Parkway Holdings: S$1.20 BUY-Initial (TP: S$1.45) - Strong branding will help it ride out challenging times

Strong branding will help it ride out challenging times

Thanks to a strong brand name, Parkway has been able to execute its strategies in growing revenue intensity. In 9M08, it recorded a 5.9% YoY increase in net revenue per adjusted patient day to S$1,850. Going forward, Parkway plans to focus more on complex cases that would generate more revenue. This would help to offset the expected lower hospital admissions due to the economic downturn. Its achievements in the medical field have given Parkway the edge over peers, to draw patients to its medical facilities.

New 350-bed Novena hospital. Parkway secured the 1.7ha Novena Terrace / Irrawaddy Road hospital site, with a bid of S$1.284b. The land parcel has been fully paid on 20 May 2008. This site can be developed into a 500-bed private hospital with a maximum GFA of 778,500 sf. Parkway intends to put in 350 beds in this new Novena hospital. The hospital is expected to be operationally ready in 2011 and Parkway would be in a good position to capture the influx of medical tourists.

Regional footprint contributes to earnings. Parkway operates hospitals and medical centres across the region, allowing it to draw foreign patients to its Singapore operations, and also contribute to earnings. Having a regional exposure also helps to boost Parkway’s brand name. On top of that, with hospitals in the region, Parkway is also in a position to capture the portion of medical tourists who opt for treatments in the neighbouring countries where Parkway has a presence, given the current economic climate. In that sense, Parkway may not lose out that much, from the potential dip in foreign patients.

Initiate coverage with BUY recommendation. With a strong brand name and regional footprint, Parkway is positioned to draw patients to its medical facilities, even in the economic downturn. Parkway is a larger healthcare provider, compared with its peers, in terms of market capitalization and operations. Hence, we ascribe a PE of 13x for its healthcare services and hospital business. Based on our SOTP valuation, we arrive at a 12-month target price of S$1.45 for Parkway.

Source:DMG

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