Parkway Holdings Limited: 1Q09 indicative for 2009

Indicative quarter for 2009? Parkway Holdings (Parkway) reported its 1Q09 results on Friday with topline inching 4% YoY ahead to S$237.8m while PATMI rose 9% YoY to S$21.3m. Excluding impairment loss of Auric Pacific, Parkway's bottomline would have risen 20% YoY to S$23.4m. The group has not resolved the S$34.4m of outstanding debt incurred in 4Q08, but is confident of retrieving the full amount. Parkway is finalising plans with Colliers for the launch of its first tranche of Novena Medical Suites. As such, no sales were booked this quarter.

Hospitals: International will buffer Singapore performance. In line with our estimates, Singapore hospital performance started the year with a slide of 9% in topline in view of shorter hospital stays coupled with lower inpatient stays. However, its International hospitals have exceeded our expectations by growing revenue to S$54.8m (+26% YoY, +6% QoQ). This growth was primarily due to its Pantai Hospitals and increased patient loads at its cardiac centre in Brunei. In addition, the group also started consolidating revenue of Gleneagles Kuala Lumpur after raising its stake from 30% to 58% in Nov 08 and started recognising revenue from its management project in the Abu Dhabi Hospital.

Healthcare: Driver for FY09. With patients putting off elective surgeries and performing more diagnostic tests, a significant shift to outpatient treatment was seen through an almost double-digit rise in day cases. This boosted the Healthcare segment's revenue by 13% YoY to S$72.7m. Higher intensity of procedures performed helped to raise productivity and accentuated Parkway's EBITDAR's ascent by a greater magnitude of 27% YoY. The recently launched "Fixed-fee surgical packages" that are 10- 15% discounted from original prices will continue driving its day cases.

Fair value raised, but maintain HOLD. We have tweaked our estimates to account for Parkway's successful push for more outpatient treatment along with an anticipated strong performance from its International Hospitals. From a core operations standpoint, we raise our estimates to S$83.7m (prev: S$75.6m) in FY09 earnings. Our fair value is raised to S$1.28 (prev: S$1.15) on the same valuation peg of 15x FY09F EPS. While operationally sound, uncertainties still exist for the take up of its first launch of the medical suite sales which can change the dynamics for loan repayments. We will be incentivised to re-look the peg upon strong suite sales take up along with sustained cost containment and International division performance. Maintain HOLD.

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