This article first appeared in The Edge Malaysia Weekly on May 6, 2024 - May 12, 2024

TMC Life Sciences Bhd’s plan to add capacity and capabilities, including building a new integrated medical hub called Thomson Iskandar in Johor Bahru, have come into the spotlight with the surprise suspension of the group’s CEO in January.

“Instead of informing the public whether the group had obtained the necessary approvals for its Johor hospital — and this has been talked about for years — which would be a significant milestone, the group instead announces the suspension of its CEO without explaining why,” says an analyst covering hospital operators who declines to be named. 

Recall that TMC Life Sciences announced on Jan 29 that it had suspended the employment of its group CEO and CEO of its subsidiary Thomson Hospitals Sdn Bhd Wan Nadiah Wan Mohd Abdullah Yaakob, to facilitate an internal disciplinary process. A show cause letter was issued to her on the same day, followed by another on March 29 as Wan Nadiah’s responses were considered insufficient by TMC Life Sciences’ Audit and Risk Management Committee, the company said. Due to the sensitivity of the matter, no reason was given for its actions. 

Shares in TMC Life Sciences slipped to 69 sen last Thursday from a high of 78 sen in February, which was a level not seen since the March 2021 healthcare rally at the height of the pandemic.

Following the suspension until further notice, one of its Singapore-based directors, Dr Melvin Heng Jun Li, was appointed as acting group CEO. A fund manager familiar with the group says the suspension was “not related to financial fraud”, and that “the group’s CFO (chief financial officer) assured that growth strategies and outlook would not be affected under Dr Melvin’s oversight”.

The group’s network of healthcare centres comprises its flagship Thomson Hospital Kota Damansara (THKD) and TMC Care Pharmacy, adjacent to the hospital; five fertility centres; an obstetrics and gynaecology clinic; and a traditional Chinese medicine centre. The construction of its Johor hospital hub is underway and slated for completion “within 12 to 24 months after the Rapid Transit System (RTS) at Bukit Chagar is fully operational”, according to TMC Life Sciences’ 2023 annual report.

Located just off the Causeway linking Johor and Singapore, Thomson Iskandar will comprise the 500-bed multidisciplinary tertiary Iskandariah Hospital; 400 medical suites; medical, allied health and nursing training institutes; medical research facilities; and a 33-storey commercial block. TMC had reportedly allocated RM1.2 billion for Iskandariah Hospital.

When The Edge reached out to TMC Life Sciences with queries about Thomson Iskandar’s progress, Wan Nadiah’s suspension as well as the group’s relatively low valuation, its spokesperson replied that “updates would be available in the next annual general meeting in November 2024”. 

When The Edge last interviewed TMC Life Sciences in 2020, piling works for the hospital in Johor had begun and the group was seeking approval from the local council. At that time, the hospital was expected to be completed two to three years after the Johor Bahru-Singapore RTS project became fully operational. This was a shift from the earlier completion target of 1Q2024, which was announced by the group in 2019 before the pandemic struck.

Last week, Transport Minister Anthony Loke Siew Fook said the RTS link construction was ahead of schedule for completion by Dec 31, 2026, with 70.45% of rail infrastructure completed by end-March, exceeding its target by more than 3%. This should put Thomson Iskandar’s completion at end-2027 or 2028, going by TMC Life Sciences’ projection.

Shares in TMC Life Sciences, which is 70.13%-owned by Singapore tycoon Peter Lim Eng Hock and 7.64%-owned by Johor Crown Prince Tunku Ismail Sultan Ibrahim, are tightly held, with a free float of 22.13%.

Lim also owns Thomson Medical Centre in Singapore, a 187-bed private hospital specialising in the healthcare of women and children. The Singapore Exchange Mainboard-listed group expanded to Vietnam in January by acquiring FV Hospital for VND9 trillion (S$494.2 million, or RM1.73 billion). As part of the deal, the group acquired Far East Medical Vietnam, which includes FV Hospital and a network of primary and specialist clinics.

Shares in hospital operators have done well this year, as the sector attracted investor interest, but TMC Life Sciences’ shares have slipped 4.2% so far this year, underperforming both the FBM KLCI and KL Healthcare Index’s rise of about 9%.

IHH Healthcare Bhd and KPJ Healthcare Bhd have risen 4.48% and 37.5% respectively.

At its trailing 12-month (TTM) price-earnings ratio (PER) of 20.86 times, TMC Life Sciences was trading slightly below the industry average of 23.8 times. However, that is with the exception of IHH Healthcare, which has a TTM PER of 18.89 times and a forward PER of 32.3 times.

KPJ Healthcare was traded at a TTM PER of 31.84 times and forward PER of 29.7 times.

There is no analyst coverage of TMC Life Sciences, thus there is no earnings forecast for the calculation of forward PER.

KPJ’s record-high share price of RM1.99 and IHH’s RM6.33 last Thursday were at a level not seen since August 2022.

Even as the smallest listed hospital operator in the country, TMC Life Sciences has been regarded by analysts for its “decent fundamentals”, especially with the doubling of net profit after FY2021 (see chart), with the expanded operational capacity at THKD to 559 beds, from 205 beds, in 2019.

For the second quarter ended Dec 31, 2023, TMC Life Sciences saw net profit more than double to RM14.5 million, from RM5.49 million last year. Revenue was also higher at RM93.78 million, compared with RM73.34 million last year.

The group told Bursa Malaysia that the improvements in revenue and profit before tax were attributable to increased capacity at THKD, recovery of its fertility business and the increase in interest income. “Increased capacity at THKD and recovery of the fertility business are expected to contribute to the growth of the group,” says the fund manager.

“We believe the CEO situation has caused recent share price weakness. Yet, the company remains fundamentally sound, with growth beyond FY2024 to be supported by the addition of beds and higher bed occupancy.”

With TMC Life Sciences’ counter underperforming its peers, will a resolution with its group CEO propel its share price higher?

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