Elderly homes operator Pine Care targets Hong Kong expansion, entry into high-end market
The first listed elderly care home operator in Hong Kong says it is not ready to expand into the mainland where a different business model is required
Pine Care Group, the first listed operator of homes for the elderly in Hong Kong, is aiming to use the funds raised from the flotation to enlarge its market share and break into the high-end market.
The company is cautious, however, about expanding to the mainland where it says finding a suitable business model will prove challenging.
Pine Care, the second largest private care home provider in the city, with 3 per cent market share, started trading on the stock exchange on February 15 after raising HK$121 million. More than three quarters of this (78 per cent) will go towards buying property to house a new care home in the same mould as previous ones, while 12 per cent will be spent on launching its first luxury home.
“The costs for operating elder homes is very high. Most of the costs are fixed, no matter how many clients we have, so the key for profitability is to maintain a high occupancy rate,” said Billy Yim Pui-kei, chief executive of Pine Care Group.
He said he cares more about the quality of care provided than the pace of expansion.
Over half of Pine Care’s beds are bought up by the city’s Social Welfare Department, allowing the company to maintain a high occupancy rate of around 95 per cent in Hong Kong.
The department pays most of the accommodation, while the elderly resident pays around HK$1,000 a month, Yim said. For private clients, the average monthly charge was HK$9,703 as of July last year, according to the company’s prospectus.
Established in 1989 by chairman Yim Ting-kwok, Yim’s father, and non-executive director Alex Ng Kwok-fu, Pine Care now operates nine elderly care homes with 1,218 beds. It plans to gradually replicate and roll out its current business model to more homes, and at the same time move into the city’s high-end market by opening its 68-bed facility, called Pine Care Elite, in Yuen Long this year.
“I’ve believed in the potential of the high-end market for many years. Hong Kong’s high-end elder homes, which charge over HK$30,000 a month per person, are actually very popular. Currently they are operated by NGOs,” said Yim.
He said the difficulty in Hong Kong lies in finding an affordable location which is large enough. NGOs have the advantage that the government provides them with suitable buildings.
The charges, initially, at the new Pine Care Elite will be set at HK$19,800 per bed in a six-bed room, and HK$39,800 a month for the most luxurious, single rooms.
“The total area divided by the number of beds is around 45 square metres, almost five times our current elderly homes, which have 9.5 square metres per person,” Yim said,
In the US, care home operators are able to offer a good range of varied facilities to clients thanks to cheaper property costs. In Japan, attention to detail is the main focus -- Yim has even come across homes that tailor their spoons especially for the needs of elderly residents.
Hong Kong providers specialise in making optimal use of the limited space available, he said.
Total revenue in Hong Kong’s care home industry grew by 7.4 per cent a year between 2011 and 2015 to HK$8.3 billion. It is forecast to reach HK$11.5 billion in 2020, as the number of elderly people rises, and families - which are getting smaller - become less able to shoulder responsibility for their care, according to consulting firm Ipsos.
As expansion requires a large amount of capital, the industry is likely to remain highly fragmented, Yim said.
China’s cash-rich property developers and insurers are eyeing the care home market as the population ages.
Pine Care introduced two mainland cornerstone investors in its public offering: Yada International, which is backed by venture capital firm Sequoia Capital, and China Oceanwide Fund.
“They both have backgrounds in the property market and appreciate our business model. We will possibly have some synergy in the future,” Yim said,.
Pine Care will for now focus solely on the Hong Kong market as it will not be easy to settle on a workable business model in the mainland’s care home sector, he added. Facilities for the elderly in China tend to be at “two extremes” - either low-end or luxurious.
“We are optimistic about the mainland market. Current operators are focussing more on those with independent living ability, while we are experienced in offering more caring services for older clients or those who are seriously ill,” Yim said.
“Simply copying our business model in Hong Kong to the north may not work out. The exploration would take time. Meanwhile it will also be quite difficult to employ suitable staff,” Yim said.
“Low-end home operators haven’t figured out the answer of ‘who to pay’, as there is no government institution like the Social Welfare Department. For the high-end operators, a charge of 10,000 yuan a month may not be high enough to break even the operating costs in the luxury site and facilities,” Yim said.