This article first appeared in The Edge Malaysia Weekly on March 10, 2025 - March 16, 2025

SARAWAK-based PMG Healthcare Sdn Bhd, the largest primary integrated healthcare provider in East Malaysia, is looking to expand its footprint in Peninsular Malaysia as heightened competition weeds out the weaker players.

The healthcare group, which recently entered into a strategic partnership with private-equity firm Ikhlas Capital Singapore Pte Ltd — chaired by co-founder Tan Sri Nazir Razak — is eyeing acquisitions in the retail pharmacy and general practitioners segments.

“The market is crowded, but the retail pharmacy segment and even the medical clinic industry are going through a consolidation stage — just like the mini markets and supermarkets in the past. Many small independent players may struggle in this crowded market,” PMG Healthcare founder and chairman Dr Chieng King Chong says in an interview with The Edge. “Eventually, you will see only a few brands in the market — the stronger, bigger brands with good standard operating procedures.”

The industry has certainly been consoli­dating. In 2023, the acquisition of 7-Eleven Malaysia Holdings Bhd’s (KL:SEM) Caring Pharmacy Group Bhd by Creador-backed BIG Pharmacy Healthcare Sdn Bhd was valued at a total of RM850 million, with 7-Eleven’s 75% stake in Caring sold for RM637.5 million.

BIG Pharmacy also acquired the remaining 25% stake in Caring from Motivasi Optima Sdn Bhd — owned by seven individuals, including Caring founder and managing director Chong Yeow Siang, who held an 18.65% stake.

Notably, while PMG Healthcare’s portfolio consists largely of retail pharmacies, of which there are 152 outlets, it also has a growing portfolio of 28 medical and eight dental clinics.

Chieng believes the group’s three-pillar strategy of establishing pharmacies, medical and dental clinics will distinguish PMG Healthcare from other players in the industry.

“We are in a position of strength because we have an integrated primary care facility, with a strong professional team that provides good customer service. This model, with its strong emphasis on collaboration and integrated services, can offer superior solutions for our patients compared to those that rely on just one or the other,” he says.

In a crowded market that resulted from increased demand during the pandemic, which has now tapered off,  Chieng believes the timing is now ideal for acquisitions, as some players are eager to cash out because of intense competition.

Growing inorganically through acquisitions has its merits, as it would help the healthcare group expand through existing healthcare outlets that are already well-established in the community.

“The idea is to expand while leveraging outlets that have been set up. If we go into a particular area organically now, it will take a longer time to break even,” says Chieng.

Last September, PMG Healthcare acquired Johor-based AM PM Pharmacy, adding 46 outlets to its network and making it one of the largest players in the state. It aspires to add 30 to 50 outlets to its portfolio every year, which would include a combination of retail pharmacies and medical and dental clinics.

“We are generating around RM500 million in turnover, based on an annualised run rate, and hope to achieve a 20% to 30% increase in both revenue and net profit annually. We are strong in Sarawak in pharmacies and medical clinics, and we are starting our clinic venture in Sabah and the peninsula,” says Chieng.

In the peninsula, PMG Healthcare has a medical clinic in Sitiawan, Perak, and 69 pharmacies — including the AM PM Pharmacy chain it acquired in 2024 — in Melaka, Negeri Sembilan, Perak, Kelantan, Kedah and Johor.

Chieng says the company is looking at potential acquisitions in Perak and Johor and hopes that talks will come to fruition this year.

The estimated cost to set up a retail pharmacy outlet is RM500,000, but it’s generally lower for a medical clinic at RM300,000, Chieng says. As to how quickly the healthcare group can recoup its investment cost, he explains: “It varies. You can have a clinic that breaks even in the second or third month after opening. It depends on where you operate and whether that area needs your service badly.” Typically, service-oriented clinics, with their lower investment costs, tend to break even more quickly than retail-oriented pharmacies.

Given PMG Healthcare’s aggressive ambitious plans, Ikhlas Capital’s strategic investment is timely. The private-equity firm is investing RM74 million in a significant minority stake, but the specific shareholding has not been disclosed.

Based on PMG Healthcare’s revenue of RM500 million, Ikhlas Capital’s investment of RM74 million works out to 6.75 times revenue.

Interestingly, Chieng appears to be more interested in the network opportunities and merger and acquisition experience of Ikhlas Capital than in its investment in PMG Healthcare.

“Actually, at that time [when we were first brought to the table for discussion], we were not seeking funding because it can be obtained from banks or other sources,” Chieng says, adding that PMG Healthcare wanted a partner with the experience and network to leverage acquisition opportunities, “as we don’t come from a world with a lot of network and experience [in acquisitions]”.

He concedes that it was not a “love at first sight” situation with the private-equity fund, but it took about two years of engagement before both parties sealed the deal. He adds that the deal was brought to the table and facilitated by boutique advisory firm Compass Consulting & Services, which has since been entrusted by PMG Healthcare to manage its M&A initiatives.

“The partners of Ikhlas Capital are very successful businessmen — real genuine guys and very down-to-earth. So, we felt this team could add synergy to our business. We want to have a successful and sustainable business across Malaysia and, if the opportunity arises, we would like to at least expand to other parts of Asean,” Chieng says, referring to Ikhlas Capital’s focus on the region.

Ikhlas Capital managing director Tay Ek Meng, who was also present at the interview, chimes in that deals such as PMG Healthcare are hard to come by and it is the private-equity fund’s first deal for 2025.

“In our first fund, we looked at 800 opportunities and we invested in eight. We have to be selective with our time and who we invest in because our ethos is that we’re here to add value to the business,” Tay stresses, likening deals to entering into a marriage.

“We really believe that we can grow with the companies that we invested in and entrepreneurs such as Dr Chieng. We’re not here for the short term; we’ll be around for at least five years to build the business together and take it to the next stage together.”

Ikhlas Capital’s assets under management total US$500 million and it is currently into its second fund. Apart from Nazir, who used to head CIMB Group Holdings Bhd’s (KL:CIMB), the private-equity fund’s co-founders are former CIMB chief financial officer Kenny Kim, former Indonesian trade minister Gita Irawan Wirjawan and the former Philippine secretary of finance Cesar Purisima.

It raises funds principally from Asean families and institutions, and invests in well-managed, high-growth companies in the region.

Asked whether PMG Healthcare would consider an initial public offering, Chieng says it is a possibility but will depend on the right time and valuation.

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