New paths for New Silkroutes
The Business Times | Monday, September 24, 2018
NEW Silkroutes Group may have gone in many directions over the last three years, but its management has a clear long-term route in mind for the group’s healthcare business.
This journey begins by landing hospital management contracts – perhaps complemented with strategic primary care acquisitions – and then acquiring equity in the hospitals, perhaps with the possibility of building up to a healthcare Reit in the future.
“We are more likely to become a strong healthcare player than a strong energy player,” says chief executive officer Goh Jin Hian, referring to the firm’s two main businesses today.
“It is a sector that our team is much more suited to,” he adds, as a medical doctor himself.
When Dr Goh joined in mid-2015, it was shortly after the firm had exited the Singapore Exchange’s watch- list – having been there for posting financial losses for at least three straight years – in late 2014.
Previously known as Digiland International, the firm was then an IT products wholesaler. “That was not something that we felt could present very much hope for the future,” says Dr Goh candidly.
Under the previous management, shareholders had approved the firm’s move into oil trading. The energy business accounts for the bulk of revenue today. In 2016, after finding that rights issues and the like were insufficient for fund-raising purposes, New Silkroutes made a foray into fund management.
But over the last two years, management realised that investors preferred clear targets and were interested in having a say about where their money went. The fund approach was therefore not that popular, says Dr Goh: “Investors didn’t know where the money was going to be deployed.”
New Silkroutes thus decided it would be better off transforming into a company that was focused “purely on a couple of sectors”. Management kept the energy unit since shareholders had approved that move, and diversified into healthcare.
Energy is the “stable business”, the background against which the healthcare business can grow, says Dr Goh.
Going forward, New Silkroutes aims for healthcare to contribute half of the group’s profits. “Moving forward, we will be focusing probably more on healthcare because of the margins,” he adds, noting that it can achieve margins of 10 to 15 per cent.
The strategy is to become a vertically-integrated regional healthcare player, from primary to tertiary care.
As it is hard to enter the tertiary space in Singapore, the group is looking for opportunities in South-east Asia and China – specifically, “hospital management with a view to being able to take permanent equity in the hospitals we manage”.
It is “close to securing” its first hospital contract in Malaysia, and is looking at possibilities in China.
With the acquisition of six family medicine and aesthetics clinics in August, the group’s healthcare portfolio
now comprises 17 clinics – including nine dental ones – and two dental supplies companies in Singapore.
But the primary care sector will not be the focus going forward. On any future clinic acquisitions, Dr Goh says: “They have got to be strategic and synergistic with our hospital endeavours.” Rather than simply going after clinics, the approach will be to land a hospital management contract, develop the hospital as a hub, and then consider clinics in the area which can play a supporting role.
The primary care business is tricky as it has to fit “the lay of the land”, says Dr Goh. For instance, patients in China are used to going straight to hospitals and not to clinics. Unless New Silkroutes found a partner – an insurance firm, say, that could divert patients to their clinics – there would no compelling reason to enter the primary care space.
Explaining why New Silkroutes chose to acquire its current Singapore-based healthcare assets, Dr Goh says that the dental group has opportunities to expand in the region, as demand for dental care rises alongside increasing affluence.
As for the other clinics in Singapore, the move also represents the acquisition of talent. This also provides ballast for New Silkroutes’ overseas ventures, banking on the Singapore brand: “If we say we’re going to bring the Singapore level of healthcare to these countries … we become very attractive as partners.”
New Silkroutes is looking forward to a positive start to 2019, after three straight years of losses. In its results for the year ended June 30, 2018, its net loss widened to US$2.96 million from US$ 1.99 million the year before, due mainly to expenses of the newly-acquired dental companies and one-off expenses amounting to US$2.34 million. Excluding one-off ex-penses, the net loss would have narrowed to US$0.26 million.
The group chose to book their one-off expenses from completed and ongoing acquisitions in the final quarter of 2018, and thus start the new financial year afresh. This was not an easy decision, says Dr Goh.
The financing bodies backing their healthcare business “would understand this approach”, and also understand that payback periods could be longer-term. But the unflattering financial results could jeopardise the bank lines for the energy business.
The group is in “two business lines that have very different approaches in terms of how they do financing”, he sums up. “We do need at some point to make a call: whether we want to be energy or healthcare.”
This decision is not possible today, as the firm has to “be fair to (its) shareholders” who approved the move into energy. But as the healthcare business develops, this could change: “Over time, if we can demonstrate that the healthcare piece is constantly growing… it might be an easier pitch to make. Shareholders will reward us for making that call.”
He observes that energy is “currently not a growth sector” for the group, with the relatively small size of its oil trading business making it hard to compete with large players.
This business would only be able to grow if a strategic partner comes in with, for example, storage facilities and receiving terminals. If such a situation does arise, “the strategic partner may have to take the lead in this play”. Hypothetical possibilities include divestment, a separate listing, or taking the energy business private.
“It’s a decision that we’re constantly thinking about,” says Dr Goh, adding that it all comes down to whether such a partner appears.