A local health care SME is setting its sights on SGX Catalist Board

HC Surgical Specialists Limited

Following last month’s prospectus filing by Fullerton Healthcare Corporation Limited, another local health care small and medium sized enterprise (SME) in the endoscopy and general surgical services industry has lodged its preliminary prospectus with the Singapore Exchange Limited (SGX) on October 07, 2016. The health care company, HC Surgical Specialists Limited (HCSS) is slated to publicly list itself on SGX Catalist Board. However, there is no final listing date, or the amount of proceeds to be raised has not been confirmed yet.

Prime Partners Corporate Finance Pte Ltd is the company’s sponsor, issue manager and placement manager.

Overview of HC Surgical Specialists Limited

HCSS is founded in 2007 by two former government hospital surgeons, Dr. Heah Sieu Min and Dr. Chia Kok Hoong.  Both surgeons started their careers abroad and in the local hospitals including Singapore General Hospital (SGH), and Tan Tok Seng Hospital (TTSH). Dr. Heah started the first privately-owned clinic, called the Heah Colorectal Endoscopy & Piles Centre in 2007, followed by Dr. Chia who founded Chia KH Vascular and General Surgery Centre in 2009. Both later expanded their hospital-based services to cover residential areas, and the Heah Colorectal Endoscopy & Piles Centre (Bukit Batok) was formed in 2010.

After being incorporated on September 01, 2015, the Group made its first overseas foray into Vietnam where it entered into a preliminary joint venture (JV) agreement with T&T Group, the Transport Hospital, JSC, to provide medical consultancy and training services in Hanoi, Vietnam.

The Team

Aside from Dr. Heah and Dr.Chia, the team comprises of two more in-house medical specialists, along with four external specialist surgeons, and two general practitioners (GPs). This will tally to around a total staff strength comprising of ten main medical professionals.

The Group presently has ten operational medical clinics in Singapore, along with one additional medical clinic that is in the process of commencing operations. The only major overseas expansion the Group recently undertook was the opening of its Vietnam healthcare operations.

The Group is increasingly eyeing for medical talents to join their wings in order to support the Group’s growth expansion plans. However, the Group maintained that the top notch quality medical care provided by HCSS has to be maintained at all times and not be compromised in favour continuous growth in the business.

The Business

HCSS as a health care specialist company is primarily engaged in providing endoscopy procedures, including gastroscopies, and colonoscopies, and general surgery services with a specialised focus on colorectal procedures across a network of clinics throughout Singapore.

The clinic network spans across ten privately-owned including the local private hospitals such as Mount Alvernia Hospital, Mount Elizabeth Hospital, Farrer Park Hospital, Gleneagles Hospital and Mount Elizabeth Novena Hospital.

Summary of financials

All dollar signs are in $'000s FY 2014 FY 2015 FY 2016
Revenue 6,885 6,868 7,907
Total Assets 2,013 1,792 7,180
Total Equity 1,057 426 2,198
Profit attributable to owners of the Company 3,439 3,252 2,738
Profit margin (%) 49.9% 47.4% 34.6%
Total Asset Turnover 342.0% 383.2% 110.1%
Leverage Factor 190.5% 421.1% 326.6%
ROE (Dupont Method) 325.5% 763.9% 124.5%
Revenue growth (%) -0.2% 15.1%
Net profit growth -5.4% -15.8%

Source: Company prospectus

Looking at the summarised financials of HCSS, total revenue in FY 2016 ending May 2016 rose yearly by 15.1 per cent to $7.9 million from $6.9 million in the previous year due to an overall increase in the number of patients and procedures undertaken by the Group. Although the Group does not have significant debt in its books, both net profit growth, net profit margins, and return on equity (ROE) fell yearly in FY 2016 due to an increase in expenses, including employee compensation costs, interest costs, and share of associate losses.

Calculation of Free Cash Flows

All dollar signs are in $'000s FY 2014 FY 2015 FY 2016
Profit attributable to shareholders 3,439 3,252 2,738
Add: Depreciation 103 220 210
Less: Purchases on inventories (1) 3 32
Less: Capital Expenditures 337 406 193
Add: New Loans 0 0 0
Total adjustments to Free Cash Flows (234) (189) (15)
Total Free Cash Flows 3,205 3,063 2,723 

Source: Company prospectus

The Group’s free cash flows have also fallen in tandem with a drop in profits. Management cited in its prospectus that it has experienced an increase in inventories, trade receivables, and prepayments. There were also declines in trade and other payables of approximately $0.41 million during FY 2016.

Competitive strengths

  • The team possessed a combined 40 years of total working experiences in the field of endoscopy and other surgical services, along with the support from referrals from existing and past patients.
  • A comprehensive suite of diagnostic and therapeutic endoscopic procedures, drainage of abscesses and other minor surgical services is offered.
  • The Group’s medical clinics are conveniently located in private hospitals, and residential areas. Most of these clinics are located in the central area, and accessible to patients 24/7.

Potential concerns/risks

  • As with all health care industry players, the Group is susceptible to the potential risks medical malpractices, lawsuits, and medical errors, among others. The Group is aware of such risks and have instituted best practices to conform to industry requirements.
  • Retaining and hiring good talent are some of the challenges faced by the Group due to the increasing demand of top notch quality standard of medical care.
  • Lack of operating history and track records are some of the challenges faced by the Group.
  • There is concern about potential costs overruns if expansion strategies are not being controlled properly, as evidenced by the declining profit growth shown earlier.


HCSS is in the specialised medical field of offering niche endoscopy, gastroscopy, and other stomach related surgical services. These types of services are usually expensive and requires high insurance cover for the medical costs incurred. However, the Group has also indicated that they are eyeing further expansion from its current eleven medical clinics network to include locations that are in the residential areas that are conveniently located.

Given the increasing aged population, and rise in medical tourism, the Group might be able to capture these niche segments and target their endoscopy services accordingly to suit the needs of its patients.

Disclaimer: This article is written by Tay Hock Meng. I am a financial advisory consultant with Phillip Securities Pte Ltd. My MAS FA code is THM300399401. I do not own any private placement shares of HC Surgical Specialists Limited, but may trade the counter if it is appropriately priced.

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