Parkway’s Singapore hospital revenue was down 9.3% y-y and 5.3% q-q, largely due to the 3.7% decline in inpatient admissions and weaker revenue intensity (-2.8%). This was mitigated by the strong 8.8% growth in outpatient volume. The extent of admissions decline and outpatient growth is better than our expectations — we are forecasting an 8% decline in admissions and 3% growth in day cases, but margins disappointed slightly due to the higher mix of day cases (low margins) and less foreign patients (high revenue intensity).

Local patient volume recorded marginal growth of 4%, which we think confirms the resilience of private healthcare in the current recession as there is minimal evidence of locals switching to subsidised care so far. Management also guided that foreign patient flow was sluggish in January and February, but has picked up since March. As such, we think both volume and margins are likely to pick up from here, barring any escalation of the H1N1 virus.

Parkway’s regional network of hospitals in SE Asia — Pantai in Malaysia and the cardiac centre in Brunei — performed exceptionally well despite the downturn. Revenue increased 25.8% y-y, driven by a 10.4% increase in total admissions and an 8.8% increase in overall revenue intensity. In our view, the strong performance of Pantai validates the potential of private healthcare in Malaysia. It should augur well for Pantai’s expansion plans in Malaysia, especially with Parkway’s operational expertise and Khazanah’s network. The international healthcare segment has also posted strong results, with top-line growth of 11.4% y-y and EBITDA margin expansion by 1.9pp, due to strong contributions from Parkway’s World Link Group of clinics in China, and cost-cutting measures.

Parkway’s share price has largely lagged the market year-to-date due to concerns on the negative impact of the recession on admissions and the lack of visibility on the Novena medical suite sale. Even in the recent market rally when it was finally catching up with the market, it was sold down by index funds due to its impending exclusion in the MSCI Singapore index announced on 14 May. In our view, Parkway’s long-term fundamentals remain intact and the technical correction presents an attractive opportunity to invest in a quality regional healthcare provider as a proxy to Asia’s growing demand for private healthcare. We reiterate our BUY rating with a price target of S$1.85, implying 43.4% potential upside.