Parkway — Winner’s Curse turned Blessing

In Uncategorized on 31/12/2009 at 5:28 am

Brokers are optimistic about Parkway’s prospects in 2010. One reason is the expectation of better-than-expected prices for its Novena hospital suites.

For example: “Medical suites at Gleneagles have transacted recently at about $4300psf in the secondary market. As such, subsequent launches of the Novena medical suites could fetch higher prices than the initial target of $3500psf, resulting in a potential earnings upside of at least 25% in FY11. Our sumof-the-parts target price of $3.55, implies an undemanding PER of 26x on its Singapore operations”, Kim Eng Securities writes.

A far cry from the concerns of brokers and investors in 2008 when Parkway’s “winning bid of $1.25 billion was twice that of the second highest bid”.

Which brings me back to this SPH, Fair Price and Income could get this project (which they won by a 42% margin from the next highest bid) right.

These two bids are text-book examples of the argument why investors should not buy on fundamental value, but rather on what they think everyone else thinks their value is, or what everybody else would predict the average assessment of value is.

As Keynes said “It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” He was talking of a beauty contest, where newspaper readers are asked to choose the “most beautiful” women.

Think of how much cheaper, Parkway and the GLCs could have obtained the land if they had followed Keynes dictum.

But making judgements of others’ judgements is not that easy.  Parkway’s chairman Richard Seow said at the time, “Looking at the competitive landscape it’s very difficult to advocate where everyone’s going to come out…so we put in a bid which we were comfortable with.”

For Parkway that paid-off.

Finally, wonder what Raffles Medical group executive chairman Loo Choon Yong now thinks? He had commented at the time that this was one tender he was happy to lose.

Good 2010.


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