The launch of its fixed-priced packages has met with encouraging response, with 250 packages sold in the first month since it was launched. Management attributed the progress in in-patient growth to increased demand from local patients since the public sector experienced capacity constraints. Management also highlighted that the recent decision to raise the limits on the use of Medisave for surgical procedures will likely help increase demand for private healthcare in Singapore.
As the group develops its new Novena hospital, there is a plan to designate its hospitals by speciality. For example, Gleneagles could focus on liver transplant, women and child and ophthalmology. Mount Elizabeth could focus on oncology while the new Novena Hospital could focus on cardiology. Meanwhile, the group continues to strengthen its pool of specialists with a group of doctors from the US looking to start up in October 2009. In addition, some specialists from the public sector seem to be looking to start their practice at Parkway hospitals.
The group is awaiting the building plan approval for the Novena Hospital and may look to market the medical suites by the end of the year. Management hopes to award the construction contract by the thirdquarter and save up to S$100mn in construction costs due to lower material prices. The group is looking to market the Novena medical suites to doctors, who currently do not own their medical suites. Parkway is looking to sell the first phase, with 88 units out of a total 200 units (200,000sf).
The group is actively looking to manage costs, eg, the group is expected to save S$5.5mn from wage restructuring, S$10mn from bulk purchasing and another S$5mn from general cost-saving initiatives over the next two years.
New private cancer hospital to open in 2011F. Pacific Healthcare, a listed specialist clinic chain in Singapore, has recently announced its plan to redevelop the Adam Road Hospital site into a private cancer hospital to be opened in 2011F. This S$42mn investment reaffirms our positive sector view on robust demand for private healthcare in Singapore even in the current recession. The key demand drivers include: 1) rising affluence of local population, 2) tight capacity at public hospitals, and 3) medical travel.
Raising price target to S$2.14/share, suggesting 34% potential upside. Since our initiation on 3 March 2009, Parkway’s share price has increased 52% (vs a 48% increase in the STI Index over the same period), on the back of improved market sentiments and a strong 1Q09 result. We are raising our price target from S$1.85 to S$2.14 by increasing our target earnings multiple for the overseas operations to 16x FY10E (from 13x FY09E) to reflect its strong growth and by updating our marked-to- market valuation of Parkway Life REIT. We believe the next re-rating catalyst will be the impending sale of the Novena medical suites, which may surprise positively given the recent buoyant property market.
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