• Non-invasive and minimally invasive aesthetic medical services specialist, supported by 13 aesthetic medical clinics across major cities in the central and southern region of Peninsular Malaysia.

• We project the core earnings to improve from additions of new medical aesthetic clinics as part of the geographical expansion in bid to capture additional market share that is riding onto the growing demand for aesthetic medical services.

• DC Healthcare is valued by pegging its FY24f core EPS of 1.7 sen to PE of 27.0x, leading to a FV of RM0.45 (80.0% potential upside from IPO price).

Industry Overview

Malaysia’s healthcare industry outlook

• The healthcare services refers to the provision of consultation, diagnostic, patient care and medication for the prevention or treatment of diseases, injuries and other physical and psychological health conditions. These services are provided by healthcare professionals such as general physicians and specialists that are supported by medical assistants, nurses and other healthcare professionals. In Malaysia, aesthetic medicine can be divided into non-invasive, minimally invasive and invasive procedures that require surgical and non-surgical operations.

• Historically, Malaysia’s aesthetic medicine market expanded over the years from RM214.0m of revenue in 2019 and is estimated at RM366.3m in 2022. Moving forward, it is projected to hit RM1.03bn in 2027f, driven by re-opening of economic borders, rising per capita income, ageing population and growing acceptances of these treatments following the widespread use of social media.

• The aesthetic medicine market experienced a fundamental shift from web-based advertising and traditional offline promotions to the utilisation of online-to-offline service platform, short video clips and social media networking platforms to connect consumers. The emergence of Internet influencer further reinforces the efficiency of content delivery to consumers which resulted in more informed decision making.

• In the meantime, constant technological advancement and innovation in the form of aesthetic products and devices further drive growth of aesthetic medicines. For instance, the introduction of non-invasive body contouring systems that use fat freezing technology is less risky, thus creating greater demand against invasive and riskier liposuction procedures.

• On the supply side, there are only 599 LCP certified aesthetic physicians that are accredited under the Ministry of Health Malaysia in the field of aesthetics medical treatment. We gather that the shortage of supply gap may not be filled over the foreseeable future, given it takes approximately 6 years from the completion of studies and housemanship to be a LCP certified aesthetic physician.

• Based on revenue of RM52.0m in FY22, we gather that DC Healthcare commands a market share of 11.1% within the aesthetic medicine market in Malaysia in 2022.

• Moving forward, we expect demand to remain stable overtime that is in line with the growing population that places greater emphasis in the healthcare industry. We reckon that subsequent Malaysia Budgets will continue to place sizeable allocation towards the healthcare industry to upgrade and expand existing hospitals and clinics. This will in turn drive the demand for new medical services overtime.

Investment merits

Experienced team of LCP Certified Aesthetic Physicians supported by clinic staff and clinic consultants

• DC healthcare is headed by Dr. Chong Tze Sheng, who has approximately 13 years of experience in medical services, of which 11 years comes from the aesthetic medical services. He is supported by 9 LCP Certified Aesthetic Physicians and 29 resident medical doctors. With the impending expansion of 8 new aesthetic medical clinics in the pipeline, the group aims to recruit additional 6 LCP Certified Aesthetic Physicians and 16 resident medical doctors that will be supported by additions of 56 clinic consultants and 16 management/administrative staff.

Aesthetic medical clinics equipped with modern medical machines and equipment

• Throughout the years, DC Healthcare has constantly invested in medical machines and equipment such as Pico laser machines and Q-Switched Nd:YAG laser machines. Going forward, DC Healthcare intends to purchase additional medical machines and equipment to cater for the rising demand for their services. Their LCP Certified Physicians and resident medical doctors will have to undergo training on these products and procedures periodically and are required strictly to follow them in daily operations.

Established brand through extensive marketing strategies and track records

• With a cumulative 7 years of track record in the provision of aesthetic services and general medical services, the group has expanded rapidly to 13 aesthetic medical clinics in both central and southern regions. Apart from print media, DC Healthcare has also secured primetime advertisements in selected popular radio stations. Moving forward, DC Healthcare aims to expand their presence into the northern region in Peninsular Malaysia in bid to capture additional market share in the untapped markets.

Financials

• DC Healthcare’s core net profit demonstrated an impressive track record in FY19-22, registering RM9.6m in FY22 (3Y CAGR +101.5%). The said improvement was largely driven by sequential additions of new aesthetic medical clinics. Meanwhile, their net margins have been constantly improving from 9.6% in FY19 to 18.4% in FY22, on higher demand from the aesthetic services segment for facial and skin treatments and facial sculpting that yields better margins.

• Moving forward, we are projecting the core net profit to demonstrate further improvement, rising 31.5% YoY to RM12.6m in FY23f, on the back of additions of new aesthetic medical clinics. We have factored in a total of aesthetic medical clinics with an average revenue/clinic of RM4.3m. This is slightly lower than RM4.7m of revenue/clinic recorded in FY22, given that new aesthetic medical clinics may require a subtle amount of time to establish their sales as well as timing of the opening of new aesthetic medical clinics.

• Going into FY24f, we expect that DC Healthcare’s top and bottom line to record RM91.4m (+34.3% YoY) and RM16.7m (+32.6% YoY) respectively, supported by the (i) on-going establishment of new aesthetic medical clinics, (ii) aggressive marketing to capture additional market share from the un-tapped market and (iii) continuous introduction of new and additional aesthetic medical services to cater for market demand. We believe that their established track record alongside high customer retention rate and competitive pricing will continue to garner demand from existing and new customers.

Valuation

• At an IPO offer price of RM0.25, DC Healthcare’s forward PE valuation for FY23f and FY24f is projected at 19.8x and 14.9x, based on our estimated FY23f and FY24f EPS of 1.3 sen and 1.7 sen respectively. We arrived at our fair value of RM0.45 (80.0% potential upside from its IPO price) by assigning a target PE of 27.0x to its FY24f EPS.

• The assigned target PE represents approximately 20.0% premium to selected peers that offer medical services such as CENGILD, OPTIMAX and TMCLIFE that are trading at an average forward PE of 22.5x for 2023f. This is also in line with Bursa Malaysia’s healthcare’s sector 27.1x for 2024f. We reckon that the premium to selected peers is justifiable, premised on DC Healthcare’s niche business in the provision of aesthetic medical services and the solid growth plans are within achievable reach based on their strong historical track records.

• We like DC Healthcare for its established position in the aesthetic medical services, commanding approximately 11.1% of market share in the aesthetic medical services market in 2022. With the aesthetic medicine market revenue poised to hit RM1.03bn in 2027f, we reckon that DC Healthcare will be one of the prime beneficiaries to leverage onto the growth through their aesthetic medical clinic expansion plan. We also favour DC Healthcare for its strong improving net margins position and well equipped with a sturdy double-digit ROE over the years.

• While DC Healthcare does not adopt a formal dividend policy, we note that the group has been operating at a net operating cash flow over the years. We reckon that the rolling out of aggressive expansion plans would be their key focus over the next 18 months.

Source: Mplus Research - 10 Jul 2023