Hailing from the small Malaysian town of Ipoh, Teh Wing Kwan has built up a track record as a restructuring specialist of sorts. Back in 2013, he helped Sapphire Corp turn from a struggling steel supplier and vanadium processing company into a China-based infrastructure engineering firm.
Having helped Sapphire turn around, Teh left in 2017. Then, as chairman of Hong Kong-listed China Vanadium Titato-Magnetite Mining Co, he helped complete a RMB1.3 billion restructuring exercise in 2019.
Evidently, Teh’s fondness for leading restructuring exercises is not a one-hit wonder. In June 2018, he bought over a 28.7% stake in Advance SCT making him a controlling shareholder. At that point, Advance SC was struggling as a copper trader and has been on the SGX watchlist since March 2015,
The company was renamed Citicode in February 2019 and its business focus shifted towards mechanical and electrical (M&E) engineering for smart cities, in line with Singapore’s Smart Nation initiative.
With this new focus, Citicode managed to turn around, from losses of $638,000 for FY2018 to a marginal profit of $13,000 the following year. However, before it could continue with the momentum this year, Covid-19 hit and the company incurred wider losses of $608,000 for 1HFY20, from $301,000 in the red for 1HFY19. “With disruptions due to Covid-19 and an imminent recession, Citicode’s commodities trading activities face additional uncertainty, while its M&E projects have to contend with long gestation periods and supply chain disruptions,” Teh explains.
Blessing in disguise
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Now, Teh, who is executive chairman and CEO of Citicode, has found a new path ahead for the company. Around the end of last year, it teamed up with now Livingstone Health Singapore for an engineering, procurement and construction project for a healthcare centre in Malaysia. This was shortly after Livingstone, previously Ardmore Medical Group, abandoned its IPO plans.
The two parties warmed up to each other and soon talks were underway for a reverse takeover deal (RTO), with Citicode offering the listed status and Livingstone bringing to the table a viable, growing business. On July 29, Citicode announced that it will be acquiring Livingstone for a sum of $72 million.
The deal includes a base consideration of $47 million and a deferred consideration of $25 million, which is tied to a profit target of $4.8 million for FY2021. “This payment structure implies that the vendors and Livingstone have reasonable confidence in achieving the adjusted profit target,” says Teh, referring to the $25 million deferred portion.
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If the deal is successful, Citicode will once again undergo a restructuring, and will change its name to Livingstone and shift its focus to the healthcare sector, whose importance has grown with Covid-19.
“In evaluating M&A opportunities during these uncertain times, I have been focusing on targets with strong execution capabilities, stable income, sustainable growth and in a defensive industry. More importantly, completion of this RTO will mean two proactively restructured and rebranded companies come together for viable corporate plans,” says Teh.
Teh believes this deal will help Citicode embark on a sustainable turnaround. “It will improve financial performance, reposition Citicode for future fund-raising and mitigate risks associated with our current businesses,” he says.
Upon completion of the transaction, Citicode will divest its existing M&E business and focus fully on growing Livingstone’s healthcare business. Both entities are already exploring growth opportunities and how to go about doing so. “The existing fundamentals of Livingstone is backed by a solid historical financial performance,” Teh adds.
For FY2019 ended Dec 31, 2019, Livingstone reported unaudited adjusted earnings of $3.79 million, up 12.4% from FY2018. The adjustments excluded items such as earnings attributable to minority interests, one-off non-recurring expenses such as initial set-up costs for new medical practices. Revenue in the same period increased by 66.5% to $14.7 million.
To fund this RTO deal, Citicode will pay a cash component of $3.5 million, and will also issue up to 342.5 million new shares at 20 cents each. But first, Citicode needs to consolidate its current share base in a ratio of 500 into 1. In other words, from the 41.3 billion existing Citicode shares — trading at the rock bottom level of 0.1 cent — will be reduced to 82.6 million. The number will then increase to 425.1 million after new shares are issued to the vendors of Livingstone. Citicode will also transfer its listing from the mainboard to SGX’s Catalist board.
Towards a healthy growth
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Livingstone’s CEO, Dr Wilson Tay, welcomes this deal, as he believes that “Livingstone’s vision can be manifested across Singapore and Asean through this partnership with Citicode”.
Livingstone has also gone through some rough patches. Before it made the decision to scrap its own IPO, Livingstone underwent a restructuring and rebranded from Ardmore Medical. One of its founders, Dr Sean Ng, was the subject of negative press over the last couple of years over a botched surgery back in 2016.
According to Dr Tay, the IPO was dropped in August 2019 because of unfavourable market conditions and also because the company was trying to expand, and those deals would have affected the IPO process.
After Livingstone dropped its IPO, it went ahead to introduce its new cardiology arm, its fourth specialisation, in November 2019. A month later, it acquired Phoenix Medical Group and added a fifth specialisation to the group — family medicine.
As of July 29, Livingstone as a group has 13 medical doctors practising at 10 medical clinics and one medical spa. When it lodged its preliminary offer document last year, it had five medical doctors practising at four medical clinics and one medical spa.
Dr Tay, who wears another hat as Livingstone’s head of the pain management and anaesthesiology division, believes that by building a multi-disciplinary team, the different specialists can complement each other to provide a more well-rounded healthcare service under one roof.
Livingstone is looking next into endocrinology. “We are looking at another discipline in the pipeline – endocrinology, mainly to deal with diabetic patients. Diabetes has overtime become a healthcare problem in Singapore, with around 10% of the population being affected. The [Singapore] ministry also last year declared a war against diabetes,” says Dr Tay.
“So, having an endocrinologist on board with us, will also help us to better manage and offer this service to our patients. And of course we’ll also be looking at other surgical disciplines as well,” he says.
Unsurprisingly, Dr Tay is also upbeat about the growth of Singapore’s medical services industry. “People see Singapore as a medical hub. We are like the mecca of medicine and people would come [from all over the world] to Singapore to seek treatment,” he says, noting that with premium services, comes also a premium price tag. And Singapore now has to compete with neighbouring countries that are offering cheaper services.
As it is, KGI Securities believes that the worst is over for healthcare providers. However, a slowdown in the economy may affect patients’ willingness to spend on non-essential aesthetic procedures, especially so in the Dermatology segment. Medical tourism may also take a longer period of time to recover as Singapore’s neighbouring countries continue to fight the pandemic. These factors pose an added risk of further impairments to the goodwill relating to the healthcare segment.
Competition aside, medical tourism is in a rut now due to the Covid-19 pandemic. But both Teh and Dr Tay are not worried about that. “Foreigners cannot come to Singapore now, but that has not affected us much, because our primary patients that we are trying to serve are the locals,” says Dr Tay.
“After all, we are a local company and the people that we try to serve will be our local population. With rising healthcare needs and costs, we provide locals a one-stop solution for their healthcare needs with our primary team of healthcare specialists,” adds Dr Tay.
Livingstone has gone beyond Singapore too. It currently operates an aesthetics and wellness clinic in Phnom Penh, Cambodia as part of its joint venture with Soriya Hospital, a leading healthcare provider in the country. This facility was launched in November 2019.
Dax Ng, Livingstone’s chief business officer and brother of Dr Ng, says, “I think there are opportunities, especially from the training, expertise and experience. And we have to kick start somewhere and from there let it evolve and let it have its own DNA.”
“When we were in Phnom Penh, we provided them (Soriya Hospital) through our consortium consultation and advised on medical equipment, facility design and operations. Essentially, we provided them with the best input from Singapore that we can,” he says, adding that the rich in Cambodia tend to head to Singapore to seek medical treatment due to the country’s reputation of being a medical hub.
Apart from Singapore and Cambodia, Ng says that the group is looking into other countries such as Vietnam and Malaysia to expand their regional footprint. However, with Covid-19 still affecting cross-border travels, the group’s overseas expansions will take some time to materialise.
With Citicode and Livingstone joining hands, the growth plans might just receive a boost.
