We expect foreign patient numbers, which make up about 35% of its Singapore volume, to record a rebound in H209 after witnessing a decline for several months. There are cheaper alternatives in the region but we believe Parkway’s established reputation, connectivity by air, and areas of expertise give it competitive advantages.
We have assumed that it will sell its Novena medical suites at a break-even price of S$2,500 psf in 2012 but management has indicated that given the rebound in the property market, it may try to price a third of these suites at S$3,500 psf in 2010. If it succeeds, it would add a further S$0.15 to our valuation, and 47% and 92% to 2010 and 2012 earnings estimates, respectively.
The stock is trading at 18.4x 2010E PE, a 30% premium to the market but 22% below its 10-year mean. Our price target is based on DCF with key assumptions being a WACC of 6.5% (previously 7.1%) and terminal growth of 3%. The change in our WACC assumption is due to our lower risk-free rate assumption (-0.5%) and higher (by S$300m) debt assumption.
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