No profit guarantee in deals but SMG chief exec unfazed

SMG chief executive Beng Teck Liang is confident the firm's latest acquisitions will do well.
SMG chief executive Beng Teck Liang is confident the firm's latest acquisitions will do well.

Clinic operator Singapore Medical Group (SMG) is on an acquisition spree, and compliance with fresh guidelines that frown upon profit guarantees will not dent the group's earnings growth, its chief executive, Dr Beng Teck Liang, said yesterday.

Profit guarantees, in which the target of an acquisition guarantees the buyer a certain profit over a fixed period, are a common feature in corporate deals here, and have been popular among other acquisitive companies like Q&M Dental Group.

But guidelines on medical ethics updated by the Singapore Medical Council last September discourage the practice.

The guidelines are not law, but Catalist-listed SMG has chosen to comply.

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At the weekend, it completed the acquisition of two paediatric clinics for $23.5 million, but without a five-year profit guarantee of at least $2.3 million per year that had earlier been agreed on.

All the same, Dr Beng is confident that the new clinics will provide the same earnings visibility.

He told The Straits Times: "The profit guarantee that I expect from the doctors is actually lower than their actual levels of expected profit. These are very comfortable levels that we have seen them do historically."

That said, Dr Beng, who comes from a family of doctors, does not believe that profit guarantees lift the cost of healthcare: "After acquisitions, we don't go around raising prices. In fact, we are driving greater efficiencies in procurement, staffing, marketing... When I take over these functions, I'm freeing up the doctor to be a better doctor."

SMG relies on clinching deals to accelerate growth. It has made four acquisitions since Dr Beng took the helm at the end of 2013, the largest being the $60 million paid for the Astra Women's Specialist Group chain of six obstetrics and gynaecology clinics in February.

SMG also has a presence in Vietnam and Indonesia, the two markets catering to most of Singapore's medical tourists.

SMG set foot in Indonesia in 2014, through a joint venture with property developer PT Ciputra. It operates the Ciputra SMG Eye Clinic in Jakarta, which has been "doing well", Dr Beng said.

SMG has 31 clinics in Singapore and 37 full-time doctors, up from 31 at last count based on its annual report in April .

SMG's shares have rallied since it reported a turnaround last August, and closed half a cent higher at 65.5 cents yesterday.

Marissa Lee

A version of this article appeared in the print edition of The Straits Times on July 06, 2017, with the headline 'No profit guarantee in deals but SMG chief exec unfazed'. Print Edition | Subscribe