Parkway Holdings: Boosted by international operations

1Q09 net profit was up 9% YoY to S$21.3m, and revenue growth of 4% YoY to S$237.8m was in line with our estimates. Included in 1Q09 results was impairment loss of S$2.2m for its investment in Auric Pacific. Excluding exceptional items, net profit would have grown 20% for the first quarter. The growth in revenue was largely helped by its International operations (37% and 32% of 1Q09 and 1Q08 Group revenue, respectively), which grew by 20% YoY, thanks to healthy patient volumes.

Foreign patient volume at Singapore hospitals expected to remain low. Singapore visitor arrivals are expected to continue to decline, as the recession continues and the H1N1 virus deter discretionary travelling. This is likely to translate to lower foreign patient volume as patients put off seeking treatments in Singapore. If the H1N1 virus outbreak becomes more widespread, overall patient volumes (both local and foreign) could decline as patients avoid visiting healthcare establishments (e.g. radiology centres).

Maintain SELL. Management’s continual implementation of cost-cutting measures across all operations would help to cushion revenue impact from decline in patient volumes at its Singapore hospitals. The growth in its Singapore Healthcare segment (as more patients opt for outpatient treatment) and International operations are also expected to offset the decline in the Singapore Hospital segment. We are maintaining our earnings estimate of S$78.0m for FY09. Our target price of S$0.92 is based on 13x blended forward earnings. The stock is trading at 18x forward PE, which is unattractive compared with its peer average of 12x.

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