FOR a healthcare provider with less than five years of operating experience and just one medical centre, one may wonder whether Cengild Medical Bhd has sought an initial public offering (IPO) too soon.
Also, with just six key consultants in Cengild contributing nearly 85% of its revenue, there are risks of over-relying on a limited pool of talent.
The loss of any of these consultants, without suitable and timely replacement, may cause Cengild to lose its patients or struggle to attract new patients.
Investors, however, do not seem perturbed with the lack of track record or the risks, considering that the public portion of Cengild’s IPO has been oversubscribed by 44.53 times.
The IPO’s institutional offering was also fully subscribed.
Cengild debuted on the ACE Market on April 18, with an IPO price of 33 sen. The stock went on to hit a closing price of 51 sen on April 22, but has since dropped to 46 sen yesterday.
The strong response for its IPO could be partly because Cengild, despite its small size, has the highest profit margin among all six listed healthcare providers on the Main or ACE Markets.
For the financial year 2021, Cengild has a profit after tax margin (PAT) of 15.8% as compared to IHH Healthcare Bhd’s 11.4% and KPJ Healthcare Bhd’s 7.5%.
Unlike IHH and KPJ that offer various healthcare services, Cengild primarily focuses on gastrointestinal and liver diseases.
Speaking with StarBizWeek, co-founder and executive chairman Datuk Dr Tan Huck Joo says that Cengild stands for Centre for Gastrointestinal and Liver Diseases, to reflect its niche in the market.
The same niche is the biggest factor that contributed to the group’s high PAT margin, according to him.
Tan owns a stake of 16.67% in the healthcare provider.
He also says that Cengild is the only independent full-fledged medical centre in Malaysia to focus on gastrointestinal and liver diseases, as well as obesity.
He says that at Cengild, everyone from the consultants, doctors to the nurses are specialised in handling gastrointestinal and liver diseases as we deal with such patients daily.
“This is why we attract patients from across the country and the region (prior to lockdowns). We also get many referrals from other hospitals.
“The treatment process here is very efficient as the doctors are highly experienced on gastrointestinal and liver diseases. With that, we can have more patient volume.
“We are also cost-effective. The large volume of gastrointestinal and liver-related procedures performed at our medical centre and our focus on these sub-specialties allow us to achieve better efficiencies and economies of scale.
“Our patients benefit as we are able to pass on this lower cost to them,” he says.
Tan says Cengild’s profit margin can be further improved, with the expected growth in patient volume in line with its expansion plans post-IPO.
“The same medical equipment that we have now can be used for more patients. A higher patient volume will help improve our margin,” he adds.
At the moment, the medical centre is limited by capacity.
Currently, the hospital is located at Bangsar South, Kuala Lumpur, with a space of 36,588 sq ft. It has 10 clinics, 28 beds and two operating theatres, among others.
Patient volume, on the other hand, has been growing strong and has surpassed pre-pandemic levels.
Tan points out that Cengild recorded 24,210 patients in 2021, as compared to slightly over 5,000 patients in 2019.
In terms of new patients, the number has grown from 4,198 in 2019 to 6,258 in 2021, with about 46% of the new patients last year contributed by referrals.
To further grow the number, Cengild has no choice but to expand its operations and grow its talent pool.
The bulk of its IPO proceeds of RM72.2mil will go towards leasing additional space of about 12,000 sq ft to 15,000 sq ft for the medical centre in Bangsar South, as well as to establish two new full-fledged medical centres specialising in gastrointestinal and liver diseases and obesity in other major cities in Malaysia, such as Johor Baru and Ipoh.
Tan says the group is looking for suitable locations for the new medical centres outside the Klang Valley, although it would take two to three years to commence operations.
“The biggest challenge is to find a strategic location and to obtain licensing from the Health Ministry.
“However, the medical centres won’t take long to make profits. It would be similar to our current medical centre, where it was already making profits in 2019 after being established in October 2017,” he says.
At the moment, while Cengild focuses on gastrointestinal and liver diseases as well as obesity, it offers complementary healthcare services that are related to gastrointestinal and liver diseases such as urology, cardiology and gynaecology.
The medical group wants to expand its presence in these services as well, moving forward.
Another area where Cengild wants to grow is oncology, which deals with the diagnosis and treatment of cancer.
“Oncology has huge growth potential in the future. We are still looking for doctors to offer the services but we are not in a rush as we want to find the right doctors,” says Tan.
As for services related to urology and heart-related disorders, Cengild intends to adopt some form of partnership structure.
The idea is to attract, retain and incentivise oncologists whereby the doctors will collectively enjoy 70% of the profits, while the remaining 30% will go to Cengild.
Tan says Cengild believes in adequately rewarding the doctors and other employees to retain talents for the long run.
“Similarly, we believe in rewarding our shareholders, which is why we have a dividend policy despite our relatively early stage of business.
“We believe in a balanced approach, where we reward shareholders and also retain the necessary amount of cash for operations and expansion,” he says.
Cengild has a dividend policy to pay out at least 25% from its net profit.
With Cengild expected to see stronger patient volume moving forward, Tan believes the best is yet to come for the medical group in the terms of its top line and bottom line.
As the group works towards expanding its presence, Tan has a lot on his plate.
At the moment, he is already juggling his responsibilities as the chairman and an employee consultant at Cengild. Interestingly, he is also a resident consultant in gastroenterology and hepatology at Sunway Medical Centre.
When asked whether it would be tough taking care of the group’s corporate governance and fundraising while treating patients, Tan says he has been trained to “multitask as a doctor”.
“Previously, I have been a doctor, teach medical students, guide my junior doctors and write medical journals at the same time,” he says.