Revenues were lower sequentially for all 3 healthcare players. From the 1QCY09 results, the differences between the three healthcare providers are accentuated by the recessionary climate. Revenues declined QoQ, attributed to the usual trend of fewer patients at the beginning of the year compared with end of the year. Thomson Medical (BUY, Target Price: S$0.55) stood out, as it grew net profit by 7.8% QoQ, whereas Raffles Medical (NEUTRAL, Target Price: S$0.74) and Parkway (SELL, Target Price: S$0.92) had lower net profits (excluding exceptionals) sequentially.

EBITDA margins improved the most at Thomson Medical. Thomson Medical managed to improve its EBITDA margin by 7.0 pps, largely helped by the government’s Jobs Credit scheme. Raffles Medical and Parkway also enjoyed benefits from the Jobs Credit, but lower revenue resulted in slightly lower EBITDA margins in 1Q09 from 4Q08. Thomson Medical, with its smaller scale, was probably better at cost containment.

Raffles Medical and Thomson Medical are net cash; Parkway has 0.5x net gearing. Raffles Medical had a net cash position of 4.2 S¢/share, while Thomson Medical’s net cash position was 3.9 S¢/share. The strong cash balances would help them ride out the current challenging operating environment. Compared with its peers, Parkway’s net gearing of 0.5x appears to be high.

Expect fewer medical tourists to Singapore YoY; Parkway likely to be most affected. Visitor arrivals are still expected to be lower YoY as the economic slowdown continues to put a hold on discretionary travel and spending and elective medical treatments. This could result in fewer medical tourists seeking treatment in Singapore and fewer elective procedures performed. With three hospitals in Singapore, Parkway is likely to be more susceptible to falling medical tourist numbers.

NEUTRAL on Healthcare sector, with Thomson Medical our top pick. The healthcare segment is generally resilient, and cash flows are stable. Demand for private healthcare services is expected to remain strong, given a growing and ageing population in Singapore. However, revenue growth is likely to be dampened by slower growth in patient volumes (especially foreign patients). Our top pick for the sector remains Thomson Medical, as we believe it is less vulnerable to the economic downturn.