Fewer medical tourists. A weak economy, coupled with the H1N1 outbreak is likely to result in foreign patients postponing seeking medical treatments in Singapore. The weak economy would deter discretionary spending on elective procedures, while other patients put off travelling to Singapore over flu fears. This would negatively impact foreign patient loads at its hospitals.
Rise in outpatient cases to partly offset decline in in-patient. In-patient admissions are expected to decline, given the weak economy and fewer medical tourists. However, this is likely to be offset by an increase in outpatient treatments (day cases) and growth from Parkway’s International hospitals. Patients tend to opt for outpatient treatment, if they can, during an economic downturn.
Overseas operations expected to grow. Parkway expanded the capacity and added new facilities at its regional operations. With a bigger capacity and more medical facilities, it would be able to meet the growing demand for its services. It is also currently carrying out construction works for its Mumbai hospital. Fixed-fee packages to help mitigate decline in Singapore hospitals in-patient admissions. Parkway has recently launched 34 fixed-fee packages that cover various surgical procedures.
Maintain SELL. Although operating cash flows are stable, Parkway’s net gearing of 0.5x at end 1Q09 is high, compared with its peers. Both Raffles Medical and Thomson Medical are in net cash positions. Current valuation for Parkway is also rich, with the stock trading at 23.6x forward P/E.
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