Parkway Holdings FY08 Review - SELL (DMG)

SELL - Downgrade
Price: S$1.17
Target: S$0.92
Div Yield: FY07 - 33.9%, FY09F - 16.9%
P/E: FY08 - 33.9x, FY09F - 16.9x
P/B: FY08 - 1.0x, FY09F - 1.0x

Parkway recorded an 88% decline in FY08 net profit to S$35.8m, despite achieving a 9% increase in revenue. This was due to the exceptional items (provisions and losses) recorded for the year. Included in FY07 results was the gain on disposal of its hospitals to PREIT. Excluding these items, net profit would have risen 5% to S$89.8m. The bulk of the exceptional items were a provision for impairment loss on receivables (S$34.4m) and the impairment loss on the Group’s investment in Auric Pacific (S$16.2m). Management was unable to disclose additional information relating to the provision for impairment loss on receivables as it is in the process of taking legal action to recover the amount.

Parkway had intended to launch the sale of its Novena medical suites in 1H09. Management indicated that as the recession continues to unfold, it has yet to decide on a selling price for the suites, although it is looking at the range of S$3,200 to S$4,300 psf. It plans to launch the medical suites in phases, and may inject unsold units into PREIT. We have not factored in any sales of medical suites into our forecasts.

We cut our FY09 net profit forecast by 25% to S$78.0m, taking into consideration a decline in its Singapore hospital revenue and slower revenue growth in other segments. We cut our target price by 36% to S$0.92, based on 13x blended forward earnings (about 10% premium over peers). This is a 22% downside from current levels. Hence, we downgrade our recommendation to SELL.