Should We Invest In TMC Life Science Bhd?

TMC Life Science Bhd (TMC) is a Malaysia-listed healthcare group that operates Thomson Hospital Kota Damansara (THKD), TMC Fertility Centre, and TMC Care Pharmacy in Malaysia. Presently, as of 13 October 2019, TMC is worth a total of RM 1.11 billion in market capitalisation. In this article, I’ll highlight on its recent financial results, future plans, and valuation ratios. As such, here are 9 things to know about TMC before you invest.

  • Revenue
    TMC’s revenues had increased rapidly from RM 38.81 million in 2008 to RM 169.04 million in 2018. It is contributed by ongoing improvement in sales from its provision of hospital and ancillary services, clinic services, rental of clinic, and hospital administration fees for the last 10 years. Its revenue breakdown is as follows:

Source: TMC’s Annual Reports

– 2011* refers to a 17-month period from 1 Jan 2010 to 31 May 2015.
– 2016* refers to a 15-month period from 1 Jun 2015 to 31 Aug 2016.

Source: TMC’s Annual Reports

  • Profitability
    In 2011, TMC had recorded its largest net loss of RM 35.01 million. This is due to it incurring the following expenses:

    – Impairment losses on receivables: RM 4.7 million
    – Write-off property, plant & equipment: RM 1.1 million
    – Write-off intangible assets: RM 12.0 million
    – Impairment on goodwill: RM 5.4 million
    – Impairment on other investments: RM 0.3 million.

    It reduced its loss in 2012 and started to be profitable in 2013. Earnings had grown from RM 2.18 million in 2013 to RM 27.80 million in 2018. It has achieved substantial improvements in profit margins over the last 5 years. TMC recorded a 6-Year Return on Equity (ROE) of 3.26% a year in 2013 – 2018. It means, TMC had generated, on average, RM 3.26 a year in earnings from every RM 100 it has in shareholders’ equity.

Source: TMC’s Annual Reports

  • Cash Flow Management
    From 2008 to 2018, TMC has brought in:

    – RM 94.64 million in cash flows from operations.
    – RM 30.99 million in interest income.
    – RM 258.77 million in equities.

    Out of which, it has spent:

    – RM 163.75 million in net capital expenditures (CAPEX).
    – RM 140.81 million in deposit where its maturity is beyond 3 months.
    – RM 38.22 million in repayments of long-term borrowings.
    – RM 7.87 million in dividend payments to reward its shareholders.

    Evidently, TMC has built a track record of generating positive cash flows from operations and had successfully raised equity from investors. TMC had chosen to utilise it on CAPEX and had chosen to retain most cash in deposit with maturities beyond three months to earn interest income.

    As such, it pays out little dividends to its existing shareholders.

  • 12-Month Financial Results
    TMC has maintained its growth trajectory for both revenues and profits for the last 12 months. In that period, it had made RM 186.65 million in revenues. Out of which, TMC had made RM 32.97 million in earnings or 1.90 sen in earnings per share (EPS).

Source: TMC’s Quarterly Reports

  • Balance Sheet Strength
    On 31 May 2019, TMC has reported to have RM 1.66 million in interest- bearing debt and RM 760.02 million in shareholders’ equity. Hence, the company has a gearing ratio of 0.22%. In addition, TMC has reported to have RM 244.11 million in current assets (79.1% in cash reserves) and a total of RM 57.71 million in current liabilities. Thus, its current liabilities is 4.23.

  • Major Shareholders
    As of 22 November 2018, the 2 largest shareholders of TMC are Sastera (M) Pte Ltd and DYAM Tunku Ismail ibni Sultan Ibrahim with as much as 70.35% and 7.66% shareholdings. Lim Eng Hock is listed as a substantial shareholder of TMC with his interest in Sastera (M) Pte Ltd, Sastera Pte Ltd, and Thomson Medical Group Ltd.

  • Future Plan 1: Expansion of TMKD
    In July 2018, TMC has embarked on its expansion plan for TMKD where upon completion by end-2020, it will have a capacity of 600 beds and is capable to host 100+ specialist outpatient clinics, 10 operating theatres and a new one-stop Health & Wellness centre. Concurrently, TMKD had obtained the license to run Cytotoxic Drug Reconstitution Laboratory & Yellow Fever Vaccination Centre and had successfully established a new International Patient Centre to care for international patients in 2018.

  • Future Plan 2: Thomson Iskandar Medical Hub (TIMH)
    Presently, TMC is setting up TIMH where upon completion, will house a total of 500 beds, medical suites, health & wellness facilities, and also a medical and allied-health school.

  • Valuation Ratios:
    As of 13 October 2019, TMC is trading at RM 0.64 a share. Based on its latest 12-month EPS of 1.90 sen, its current P/E Ratio is 33.68. As of 31 May 2019, TMC has reported to have net asset value a share of 43 sen. Thus, its current P/B Ratio is 1.49. In financial year 2018, dividends per share (DPS) of TMC is 0.183 sen. Hence, its dividend yield is 0.29% per annum presently. 

VIA’s Verdict 

TMC has delivered significant improvements in financial results in 2016-2018 as it reported above RM 20 million in earnings per year. It remains low-geared and has a high current ratio of 4.23. Moving ahead, it has a couple of growth plans – TMKD and TIMH, which would substantially increase its existing bed capacity as I write today. 

In terms of valuation, it is trading above 30.0 in current P/E Ratio and is offering close to 0% in dividend yields. 

So, will you invest in TMC at RM 0.64 a share today? 

You can also read more about another healthcare-related company on Bursa Malaysia, here is what you need to know about Caring Pharmacy Group Bhd.

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