Impairments hit bottomline. Parkway Holdings (Parkway) reported its FY08 results yesterday. Topline inched ahead 9% YoY to S$945.3m while bottomline crumbled 88% YoY to S$34.8m. The bottomline was wrecked as Parkway booked impairments amounting to S$52.4m in 4Q08 alone. Stripping out exceptionals and recurring Parkway LifeREIT expenses, operational net profit would have risen 19% YoY to S$104.2m. Of the impairments, S$34.4m was due to late payments by a corporate. Management is confident of retrieving these late payments as these are backed by letters of guarantees. We have factored it back into FY09F financials. Parkway did not pay any final dividends in a bid to preserve cash.

Operational update. Patients staying in the hospitals for shorter days coupled with lower admissions primarily accounted for the muted results. Fortunately, day surgery cases rose 11% to buffer earnings. Management has also launched a "Fixed-fee surgical packages" that are 10-15% discounted from original prices in order to drive its day cases to buffer the continuing slide in admissions. As the largest private healthcare provider in Singapore, Parkway stands as a pre-emptive compass for the medical services industry. At this point, the needle seems to be pointing south. As such, management has indicated that capex plans will be watched closely. Repairs and upgrades vs. outright new equipment purchases will be the order of the day. Renovations for wards will also be undertaken to capitalise on slower admissions.

Novena Hospital. Management updated that it has indeed elected Colliers and will try to push out the first 80 suites in FY09 to help defray development costs which is working out to the tune of ~S$400+m in view of lowering construction costs. Target selling psf was not divulged but we expect our previous floor of S$3500 psf to hold for the first tranche to be marketed to top-tier, cash-rich senior consultants that are either renting at Novena Medical Centre or at Paragon.

Maintain HOLD. We have tweaked our estimates in view of the slightly better than expected sales, impairment charges and refined our minority interest numbers. From a core operations standpoint, we anticipate S$75.6m in earnings as Singaporeans, feeling the full brunt of the recession, will lay off procedures that do not require immediacy. Our fair value remains at S$1.15 despite a lower valuation peg of 15x (prev. 16x) FY09F EPS as our core earnings have been bumped up slightly. Maintain HOLD. We will become buyers as it approaches S$1.00 (trough valuation).