SUNWAY Bhd knew early on that to build a vibrant township, it needed to create economic activities. One such activity that it has managed to grow over the years is the healthcare business.
Although the healthcare business was not the main thrust of Sunway’s businesses for most of its over four decades of history — the company is more known for property development and construction — that will soon change with the development of a few Sunway medical centres.
At the moment, Sunway operates two hospitals — the Sunway Medical Centre in Sunway City and Sunway Medical Centre Velocity in Cheras. Combined, these two hospitals have over 870 beds and offer specialised treatments in the area of cancer and radiosurgery, nuclear medicine and digestive health, among others.
The group is currently developing three hospitals, which will add another 630 beds to its capacity. These are the Sunway Medical Centre Seberang Jaya in Penang, Sunway Medical Centre Damansara and Sunway Medical Centre Ipoh.
The importance of its healthcare business is more apparent from the contribution of the business to Sunway’s overall profitability throughout the years.
In FY2012, contribution from its investment segment, which housed the healthcare business, to the group’s profit after tax and minority interest (Patmi) was only 3%. In FY2018, this had grown to 35%, out of a Patmi of RM658.99 million.
Asked whether Sunway will continue to expand its healthcare business, group president Datuk Chew Chee Kin says definitely.
“We started with one hospital, tried to do it with just one, just kept on improving until we had more or less perfected the model before we grew out. It is just like building a prototype; you need to perfect it and then you build a second and third before you mass produce.
“So right now, we think that we have perfected the healthcare business model at Sunway Medical Centre in Sunway City, and we are starting out at our second hospital in Velocity in Cheras. We are doing more hospitals,” says Chew during an exclusive interview with The Edge last month.
Of course, a top-notch hospital does not come cheap. As a general rule of thumb, a hospital’s capital expenditure is RM1.3 million to RM1.4 million per bed, says Sunway chief financial officer Chong Chang Choong.
“Let’s say you want to build another 1,000 beds, then it will cost you between RM1.3 billion and RM1.4 billion. If you want to build 2,000 beds, you double the same number. But of course this will be spread over a five-year period.
“So let’s say even if it is RM2 billion capex, over five years, it is RM400 million per year. I think this is a very comfortable capex plan for the group,” says Chong during the interview.
The expansion of Sunway’s healthcare business has fuelled talks of the group spinning off the business through an initial public offering (IPO). However, Chong says to unlock the value of the healthcare business, the IPO route is not the only option.
Besides a direct spin-off through a public listing, there is also the private equity (PE) route that Sunway can look at to unlock the value of the healthcare business, he says.
“The PE space is also very dynamic, and it’s flush with money. So, to be frank, every day we get inquiries from the PE guys because they clearly recognise how the Sunway Medical Group has grown, and the prominence of it has attracted a lot of attention from the industry,” says Chong.
Indeed, PE firms have been active in acquiring hospitals throughout Asia. Last September, renowned PE firm TPG together with the Hong Leong Group acquired 17 Columbia Asia hospitals in Malaysia, Indonesia and Vietnam for US$1.2 billion (RM4.9 billion).
When Columbia Asia started a formal sale process early last year for its assets, it drew non-binding bids from a number of private investment funds, including KKR & Co, CVC Capital Partners and The Carlyle Group, besides the bid from TPG and Hong Leong.
Last October, KKR, together with Government of Singapore Investment Corporation (GIC), acquired a 42.5% stake in the Philippines’ Metro Pacific Investments Corporation’s healthcare unit for US$684.5 million.
The valuations for these deals are also on the high side. At US$1.2 billion for 1,500 beds across three countries, Columbia Asia’s Southeast Asian operation that was acquired by TPG and the Hong Leong Group was valued at roughly US$800,000 per bed.
Meanwhile, KKR and GIC’s bid for a stake in Metro Pacific’s hospitals in the Philippines valued the venture at US$1.61 billion. Metro Pacific operates 3,200 beds across 14 hospitals in the country, valuing the deal at around US$500,000 per bed.
“I think these deals will be very good benchmarks for the valuation of Sunway’s healthcare business. I think Columbia Asia was bought at 24 times Ebitda (earnings before interest, taxes, depreciation, and amortisation) while valuation on acquisition cost per bed was close to RM3 million to RM4 million,” says Chong.
Using the Metro Pacific and Columbia Asia deals as the low and top benchmarks, the two Sunway medical centres currently in operation could be valued at between US$435 million and US$696 million.
Including the three hospitals that are being built in Penang, Damansara and Ipoh, Sunway’s healthcare business could fetch a valuation of US$1.2 billion.
However, should Sunway’s healthcare business be valued at the same level as Columbia Asia?
Sunway Medical Centre is the first Australian Council on Healthcare Standards-accredited hospital in Southeast Asia. It also has a collaboration with the University of Cambridge and Royal Papworth Hospital on clinical service, research and training.
Sunway Medical Centre also collaborates with Harvard Medical School in the Southeast Asia Healthcare Leadership (SEAL) programme for emerging healthcare leaders.
The healthcare group was a joint winner for the Asia Pacific Healthcare and Medical Tourism Awards 2019 in the medical tourism hospital of the year in Asia Pacific category, together with Thailand’s Bumrungrad International Hospital.
Source: The Edge Markets
