HEALTH

Pr WRITTEN CASE
Co (gg ivat
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GREMASOK HEALTH: OVERVIEW
Market entry Medium difficulty
Healthcare Long written case
Case overview
This case focuses on a Gremasok Health, a Singaporean healthcare company. Gremasok have had significant
success in their home market and a handful of other countries, and are considering further international expansion.

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An upcoming regulatory change in Vietnam provides them with a potential opportunity for such expansion, and

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Gremasok are seeking help to understand how attractive the market is and whether they should enter it.

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This case tests the full case scorecard but focuses more on qualitative insights than numerical analysis. It features

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a wide array of exhibits, but the key insights are for the most part quite straightforward or can be arrived at from
multiple angles. The challenge lies in quickly pulling insights together from a large body of source material.

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Instructions
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Please read the brief on the next slide, review the exhibits contained within the exercise, and prepare a short set of
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slides in response to the brief. You should spend no more than 60 minutes on this preparation.
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The expected output is 3 – 5 slides that you could present and speak to. While we have provided a ‘model’ answer
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here, given the short preparation time your slides may well be simpler and/or make more direct use of the exhibits
provided.
2
GREMASOK HEALTH: THE BRIEF
From: Peijun Lee
To: GH Project Team
Subject: Gremasok Kick-off
I’m really excited to have you all onboard for the Gremasok project. It’s the first time we’ve served GH, and I’m keen to show them the best our firm can offer.

The Vietnamese government has just announced that, starting two years from now, private operators will be able to run hospitals and related services in the
country. These new hospitals will primarily cater to private patients, but can also provide some state healthcare (such as specialist procedures). Until now
there have only been a very small number of private operators, catering strictly to expats and tourists, so this reflects a big change in the local healthcare

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system.

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Gremasok Health wants to explore the opportunity of the Vietnamese market. GH is a large Singaporean private health provider who run hospitals not only in

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Singapore, but also Malaysia and Thailand. They typically take on existing sites and revamp them to become Gremasok hospitals, although they have also

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entered into other arrangements, such as contracts where they administer someone else’s site.

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The company currently enjoys growing profits and revenues in its core business. It is relatively cash rich, has good access to debt, and has a Board actively
looking for new opportunities to grow.

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Our task is to help Gremasok determine whether to enter the Vietnamese market. This is quite a wide-ranging project, and will require us to evaluate the
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attractiveness of the Vietnamese market at a macro level as well as Gremasok’s ability to thrive in it. Please review the information provided and prepare an
initial presentation for our first problem-solving discussion. I’d like you to specifically think about:
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▪ How attractive is the Vietnamese healthcare market, at a high level?

▪ What returns could GH expect from the Vietnamese market? For simplicity, I recommend that you focus at this stage on the economics of opening a first
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facility only, and estimate the rough ROIC GH may be likely to realize on that investment
▪ What risks should GH be cognizant of when considering this market?
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I look forward to hearing your initial insights when we catch up!

Peijun Lee | Partner
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I. CASE EXHIBITS

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NATIONAL DATA
Wealth and consumer spending in Vietnam

2,700
200
Consumer spending ($bn)

2,250

oh om ao

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ite
150 1,800

GNI / Capita
g ai e
in m ac
1,350

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100

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900
50
d 25 y o
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450
py he e c

0 0
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Y-30 Y-25 Y-20 Y-15 Y-10 Y-5 Y0

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Consumer spending GNI / capita

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NATIONAL DATA
South East Asia: Corruption index scores (last year)

Lowest Highest
100 corruption score corruption score

oh om ao
80

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ib )
Pr l.c G

ite
g ai e
60

in m ac
Average: 43

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40

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20 d 25 y o
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0
py he e c
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Source: Transparency International

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NATIONAL DATA
Historical exchange rate data: Singaporean Dollar (SGD) to Vietnamese Dong (VND)

17,500

oh om ao
17,000

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ite
g ai e
in m ac
16,500

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Sh @ f
16,000 d 25 y o
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15,500
py he e c
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15,000
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Y-4 Y-3 Y-2 Y-1 Y0

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NATIONAL DATA
Vietnam population growth and distribution over two decades
Population growth by year (m)

89.8 90.8 91.7 92.7 93.6 94.6 95.5 96.5 97.3

84.6 85.4 86.2 87.1 88.0 88.9
79.9 80.7 81.5 82.3 83.1 83.8

oh om ao

d.
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ite
Y-20 Y-19 Y-18 Y-17 Y-16 Y-15 Y-14 Y-13 Y-12 Y-11 Y-10 Y-9 Y-8 Y-7 Y-6 Y-5 Y-4 Y-3 Y-2 Y-1 Y0

g ai e
in m ac
Population Distribution: Y-20 Population Distribution: Y0 (most recent year)

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100+ Male pop 100+ Male pop

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90-99 90-99
80-89 d 25 y o Female pop 80-89 Female pop
70-79 70-79
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60-69 60-69
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50-59 50-59
40-49 40-49
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30-39 30-39
20-29 20-29
10-19 10-19
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0-9 0-9
12% 9% 6% 3% 3% 6% 9% 12% 12% 9% 6% 3% 3% 6% 9% 12%

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INDUSTRY DATA
Government decree on healthcare privatisation (key excerpts)
The Government of the Socialist Republic of Vietnam hereby declares that the monopoly of provision currently enjoyed and
fulfilled by the Vietnamese government with regard to healthcare provision in the country will be partially lifted. This is a decision
taken with the aim of improving the health of the whole nation…The Ministry of Health will therefore be taking applications for
those wishing to be granted a 5 year licence to operate hospital services in the Republic of Vietnam. We are only interested in

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applications of the utmost quality and integrity, and will both solicit and review applications with the sole aim of improving the

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health of the people of Vietnam.

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We will actively oppose, whether in application, or operation, any firm who seeks to profiteer or extract solely financial benefit from

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conducting healthcare services in Vietnam. There will be a robust process for new hospital sites that will require at least 2 years to
pass from contracts completing to opening the hospital…We will be looking for partners who bring international expertise and can

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upgrade the quality of the professional healthcare workforce of Vietnam.

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The people of Vietnam are living longer than ever, and our birth rate is nearing record levels. With such population strength we
need to make sure there is adequate supply of the best healthcare. We will be prioritising the procedures where we believe the
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people of Vietnam can be helped by international innovation.
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The main focus sectors of the new provision will be the running of pharmaceutical services and the running of hospitals. With
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regard to hospitals, we intend to give new providers control of the hospital service. They will be responsible for delivering all care
within that hospital, and expected to treat both private patients and those arriving with government cover. They will be regulated
by the Ministry of Health to ensure quality...We will give providers significant freedoms to bring in innovation, but they must
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maintain quality in the eyes of the regulator and ensure the upskilling of the Vietnamese healthcare profession.

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INDUSTRY DATA
Key facts on Vietnam in Singapore’s ‘Pacific Health Investor’

Summary Key investor facts

This is an exciting country, with a population verging on 100m ▪ Labour costs estimated at 30% below Singaporean average
and GDP growth of nearly 7%. The upcoming decree 83 is

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▪ Hospital equipment is also 20 – 25% below Singapore average
going to substantially modernize Vietnam’s healthcare market.

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▪ Total capital cost of building or revamping sites estimated at

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There is a clear opportunity to operate profitably in this market.

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35% below Singapore average

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Though regulation and corruption concern us, in terms of the
raw economics of running a site there are clear gains. The cost ▪ Typical timing to convert existing sites into hospitals: 18 – 24

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of building or re-purposing sites is particularly low, given low months
labour costs and very light regulation.

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We believe that demand could be very strong. Currently, there
▪ Drug & materials purchasing costs estimated at 12% lower
than the Singaporean average, given lower salaries of
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is a near universal trend among the upper and upper-middle intermediaries and in processing costs. Equipment costs lower by
classes to go outside the country for important healthcare.
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a similar amount
Pricing may be an issue: although these people are used to
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paying international prices, the opening of the market will bring ▪ Estimated pricing for drugs & procedures 20% lower than
competition from regional players used to lower pricing than average in Singapore (though varies considerably by procedure)
the US market. Certainly we expect the market will command
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much lower prices than more developed parts of SE Asia. ▪ 15% tax rate, compared to 5% locally

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INDUSTRY DATA
Spending on healthcare in Vietnam over past 30 years
Overall healthcare spending (USD $m)

30,000 24,600
18,500
20,000

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11,100

d.
6,660 8,325

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10,000 4,585 5,095 5,661

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0

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Y-30 Y-25 Y-20 Y-15 Y-10 Y-5 Y0 Y+5F

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Healthcare spending per capita (USD $)
d 25 y o
300 251
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194
200
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94 119
100 67 68 71 79
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0
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Y-30 Y-25 Y-20 Y-15 Y-10 Y-5 Y0 Y+5F

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INDUSTRY DATA
South East Asian healthcare providers: Revenues by practice area ($m)
1800

1600 200
1400 48

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234 24
1200

d.
494
2

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234

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1000 192 24

g ai e
214 6

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800 72 28
72 136 136 2 74

ar g Gr
48 48 48 2
600 76 320 624
178 178

Sh @ f
24 900
400
552
d 25 y o
126
74
184 126
74
678
74
200
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150
226 226 226
98
0
py he e c

BKK Health Mekong Hospital Better Care Asia Gremasok Aspiration health Infyonbol Instamwelfare
Group
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Drugs (prescription or OTC) General practitioner services Hospital administration

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Hospital procedures Hospital residency & patient care Other

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INDUSTRY DATA
Frequency of cases & procedures in Vietnamese hospitals (last year’s data, ‘000s)1
Presented case Minor Mainstream Expert or Total
Procedural area (no procedure) treatment surgery unusual care cases

General 5,046 1,888 1,272 22 8,228

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Neuro 207 171 241 167 786

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Cardiothoracic 321 307 326 61 1,015

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Otolaryngology 504 412 490 79 1,485

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Trauma and orthopaedic 899 872 1,210 206 3,187
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Paediatric 2,441 1,045 770 102 4,358
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Oral & Maxillofacial 600 705 610 86 2,001

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Urology & vascular 661 812 956 219 2,648

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Total 10,679 6,212 5,875 942 23,708

1 Glossary of terminology overleaf

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INDUSTRY DATA
Glossary of hospital procedures
Presented case: A patient arriving at the hospital, whether of their own accord or from another health provider

Minor treatment: When the case is dealt with without involving surgical procedure or extended stay

Mainstream surgery: Involvement of a standard surgical procedure

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Expert or unusual care: Where a case requires unusually high volume of staff, cost, or intricacy of procedure/care

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Neuro: Covers all aspects of brain surgery and anything involving the brain, central nervous system, and spinal cord

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Cardiothoracic: Concerns issues of the heart, lungs, oesophagus and chest

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Otolaryngology: All aspects of the head and neck region, including all ear, nose and throat & facial plastic surgery
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Trauma and orthopaedic: Covers bones, joints, muscles, and associated soft tissues, including ligaments and nerves
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Paediatric: Work on the diseases, traumas and malformations specific to childhood years (a minority of all child cases)
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Oral & Maxillofacial: Work on facial bones, face and neck excluding facial plastic surgery
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Urology & vascular: Urology concerns kidneys, bladder and urinary problems. Vascular concerns work on veins and arteries

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INDUSTRY DATA
World Bank internal memo on health reforms in Vietnam (key excerpts)

The Bank has long supported the end of state monopoly on healthcare in Vietnam, and thus welcomes this action.

This change opens up a market where innovation is rare, complex procedure standards lag similar neighbours, and

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general care is decades behind richer adjacent countries like Singapore or Malaysia. The involvement of private

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organizations offers an opportunity to improve healthcare across social and demographic groups if implemented as

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broadly as the recent government decree (decree no. 83) suggests it will be.

g ai e
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The Bank team in Vietnam does have some concerns over the speed of change suggested in decree no 83, and

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there is reason to be skeptical on the feasibility of delivering procurement, contracting, and other aspects of the

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implementation in a short timeframe…We believe there is a major risk of public policy failure and medium-term harm
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to health innovation and private sector actor willingness to enter the Vietnamese market if the implementation
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proceeds ahead of the ability of the infrastructure to cope.
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We are also concerned about corruption and a potential failure to distinguish valuable bids from those seeking to
profiteer. There is therefore an urgent need for support and capacity for the Vietnamese Ministry of Health regarding
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procurement to prevent corruption, a lengthening of implementation timeframes, and a robust assessment of

potential bids. Without this Vietnam remains exposed to some downside risks.
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INDUSTRY DATA
Article from economics magazine on Vietnamese health reforms (excerpt)

Vietnam: Growing SE Asia giant launches shock sweeping privatization of healthcare

Once a battleground in the Cold War, Vietnam has since 1990 begun an ascent to regional economic powerhouse, in
some areas replacing China as the workshop of Asia’s booming Tiger economies.

oh om ao

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Its people remain poor, and if anything services provided by the state lag those available to neighbours at similar

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levels of development. This is likely what has prompted the radical plans by the new government, who had only

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begun discussing the possibility of breaking the state monopoly on healthcare this year.

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Several large healthcare providers are likely to be licking their lips at a market with nearly 100M people, and where

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both outright spending and spending per capita have grown rapidly in recent years. Moreover, an increasingly
wealthy elite who currently travel for healthcare may well now spend that money at home, as international providers
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come in to offer the complex procedures that are currently hard to get done swiftly and reliably within Vietnam.
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Initially, this is likely to be a policy that affects the elite and prime urban centres in Hanoi and Ho Chi Minh City. If the
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government truly wants to spread the benefits of plurality of supply, however, they will have to work out how to reach
Vietnam’s remote, mountainous rural areas and vast numbers of people hovering around the UN poverty line who
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have little ability to supplement still meager government healthcare spending.

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INDUSTRY DATA
Spending on healthcare in Indonesia (USD $m, last year’s data)

Over counter drugs

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Prescription drugs

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General practitioner services

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Hospital administration

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Hospital procedures

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Hospital residency and patient care
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Post care follow up and services

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Other

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
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INDUSTRY DATA
Excerpts from Gremasok research team report (1 / 3)
From: Lydia Ang
To: Peijun Lee
Subject: Research findings

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Please find attached the team’s initial findings on the opportunity presented to Gremasok from Decree 83 in Vietnam. This

d.
concludes over 500 hours of desk research, and over 100 interviews with international experts and local experts from our time on

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the ground in Vietnam.

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We have concentrated on i) understanding and explaining the decree, ii) mapping the Vietnamese Healthcare sector and

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opportunity, iii) looking at competition (both within Vietnam and possible market entrants), and iv) trying to prioritise opportunities
for Gremasok.

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The work naturally has limitations - the deadline of today meant that the team only had c.1 month to complete the research, and
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we found that even on the ground in Vietnam there is still a lack of clarity on the precise implementation of the decree. However,
we believe that the team has produced a piece of work that can allow the Executive to make an informed decision going forward.
py he e c
Co (gg ivat

Kind Regards
Lydia Ang
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Lydia Ang | Gremasok Research Team

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INDUSTRY DATA
Excerpts from Gremasok research team report (2 / 3)

Those who understand the Singaporean/Malaysian healthcare market report that facilities and standards of care in Vietnam are markedly lower, even
accounting for the stage of economic development. Most respondents believe that this is what has driven the government toward Decree 83. However,
experts and insiders we spoke to considered the decree to have been rushed through, and it’s challenging to discern the exact implementation detail
and timeline from the announcements alone.

oh om ao

d.
Among the core issues we saw - confirmed by interviews with international experts - was core hospital management, with procurement, budgeting, and

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human resource allocation all at a low standard. International experts we spoke to considered it below not just our core markets (we would concur), but

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also below Indonesia and perhaps Cambodia on these metrics, even in the bigger cities.

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Economic development is markedly different in Ho Chi Minh City and to some extent Hanoi, in comparison to other areas. There is a thriving private

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sector, including some international players, that is booming as an elite becomes rapidly richer. Just as a ‘black market’ in tutoring has been created by
a lack of access for Vietnamese to private education services, a market has been created in minor healthcare being delivered privately to richer

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d 25 y o
Vietnamese from existing international health providers.
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There are 41 hospitals in Ho Chi Minh city, with a total of 4,242 beds, of which only 3 are private hospitals (reflecting the limited role they have been
allowed to play to-date). The hospitals overall offer a wide range of preventative, surgical, diagnostic, and treatment services including general
py he e c

screening, pediatrics and birth control, obstetrics and gynaecology, reproductive health, and counselling services.
Co (gg ivat

We recommend concentrating future research on Ho Chi Minh City, and on the opportunity not only of complete control of a hospital but of hospital
management roles in partnership with other (possibly local or international) providers. We remain concerned about the limited understanding of
implementation timelines and actualities emerging from the seemingly rushed and rather high level Decree 83 and accompanying government
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communication.

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INDUSTRY DATA
Excerpts from Gremasok research team report (3 / 3)
Having investigated labour costs, we believe we would make savings of c.30% annually on staffing relative to our existing sites, even
allowing for moving expertise across from Singaporean, Malaysian and Thai sites.

We investigated building costs in some detail. Regulations and labour are strikingly less onerous than Singapore, and we believe a similar

oh om ao
hospital construction would be 30 - 40% lower in Vietnam than in our local sites. However, timing on construction projects can be tricky

d.
owing to corruption issues, and somewhat arbitrary intervention by local officials. In addition to low capital costs, ongoing building

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maintenance cost is estimated to be around 20% below Singaporean levels.

ite
g ai e
in m ac
Some of this reminds us of the Mexican opportunity reviewed previously, in terms of the knock-on effects for both ROIC and ongoing
operating profits.

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In terms of pricing, currently many of the target customers are going abroad for operations. They are therefore paying similar prices to

Sh @ f
d 25 y o
those we would charge in our Singapore, Thailand and Malaysian sites….This is particularly the case in more complex procedures and
patient care, and generally in paediatrics, where Vietnamese providers are not trusted by wealthier customer groups.
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International healthcare brands are known among the elite, and almost everyone in the upper and upper middle class has a relative who
py he e c

has gone to seek treatment in Europe, the US, Korea or Singapore…While this was predominantly in older age groups the new fashion is
to do this for paediatric and mid life cases as well.
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The lack of currently available hospital options indicates that the volume of cases would likely be higher than in our typical sites, especially
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in a hyper competitive market like Singapore. The existing tourist-focused private hospitals are much smaller than our typical sites, but
often have patient volumes only 20% lower with as much as a 50% reduced square footage.

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INDUSTRY DATA
Vietnamese cities: Hospital sites and hospital procedures per person

1.0
Buon Ma Tohout
Danang
Vung Thao
0.8 Ho Chi Minh

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Hua

d.
Procedures per person

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Hanoi

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Nha Trang Hai Phong

g ai e
0.6

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Bien Hoa

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0.4 Can Tho

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0.2
py he e c
Co (gg ivat

0.0
0 5 10 15 20 25 30 35 40 45 50
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Hospital sites

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CLIENT DATA
Email from Group Head of Strategy to CEO
Subject: Re: Research findings
I hope you have had the chance to read in full the research team’s report on Vietnam’s recent Decree 83.

As you know, I’ve long been a proponent of us looking outside our core markets for growth, especially given the reducing opportunities and slowing organic
growth in Singapore and Malaysia. Despite the ageing populations, I don’t see this changing. That was why I supported our entry into Thailand, and the

oh om ao
investigation of the Indonesia opportunity previously.

d.
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I believe that this initial report confirms the point that I have made to you before, regarding the scale of the Vietnamese opportunity. Similar to Thailand, we just

ite
cannot miss opportunities in large countries in our own back yard. The radicalism of Decree 83 both means that the market opportunity there is large, not

g ai e
piecemeal as we had feared, and that there is likely to be a large space into which operators with regional expertise and international standards can move. The

in m ac
government is likely to be looking for safe pairs of hands, and unlikely to find many of them locally.

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Just as we have experienced success in large urban centres and surrounds (Singapore, Kuala Lumpur, Bangkok, etc) I believe that both Hanoi and Ho Chi Minh

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City provide excellent opportunities. It is here that we will get the scale to utilise our superior hospital management capability and also find the demand for our
d 25 y o
international high end treatments and service.
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I do have some concerns regarding the possible capital outlay, if we are to move into owning and operating hospitals, given the expense of real estate in Ho Chi
Minh city (rising by an estimated 12% CAGR in the last 5 years), and the difficulty of finishing building projects on time and to budget in Vietnam because of
py he e c

strong unions, corruption, and government interference. We do also need to keep in mind the Board’s guidelines to be a “10% business” – we shouldn’t look at
opportunities that can’t reach beyond a 10% ROIC.
Co (gg ivat

That said, the opportunity seems real and significant. I believe we urgently need to put some of my team on this, in order to better assess how and when we
enter the market. I have a feeling we want to be first.
Pr

Kind regards,
Lucy Pearson | Head of Strategy
22
CLIENT DATA
Revenue and cost data for Gremasok Novena Hospital ($’000s, last year’s data)
Revenue data
Q1 Q2 Q3 Q4 Total

Drugs 8,160 8,057 8,250 8,074 32,541 Novena hospital is one of

Gremasok’s major sites in

oh om ao
Singapore.

d.
General non-

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7,368 6,976 7,920 6,936 29,200

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procedural
The hospital is considered

g ai e
Procedures & representative of general

in m ac
19,296 24,968 28,816 21,800 94,880 performance in Gremasok’s
post-surgery

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mature site portfolio: it offers
a wide array of services and
Cost data performs around average for

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Q1 d 25 y o
Q2 Q3 Q4 Total hospitals of its size and
scope at the company.
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Head office
10,000 10,000 10,000 10,000 40,000
contribution Head office contribution,
py he e c

here $40m per year, is a

On-site staff 3,217 3,256 3,848 3,408 13,729 required overhead for all of
Co (gg ivat

Gremasok’s hospitals. It
Drugs & materials 8,057 8,017 7,648 6,736 30,458 does not vary by profitability.
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Buildings &
7,560 7,120 5,336 1,752 21,768
maintenance

23
CLIENT DATA
Selected investment analyst reports on Gremasok Health (last quarter)

Gremasok has had some While company numbers remain

challenges in Thailand, where
revenues are down YoY by 5%,
Gremasok retained its traditional
strong and growing, the core
advantage over competitors in
Singaporean and Malaysian markets
return on invested capital

oh om ao
but this is clearly caused by are saturated, competitive and have
(ROIC). This is owing to shrewd

d.
political uncertainty. In spite of little volume growth. To remain a

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management and deep

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this Gremasok remains one of medium-term buy, Gremasok needs

g ai e
relationships in the construction
SE Asia’s most reliable to answer the question: what and

in m ac
and planning industry
healthcare providers. A buy. where next?

ar g Gr
Sh @ f
d 25 y o
Overall company revenues were up 6.3% The company is building a strong speciality
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year-on-year. Gremasok generally retains in acute surgery and paediatrics, which will
strong core capabilities in hospital give it an edge in the increasingly
py he e c

management, while also enjoying a strong competitive core markets of Singapore and
Co (gg ivat

market-leading reputation in complex Malaysia, and builds on a traditionally strong

surgeries and diseases. There likely hospital administration capacity and shrewd
remains room to develop prices in light of investment of capital (preferring revamped
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this expertise. sites to fresh builds)

24
CLIENT DATA
Internal evaluation of Mexico opportunity
Subject: Fw: Mexican acquisition opportunity

Dear Executive Team,

I’m forwarding below a summary from our research into the previous Mexico opportunity, as useful context. Please let me know if you would like to discuss further.

oh om ao
------------

d.
Please find attached our evaluation of the opportunity to acquire a set of hospital sites and hospitals in and around Mexico City. You asked us to look into the

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opportunity to engage in this acquisition. Our report covers i) the operation in Mexico, ii) the Mexican healthcare market, iii) an overview of competition in Mexico

g ai e
and the region, and iv) the opportunities for Gremasok in the market, given our capabilities.

in m ac
We found that the target owns 5 hospital sites in and around Mexico City. These hospitals specialize in general practice service, hospital procedures and hospital

ar g Gr
residency. The sites were acquired by the operator organically, with the first 25 years ago and the most recent seven years ago. While profitability and growth
varies tremendously across sites, in the most recent year the operator made revenue of $213M and EBITDA of £26.5M. This is an improvement on results 5 years

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d 25 y o
ago, when it was loss making, but it has since been majority owned by an American private equity firm who are now looking to make a sale.

The healthcare market in Mexico had been enjoying strong growth of 7.2% CAGR, though the election of a new left-wing government has caused some analysts to
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indicate that private healthcare may face a more uncertain, lower-growth future in the country over the medium term.
py he e c

Competitors in the market tend to be either domestic or regional players, with strong US involvement as financiers or parent companies. The biggest player,
Co (gg ivat

Comenbol Health, was also recently bought by a US private equity firm and look set to embark on an aggressive growth strategy. We believe that a competitive
response from Comenbol health, who after recent cost cutting and disbursement are cash rich, is one of the key risks in this market.
Pr

Kind regards,
Lucy Pearson | Head of Strategy

25
CLIENT DATA
ROIC of Gremasok projects completed in the last five years (figures $’000s)

Invested Years to
Project capital open NOPAT: Y1 NOPAT: Y2 NOPAT: Y3 ROIC
The Return on

oh om ao
Invested Capital

d.
Novena calculation is

ib )
Pr l.c G
Hospital

ite
316,288 2 20,912 40,403 48,133 11.5% developed as follows:

g ai e
(Singapore

in m ac
) ROIC = Net Operating
Profit After Taxes

ar g Gr
(NOPAT) / Invested
Capital (IC)

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Gremasok
General
(Bangkok)
200,056 d 25 y o
3 10,604 20,226 21,345 8.7%
Note that Gremasok
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tends to use an
average of the last
py he e c

three years’ NOPAT for

George the purposes of
Co (gg ivat

Town Int’l computing ROIC on

262,820 2.5 20,040 30,132 40,012 11.4%
Hospital investments
(Penang)
Pr

26
 ANSWER
Pr
Co (gg ivat
py he e c II. MODEL
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d 25 y o
Sh @ f
ar g Gr
in m ac
g ai e
Pr l.c G
oh om ao
ib )
ite
d.
GREMASOK SHOULD ENTER THE VIETNAMESE MARKET, AND
SHOULD EXPECT TO SEE HIGH RETURNS IN DOING SO
We were asked to evaluate the attractiveness of the Vietnamese healthcare market, and whether Gremasok should
prioritise entering it. On an initial review, we believe the client should prioritise entering the Vietnamese market, for
several reasons:
▪ Healthcare spending has grown significantly in recent years and is likely to continue growing. The Vietnamese

oh om ao
population is growing overall, and there is an increasingly large proportion of middle-aged and senior individuals

d.
ib )
Pr l.c G

ite
▪ Local provision is relatively undeveloped. Vietnam acknowledges a lack of local innovation in the sector, and

g ai e
many wealthy individuals travel overseas for treatment as a result

in m ac
ar g Gr
▪ The economics of opening hospitals appear compelling, driven by low investment costs in site development. A
high-level estimate suggested a ROIC at 13% for an initial site, above many of Gremasok’s existing investments

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d 25 y o
The client should investigate a number of risks in more depth, including:
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▪ The potential for political risk, primarily due to local corruption
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▪ The strength of potential regional competitors who may also enter the market
▪
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The capacity of local infrastructure to support our investment, e.g. in supply chains or talent

Once we have validated risks further, as a next step the client should develop a detailed market entry plan,
Pr

including specific site options, a more granular estimate of likely economics, and a plan to engage local regulators

28
VIETNAM OFFERS AN ATTRACTIVE AND GROWING MARKET FOR
HEALTHCARE PROVIDERS
Spending on healthcare provision per capita ($) Summary

400 Vietnam is a large and growing market,

194 with a population of almost 100m and a
200 119 growing proportion of individuals in

oh om ao
67 68 71 79 94

d.
middle- and old-age (and therefore

ib )
Pr l.c G
0

ite
more likely to require healthcare

g ai e
Y-30 Y-25 Y-20 Y-15 Y-10 Y-5 Y0 resources).

in m ac
Proportion of population >50: Today and 20 years ago

ar g Gr
In addition, the country has low labour,
equipment, and building costs relative to

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d 25 y o
+10% the region. While procedure pricing is
also lower, it is closer to regional
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averages than major costs.
py he e c

24% The above factors suggest that Vietnam

Co (gg ivat

14% is a large and potentially quite profitable

market. The fact that local competition is
Pr

20 years ago This year relatively weak suggests that an early

entrant could prosper.
29
WE EXPECT A ROIC OF ~13% ON A FIRST SITE OPENED IN
VIETNAM
Vietnamese hospital: Illustrative P&L Illustrative ROIC calculation Summary
Annualised In line with the brief, we have
Item Assumptions
value ($’000) produced a high-level
Pricing 20% lower than assessment of the likely
Drugs 26,032 Based on economics of opening a hospital
domestic average

oh om ao
15% tax rate in Vietnam.

d.
NOPAT 26,749
General non- Pricing 20% lower than after operating

ib )
Pr l.c G
Revenue 23,360

ite
procedural domestic average profit We’ve referenced Novena

g ai e
Hospital in Singapore for our

in m ac
Procedures & Pricing 20% lower than
post-surgery
75,904
domestic average
÷ baseline economic and volume

ar g Gr
estimates, as the only example
Head office that offers a detailed local
40,000 Assume fixed cost Assumes

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contribution benchmark in the available data.
d 25 y o Invested
capital 205,587
investment
requirement
This assessment is of course
On-site staff 9,610 30% lower labour costs
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(IC) 35% below local
Cost benchmark highly provisional, but it initially
suggests that facilities in Vietnam
py he e c

Drugs & 12% lower drugs &

26,803 could generate strong returns.
materials material purchasing costs
= This seems intuitive, given that
Co (gg ivat

Buildings & Building maintenance 20% we know major costs (e.g. capital
17,414
Maintenance below local benchmark ROIC 13% costs, labour) are lower than the
Pr

Total reduction in pricing relative to

Profit operating 31,469 Singapore.
profit
30
SEVERAL POTENTIAL RISKS SHOULD BE INVESTIGATED
Corruption index score Summary

Vietnam has a poor The client must be cognizant

corruption score relative to of several potential risks.
85 Singapore and to the
43 33
broader region. To begin with, a high level of
Singapore Regional average Vietnam corruption, may affect GH’s

oh om ao
ability to fairly win an initial

d.
contract or follow-up

ib )
Pr l.c G
Competitive threats

ite
business.
While Gremasok is large

g ai e
in m ac
and diversified, there are
Second, there are strong
several large regional

ar g Gr
1376 1666 regional competitors who may
1200 players. The threat level of
844 788 788 790 also present a threat – though
these players should be

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none far larger than the client.
assessed in detail
d 25 y o Lastly, some aspects of local
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infrastructure may make
Implementation feasibility There appear to be doubts implementation challenging.
py he e c

on local infrastructure,
“There is reason to be skeptical on “We saw issues with…core hospital procurement, and talent. GH None of these appear to be
Co (gg ivat

the feasibility of delivering management, procurement, may be able to resolve this showstoppers, but each
procurement, contracting, and other budgeting, and human resource with its own expertise, but should be investigated in
aspects of the implementation in a allocation all at a low standard” – GH
Pr

the issues should be more detail as part of the

short timeframe” – World Bank Research Team
investigated engagement.

31
THE CLIENT SHOULD EXPLORE RISKS IN MORE DETAIL AND
DEVELOP A MARKET ENTRY STRATEGY
The opportunity in Vietnam seems significant, but the client should explore the market and specifically how best to
enter it in more detail. In particular, I recommend that they:

▪ Define the scope of an initial launch, including both:

oh om ao
- Where to focus geographically. The major cities (Ho Chi Minh, Hanoi) seem the most likely, but this

d.
ib )
Pr l.c G
geographic focus should be validated

ite
g ai e
in m ac
- What hospital offering to prioritise. For example, are there certain specialties and procedure types that
would be particularly attractive or likely to succeed?

ar g Gr
▪ Validate risks in more detail. In particular, the client should explore the extent to which concerns on local
Sh @ f
d 25 y o
talent & infrastructure might impede its ambitions in practice
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▪ Consider opportunity costs. Vietnam offers a timely opportunity due to a change in regulation. However, the
py he e c

client should consider this in the context of other potential international expansion opportunities, to confirm
Vietnam is the most attractive next step
Co (gg ivat

Once these areas have been validated, I recommend that the client develop a detailed market entry strategy
Pr

including specific site options, a more granular estimate of likely economics, and a plan to engage local regulators.

32