shares at 7.5 cents each.

Lim had owned Thomson Medical since 2011, when he paid $400 million to take it off the hands of founder Dr Cheng Wei Chen. At the time, the price Lim paid to privatise Thomson Medical was estimated at 32 times earnings.

The 2017 RTO deal, which introduced Thomson Medical back to the stock market, valued it at more than 50 times FY2016 earnings — a lofty valuation level even by the standards of Singapore-listed healthcare counters. In April 2018, the listed entity changed its name from Rowsley to the better-known Thomson Medical.

‘Nodal centre’

In the four decades since Thomson Medical was founded, it has made a name for itself in the specialisations of obstetrics and gynaecology and paediatrics. The company has been diversifying its range of specialisations. To this end, Thomson Medical announced plans to set up a “nodal centre” bringing together the Thomson Wealth Clinic, Thomson Fertility Centre, Thomson O&G and Thomson TCM (traditional Chinese medicine).

Instead of operating on Thomson Road, where the company runs its flagship and namesake hospital, this centre will be located at the Paragon mall on Orchard Road, which has extensive space for medical clinics. Quek hopes that with the added convenience of the wider range of services under one roof, it will enjoy better patient numbers.

Beyond Singapore, Thomson Medical is active in Malaysia. It recently opened a TCM centre in Kuala Lumpur and there are plans to open two fertility centres in the Klang Valley. These clinics aside, it has made two big bets in Malaysia.

First, the company is in the midst of building an extension at its existing Thomson Hospital in Kota Damansara, Selangor. There are currently 205 beds at the hospital. Additional capacity from the new wing will bring the total number of beds to around 600 and result in 10 operating theatres, 154 outpatient clinics, 11 delivery suites, two catheterisation labs and a cancer centre.

In addition, the company is also developing the Thomson Iskandar Medical Hub in Johor's Vantage Bay, which will have 500 beds. Piling works have started and construction is scheduled to be completed by 2023 for the hub to open for business in 1Q2024.

The company anticipates the hospital in Johor to have a high customer base — comprising not just Johoreans but also Singaporeans and Malaysians from other states. “Singaporeans may want to come here because they will be allowed to pay for treatment with their Medisave and they can enjoy cost savings from the exchange rate,” says Quek.

“The hospital will be in the affluent area of Johor, so Malaysians from other parts who can afford it may also come here. We also expect medical tourists from Asean countries such as Indonesia and Myanmar,” says Nadiah Wan, CEO of the Thomson Hospital Kota Damansara.

Tie-up on cancer treatment

Besides expanding into new markets, the company wants to grow its medical expertise further. On March 12, it announced a tie-up with Brigham Health International and the Dana-Farber Cancer Institute to collaborate on the treatment of cancer in women. “The demand for preventive intervention, cutting-edge and quality curative cancer treatment will grow. We want to meet the community’s need for more and better care options,” says Quek. He says the collaboration will be a “game changer”.

With the company’s plans to develop new hospitals stretching to 2024, there will be no meaningful contributions to its earnings for quite some time. Thomson Medical’s shares — nearly 27 billion have been issued — have not moved significantly from the RTO price of 7.5 cents. News of the turnaround did not excite the market either. Year to date, the stock is down 31.9% to close at 7.9 cents on March 14, valuing the company at just over $2 billion and giving it a price-earnings ratio of a whopping 326 times.

Quek remains optimistic that investors will remain as shareholders. He observes a significant pickup in the exercise of warrants by shareholders over the last fortnight or so. The bonus and piggyback warrants from the RTO will mature on April 24. Thomson Medical can expect to receive at least $750 million if all of them are exercised. “I take [the pickup] as a good sign that they want to support the initiatives we have announced,” he says.

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