Parkway Holdings Limited: Delivering as expected

By Kevin Tan
Wed, 24 Feb 2010, 09:14:20 SGT

Parkway Holdings clocked 7.0% growth in FY09 revenue to S$979.2m (3.3% below our sales forecast) and 212.4% increase in PATMI to S$118.9m (in line with our earnings projection due to lower operating expenses and stronger share of associates’ profits). Going forward, management painted a relatively upbeat outlook, saying that an expected growth in demand for quality healthcare will continue to boost the group’s growth. On development of new Novena hospital, we are also delighted to learn that it is on schedule, and that the launch of Phase 1 medical suite sale is imminent. We are keeping our FY10 earnings forecast unchanged as the results were largely within our expectations. However, we now apply a five-year PER average of 30x to its core earnings in view of the improving outlook by management and possible re-rating from its impending medical suite sale. Our SOTP fair value is in turn raised to S$3.31 (S$2.78 previously), implying a 13% upside potential. Maintain BUY.

4Q09 earnings in line. Parkway Holdings reported 4Q09 revenue of S$250.3m (+7.3% YoY) and PATMI of S$24.8m (reversing S$21.0m loss in 4Q08). Topline is slightly lower than our sales estimate of S$257.5m, while bottomline is spot on with our projection due to lower operating expenses and stronger share of associates’ profits. For FY09, the group clocked 7.0% growth in revenue to S$979.2m (4.8% and 3.3% below consensus and our sales forecast respectively) and 212.4% increase in PATMI to S$118.9m (in line with consensus and our earnings). Parkway ended the fiscal year by proposing final dividend of 1.15 S cents/share, consistent with its guidance to resume dividend payments a quarter ago.

FY09 growth drivers. The strong FY09 revenue performance was mainly driven by double-digit growth in its Singapore healthcare segment (+12%) and International hospital revenue (+31%), as Parkway Shenton secured several major corporate accounts and benefited from contract by Singapore government to conduct temperature screening, whereas demand for quality healthcare at its International hospitals grew strongly. PATMI growth, on the other hand, was bolstered by higher turnover, S$17.2m reversal of impairment loss on receivables (S$34.4m loss in 4Q08) and lower impairment loss of S$2.2m on its financial assets (S$16.2m loss in 4Q08). Excluding these exceptional items and tax effects, we estimate that its operational PATMI would have increased by 28.6%.

Positive outlook. Going forward, management painted a relatively upbeat outlook, saying that an expected growth in demand for quality healthcare will continue to boost the group’s growth. Since its partnership with Great Eastern Holdings to introduce post-surgical complications insurance for patients in Jan, Parkway has seen a decent take-up in Feb (21 cases signed up). We believe this would provide greater assurance to patients and lower financial risks for Parkway. On development of new Novena hospital, we are also delighted to learn that it is on schedule. According to management, the group is proceeding to award the construction tender after receiving approval from BCA, and the launch of Phase 1 medical suite sale is imminent.

Reiterate BUY. We are keeping our FY10 earnings forecast unchanged as the results were largely within our expectations. However, we now apply a five-year PER average of 30x to its core earnings in view of the improving outlook by management and possible re-rating from its impending medical suite sale. Our SOTP fair value is in turn raised to S$3.31 (S$2.78 previously), implying a 13% upside potential. Maintain BUY.

Disclaimer for Research Report

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

For and on behalf of OCBC Investment Research Private Limited:

Carmen Lee
Head of Research

Co.Reg.no.:198301152E