National Medical Care Co. (CARE) [4005.SE] reported preliminary earnings of SAR11.4mn in 3Q18, falling 58% Y-o-Y (-44% Q-o-Q), mainly on a decrease in revenues and settlement of claims with a client that added pressure to margins. Earnings in 9M17 were down 7% Y-o-Y to SAR57mn. Revenue fell 15% Y-o-Y to SAR176mn, likely on lower volumes, given structural demand headwinds in KSA and rising competition in Riyadh, where CARE’s two hospitals are located. Also, we believe revenue was particularly pressured by expat departures, given significant exposure to GOSI (c30% of revenue), where business is related mostly to blue-collar workers (the largest group of departing expats). CARE is expected to upgrade capacity by 30% by year-end (to bring inpatient capacity to 825 and outpatient clinics to 180). Operating profit (ex-other income) also fell sharply, down 50% Y-o-Y to SAR13mn. SG&A costs did not fall in line with revenue (-3% Y-o-Y) with SG&A to sales increasing c1.4pp to 11.3% during the quarter. 
 
A very disappointing results set, as it seems that revenue challenges will make it difficult for the company to achieve its turnaround target. The decline in margins after the improvement seen over the past three quarters is particularly alarming, in our view.

Nada Amin, Hatem Alaa

  
CARE: SAR46.00 as of 04 Nov 2018, MCap: USD551mn, CARE AB/4005.SE