Although investor interest in ACE Market-listed Mexter Technology Bhd may have waned, the company is pushing ahead to gain a firm footing in the healthcare sector. It had entered the sector after obtaining shareholders’ nod in an extraordinary general meeting in May last year.
Without much fanfare, Mexter quietly commenced operation of its first postpartum centre, LYC Mother & Child Centre, in the affluent Taman Tun Dr Ismail residential area in Kuala Lumpur early this month.
The company believes confinement care is a niche business which has good potential due to growing population and increasing household income.
With the move, Mexter hopes to return to the black by the fourth quarter of this year, its group CEO and managing director David Sui Diong Hoe tells FocusM. The group says it intends to focus on the mother-and-child (M&C) healthcare segment, specialising in the provision of postpartum care.
“Mexter has chosen mother and child-related healthcare services as its maiden focus in the healthcare segment as Malaysia has a relatively young demography. The healthcare industry is also a comparatively stable and resilient market. This makes the sub-segment an attractive business proposition with good long-term viability,” says Sui in an email reply to FocusM.
While the move into healthcare is new for a tech company like Mexter, it was not a sudden decision. Recall that in 2016, the counter attracted the investor community’s attention when the former chairman of HSC Medical Centre (HSCMC) Lim Yin Chow emerged as a substantial shareholder in Mexter, taking up a 28.38% stake.
Lim, the co-founder of HSCMC, had long divested his interest in the medical centre. He brings his experience and track record to Mexter, ensuring that it is entering the healthcare sector with good guidance.
In addition, the company is banking on the expertise of Lim and June Yang, former chief operating officer of HSCMC. Yang now helms Mexter’s healthcare division as CEO.
Moreover, to minimise execution risk, it has also engaged the services of Cheng Chih-Chieng, a Taiwanese who is a certified medical practitioner with two well-established confinement centres in Taiwan.
Prior to this, Mexter was mainly providing information technology (IT) solutions, mobile messaging and services to the manufacturing and human resource sectors. With the entry of HSCMC’s Lim, Mexter’s sudden interest in the healthcare sector is understandable.
It appears there is much enthusiasm for the healthcare venture. The team at Mexter strongly believes the business could be a turning point for the group, after enduring multiple years of losses.
For the 15 months ended March 31, 2017, its net loss amounted to RM2 mil on the back of a turnover of RM41.17 mil (Mexter changed its financial year-end in March 2016, hence the 15-month reporting period).
If Mexter does not arrest the situation, it could well slip into Guidance Note 3 (GN3) status. A company is categorised as GN3 affected if its shareholders’ equity is 25% or less than the total share capital. For the period ended March 31, 2017, Mexter’s shareholders’ fund amounted to RM9.2 mil or 31.37% of the total share capital of RM29.32 mil.
With a well-planned business strategy and the required talents, Mexter’s healthcare division appears set to take off successfully. Investors will now be watching to see whether the company can indeed return to profitability.
Demand for post-delivery healthcare services
The confinement care business is a niche sector. It is fragmented yet lucrative. It is not unusual for young parents to spend a five-figure sum to receive the best care during the postpartum period.
Mexter’s LYC Mother & Child Centre has 33 rooms with five-star services and facilities to match. Mexter’s management says each centre will have only an average six-month gestation period, compared to about two years for a greenfield hospital project.
It is now ramping up the centre’s operations with a targeted monthly occupancy rate of 80% by the third quarter.
Locally, there is a demand for traditional confinement ladies, which is not a profession that the younger generation seeks to pursue. Hence, it has become increasingly challenging to look for experienced personnel to look after the new mothers. Sui expects the number of mothers turning to confinement centres to increase.
“We have modelled this centre along the lines of luxury confinement centres in Taiwan and sought to enhance it further to cater to our local market,” says Sui, explaining that the pricing and packages offered by the centre are reasonable and competitive compared to other operators.
Its packages are priced at a slight premium to some local competitors, hence targeting households from the mid- to high-income brackets which can afford better care during confinement.
Packages for confinement care in the Klang Valley range from RM6,000 to RM50,000 per month, based on a report by CIMB Research in January. The report also estimates there are 20 to 30 commercial confinement centres in the country. The quality of their services varies and most are operating on a small scale with limited capacity.
Moreover, many do not provide in-house healthcare services. This is a vacuum Mexter seeks to fill. If all goes well with its healthcare venture, it could well enter into paediatrics and fertility management services as well.
Weighed down by mobile and computing divisions
While the outlook of the M&C healthcare segment is rosy, Mexter’s other divisions are incurring losses, especially its mobile services, and computing and electronics divisions.
Through its 80%-owned subsidiary, MexComm Sdn Bhd, the company provides SMS gateway services such as bulk and premium messaging services. Mobile services is also Mexter’s main breadwinner, bringing in RM29.07 mil in revenue to the company for the 15 months ended March 31, 2017. But the division incurred a loss of RM1.18 mil compared to a profit of RM136,000 in the financial year ended Dec 31, 2015.
Meanwhile, its computer and electronics segment posted a smaller loss of RM630,000 on the back of higher revenue of RM10.62 mil. In FY15, revenue stood at RM7.05 mil with a loss of RM2.03 mil.
Unless these two divisions are able to turn around, its overall profitability will be affected, despite venturing into the healthcare sector. Some of the strategies the company is studying is divesting some of its business units to stop the losses.
Sui stresses the main focus now is to “improve financial and operational performance by optimising the resources of the respective entities and manage the fixed and variable costs.
“The group will also explore ways to grow the business and identify potential ways each division can help generate cross-sales,” he says.
Since late 2015, Mexter has taken measures to reduce staff costs for the two loss-making segments. For the financial period ended March 31, 2017, operating expenses had been reduced via reduction of headcount, to RM8.6 mil from RM10.3 mil in the previous corresponding 15 months.