Union Medical partners with real estate developers, insurers for China expansion

➤ Hong Kong-based Union Medical Healthcare plans to open 50 new clinics in mainland China by 2025.

➤ The medical service provider's strategy involves forming ties with real estate developers and insurers.

➤ The company aims to generate about HK$1 billion in annual revenue from mainland China by 2025.

Union Medical Healthcare Ltd. began as an aesthetic clinic chain in Hong Kong, before expanding its footprint into mainland China in 2015. Recent supportive policies by the Chinese government including allowing drugs registered in Hong Kong to be used in designated medical institutions in bordering city Shenzhen, as well as the growing demand for premium healthcare services, drove Union Medical to accelerate this expansion.

Co-owner and CFO Levin Lee said the company currently operates 13 clinics on the mainland and aims to open a further 50 by 2025, mostly in the Greater Bay Area, a megalopolis connecting China's coastal cities in Guangdong province with Hong Kong and Macau.

Lee recently spoke to S&P Global Market Intelligence about the company's expansion plans and how it will tackle the existing hurdles for private clinics in China. The following is an edited transcript of the interview.

S&P Global Market Intelligence: What therapeutic areas will you focus on in mainland China? How will you expand in the market?

Levin Lee: All of our 13 clinics in China right now are focusing on aesthetic medicine such as botox injections, and most are opened in shopping malls. In the future, we will focus on pediatrics, dental, aesthetic, chiropractic and physical examination with our 50 new clinics, mostly in the Greater Bay area.

[As part of this] we are considering acquiring some aesthetic clinics in China and becoming the leader in the aesthetic market, which is currently very fragmented.

We chose these therapeutic areas because there aren't many private clinics focusing on them in mainland China yet. Prior to the pandemic, about 38% of our clients in Hong Kong actually traveled from mainland China and they still find it tough to find a replacement in mainland China.

For the expansion in China, part of our strategy is to partner with real estate developers. The benefit of forming ties with them is that we can open clinics in or close to their residential properties, which also echoes local government's effort to build community clinics as gatekeepers for top-tier hospitals to ease their pressure.

For example, in Shenzhen alone, the government aims to have 1,200 community clinics in the near future. To date, there are 600 and about half of them are owned by private companies. We want to be a part of that.

How will you tackle the affordability issue in mainland China? What's the revenue outlook in the region?

We will try to get into the national medical insurance system, which will allow our patients' bills to be at least partly covered by the country's national medical insurance.

But I think commercial insurance is also very important. We are exploring one potential collaboration model with insurance companies where they can give us a certain budget for covering some or all of their clients. With that, they don't need to worry about the uncertainty of medical claims and we can get a sizable client base. We saw some clinics are already testing this model in Hong Kong.

Also bear in mind that many of the mainland Chinese clients who visit us in Hong Kong actually pay from their own pockets.

How long will it take for the clinics to break even and what's the revenue outlook for your expansion on the mainland?

Usually, we target operating cash flow to break even in about six months after we open a new clinic. In 12 to 18 months, we shall gain enough to cover all of our initial capital outlay. We started our first clinic in mainland China in 2015 with HK$10 million, and all of the other clinics we opened in China later were only using the money we gained in the market.

By 2025, we aim to generate a revenue of about HK$1 billion per year in mainland China [up from about HK$88 million for the full fiscal year ended March 31, 2020].

So far we are serving about 100,000 of the 7 million population in Hong Kong and will aim [to serve] 1 million patients in the Greater Bay area, which has a 70 million population.

Will more private companies open clinics in mainland China and how will that change the healthcare landscape?

It is a trend that more private money will enter the healthcare market. The private market has been growing slowly in the past years but the aging population in China, the growing middle class' demand for premium healthcare services, and the pressure on top-tier public hospitals are some of the factors that drive the government to push for changes and encourage private companies to enter the field. Therefore, in recent years, there has been some progress and supportive policy for private clinics, such as the 1,200 community clinic goal that the government of Shenzhen set up.

With more private clinics and competitors, I think medical complaints will be handled better and doctors' salaries will also be higher, which can make the market healthier and more efficient.