China group buys into True Group; IPO on cards

Hong Kong-listed Tongfang Kontafarma has acquired a sizeable stake in Singapore-based fitness and wellness provider True Group for US$36.7 million in cash, a move that paves the way for the latter to significantly expand its presence across China.

The deal, announced on Tuesday afternoon, will see Tongfang Kontafarma - a Chinese company indirectly invested by Tsinghua University that primarily manufactures and sells prescription drugs - take a 51 per cent stake in True's Singapore and China businesses, as well as a 29 per cent stake in its Taiwan operations.

As part of its longer-term growth strategy, True also intends to pursue an initial public offering (IPO) on the Hong Kong Stock Exchange within the next two years or so.

True currently owns and operates 26 fitness and yoga centres in Singapore, China and Taiwan, with an annual turnover in excess of US$100 million.

The company's founder and group chief executive officer Patrick Wee said the new partnership with Tongfang Kontafarma will see the opening of more than 20 new clubs in various tier-one and tier-two cities in China by end-2019.

In an interview with The Business Times, Mr Wee said True will grow its footprint in the fitness and yoga business through corporate-owned and franchised clubs across the world's second-largest economy.

The expansion plans involve an injection of an initial US$5 million in cash into the business to help fuel the growth of this franchised model in China.

True already runs two branches in China, both in the city of Xiamen in southeastern Fujian province.

Mr Wee said he now has his eyes on the main cities such as Shanghai and Beijing, and other larger cities in the western part of the country.

"China, in the last two-and-a-half years, has seen an absolute explosion in terms of the interest in fitness. The number of large-scale fitness centres has almost doubled there, but still everything is relative for a country of 1.2 billion people," he said.

According to latest figures from the China Business Research Academy, the number of gym memberships in China has doubled since 2008 to 6.6 million in 2016.

Last year, the Chinese government approved a new national fitness plan that has ambitious targets for national fitness levels and increased sports participation.

Overall, the booming health, fitness and leisure industry in China is expected to be worth some 3 trillion yuan (S$607.4 billion) by 2025.

"China has a lot of low-hanging fruit, so the opportunities abound for us not just in terms of opening clubs in greenfield sites (shopping centres or standalone locations). We also think we can take over and manage sports facilities in residential properties," said Mr Wee.

"We are also looking at acquisitions of existing gym operators in China, and we're in talks with some country club-style facilities that want us to come in and professionally manage them," he added.

On the potential of the company going public in Hong Kong, Mr Wee said he was excited about the opportunity, which he feels could materialise sometime in the next two years.

"The Hong Kong Stock Exchange is an exciting one. Tsinghua University has a strong brand - institutional investors and private investors in China and Hong Kong know the brand," he said.

On whether he would consider an IPO in Singapore, he said this still remains an option, although the final call would be driven by True's Chinese partners given the fact that they are "much more familiar" with the Hong Kong Stock Exchange.

Mr Wee, a 53-year-old lawyer by training, launched True Group in Singapore 13 years ago in 2004. There are over 110,000 members, with around 47,000 of them in Singapore.

True will open its ninth facility in Singapore - an 18,000 sq ft True Fitness - at Viva Business Park along Chai Chee Road next Monday.

Lee U-Wen

31 May 2017