Parkway Holdings: Results boosted by exceptionals

Parkway recorded 2Q09 revenue of S$258.6m (+10% YoY), on the back of strong performance from its International Hospitals and its Singapore Healthcare segments. Operating profit came in at S$39.4m (+14% YoY) for the quarter, which was in line with our estimates. Net profit rose 42% YoY to S$40.3m, boosted by the S$17.2m reversal of allowance on impairment of receivables, which Parkway had booked in 4Q08. Factoring in this exceptional gain, we would be raising our earnings estimate for Parkway accordingly. We are likely to maintain our SELL recommendation for Parkway, as we feel that current valuation is rich and net gearing of 0.46x is relatively high, compared with peers. However, we are likely to raise our P/E valuation (from 13x), as its peers are trading at an average of 14x forward P/E. No dividends were declared for this quarter.

International hospitals remain the growth driver. Revenue from International Hospitals climbed 33% YoY, due to increased patient volume and revenue intensity at its Pantai Hospitals and its Brunei cardiac centre. The improved performance was also attributed to the additional contribution from Gleneagles Hospital KL (GHKL), as Parkway had raised its stake in GHKL from 30% to 58% in 4Q08.

Singapore hospital revenue declined, but healthcare segment grew. Foreign patient numbers continued to decline in 2Q09, attributed to the global economic slowdown and the H1N1 outbreak. This was mitigated by Parkway's introduction of 40 medical packages to see treatment at its hospitals. These packages were introduced in 2Q09, and saw strong local demand. Hence, revenue from its Singapore hospitals dipped 3% YoY during the quarter.

Its Parkway Shenton group of clinics secured several major new corporate contracts during the quarter. It was also awarded a contract from the Ministry of Health, to conduct temperature screenings at all entry points into Singapore. This new contract and as more patients sought flu vaccinations at its clinics, helped to boost the performance of its Healthcare segment.

Exceptional item. Parkway made a provision for impairment loss on receivables amounting to S$34.4m in 4Q08. As at end 2Q09, it had reached a settlement for these receivables and hence, wrote back excess allowance of S$17.2m.

Valuation and recommendation. Its peers are currently trading at an average of 14x forward P/E. We will be raising our earnings estimates for Parkway, taking into account the write back of the receivables that it had provided for in 4Q08. We are also likely to raise our P/E valuation and hence, our target price will be adjusted accordingly.

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