Healthcare service provider, Cengild Medical Bhd surged as much as 54.55% premium over its initial public offering (IPO) price of RM0.33 on the first day of trading. Does this company prospect look good going forward? Let me share with you some prospects and fundamental qualities of this company.
Background
CENGILD was listed on the ACE market on 18 Apr 2022 and it is an independent full-fledged medical centre in Malaysia specializing in gastrointestinal, liver diseases and obesity. The company provides other medical businesses such as diagnosis and treatment of selected gynaecology, urology and oncology related conditions and general cardiology assessments.
CENGILD offers 24-hour outpatient accident and emergency service, health screening, physiotheraphy and histopathology services.
Currently, CENGILD has 10 clinics, 3 endoscopy rooms, 28 beds (including 8 daycare beds), 2 operating theatres, a radiology department, an accident and emergency department, a pharmacy, a laboratory and a central sterile supply department. The company has 6 employee consultants, 5 resident consultants, 17 vising consultants and 4 medical officers specializing in the diagnosis and treatment of gastrointestinal and liver diseases and obesity.
Business Model
Majority of the company’s patients are local patients, contributing 96.8% of revenue for FY2021, while the remaining 3.2% are contributed by foreign patients.
CENGILD’s medical centre is equipped with an operating theatre, inpatient ward, accident and emergency department, radiology room and laboratory which are similar to the facilities and services offered by other multidisciplinary hospitals. Currently, they are in partnership with 19 insurance companies and third-party administrators. This enables them to provide treatment to a wider group of patients such as individual patients or employees of corporations who have corporate healthcare insurance.
Detail of the Use of Proceeds
Under the listing exercise, CENGILD is expected to raise RM72.2mil from its public issues of 218.8mil new shares in the company at RM0.33 per share.
The group intends to use RM37.1mil to establish new medical centres, RM17.4mil for working capital, RM13mil for expansion of the existing medical centre at Bangsar South and the balance of RM4.7mil for listing expenses. The most important thing is CENGILD will add 20 more beds in the future. We believe after the number of beds increases, the company is expected to accept more patients and the acceptance rate for patient surgery will increases.
Key Financials
1. Revenue, Net Profit and Net Profit Margin
CENGILD’s revenue in FY2018, FY2019, FY2020 and FY2021 was RM11.7mil, RM28.2mil, RM39.2mil and RM63.5mil respectively, driven by the growth in consultant services and medical management services segments. The number of patients who have visited their medical centre has also increased from 5,011 in FY2018 to 24,210 in FY2021. During the same period, the company’s net profit was RM1.5mil, RM4mil and RM10mil, respectively, while its net profit margin was 5.2%, 10.1% and 15.8%, indicating that the company is good in terms of growth rates.
2. Cash Flow
CENGILD generated positive cash flow from operating activities from FY2018 to FY2021 are RM5.6mil, RM7.1mil, RM11.2mil and RM14.3mil. AS of 31 Oct 2021, the company had a deposit with financial institutions of RM9.3mil and cash and bank balances of approximately RM0.31mil. The company’s gearing ratio (including lease liabilities recognized under MFRS 16 has been decreasing from 8.4x as of 30 Jun 2018 to 1.4x as of 31 Oct 2021 and the gearing ratio (excluding lease liabilities recognized under MFRS 16) has been decreasing from 3.9x as at 30 Jun 2018 to 0.06x as at 31 Oct 2021.
3. Dividend Policy
The management stated that they will not purchase assets in the short term, but will choose to reserve funds for the acquisition of equity in other companies or to pay dividends. The company plans to declare dividends at a distribution rate of as low as 25%, perhaps this will attract dividend investors.
Prospect
1. Expansion of existing medical centres
CENGILD plans to expand its existing medical centre at Nexus Bangsar South, KL by leasing additional space of approximately 12,000 to 15,000 sqft to cater to current and future demand for its medical services, especially endoscopic procedures to strengthen its position in the segment.
2. Geographical expansion of services
CENGILD intends to expand its presence by establishing 2 new full-fledged medical centres specializing in gastrointestinal and liver diseases, and obesity in other major cities in Malaysia such as Johor Bahru, Penang or Ipoh.
3. Looking forward to acquiring existing practices or strategic partnership
Expanding via partnerships or acquisitions will add value to existing businesses and bring greater economies of scale and growth. However, currently, they have not identified any acquisition targets, strategic partnerships or joint ventures.
4. Expansion of medical team
CENGILD intends to strengthen their medical team by recruiting consultants specializing in gastroenterology and hepatology.
Risk Factors
1. Highly dependent on employee consultants
CENGILD has 6 employee consultants specializing in gastrointestinal and liver disease and obesity (the key revenue drivers). The contribution by the employee consultants to the group’s total revenues are 76.9%, 87.1%, 86.7%, 84.6% and 78.6% for FY2018, FY2019, FY2020 and FY2021 and 4-month FPE 31 Oct 2021, respectively. If one of the employee consultants leaves the company, it will drastically affect the company’s future revenue.
2. Short operating history with the operation of the single medical centre
CENGILD operates their business at a single medical centre, which commenced operations in 2017. Due to its short operating history, CENGILD medical centre may not be well known to the general public as compared to other medical centres and hospitals which have longer operating history.
3. Business is reliant on approvals, licenses, permits or certificates issued by the relevant Malaysia authorities
The group’s operation is reliant on certain regulatory approvals, licenses, permits or certificates granted by the relevant authorities. Their consultants, nursing staff and relevant clinical support staff are required to maintain provide and render their services in medical centres.
Fundamental Analysis
Market Cap: RM388.9mil
Number of Shares: 818.8mil
Earning per Share: RM0.01
PE Ratio: 38.1x
3-year Revenue CAGR: 50.1%
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