Net income – SAR50mn, +17% Y-o-Y, -19% Q-o-Q, +2% vs. EFGe Gross profit – SAR125mn, +27% Y-o-Y, -9% Q-o-Q, -1% vs. EFGe Net operating profit – SAR57mn, +17% Y-o-Y, -19% Q-o-Q, -1% vs. EFGe   Mouwasat reported its preliminary 3Q16 results, posting solid earnings growth of 17% Y-o-Y (in line with our estimate). The earnings growth was led by strong operational performance. Revenue increased 22% Y-o-Y to SAR282mn (in line), driven by the ramp-up in occupancy rate at Riyadh hospital (opened in 2015), expanding operations in the company’s specialised clinics, and achieving better operational efficiency for other hospitals. Earnings dropped a sharp 19% Q-o-Q, on a dual impact of lower revenue (-6% Q-o-Q), which the company attributed to seasonality (holidays in 3Q), coupled with an EBIT margin contraction of 3pp, likely on increased overheads. Gross profit grew 27% Y-o-Y (in line) on sustained operational growth (+2 pp margin increase to 44%), while EBIT grew less at 17% Y-o-Y (in line) (margin stable Y-o-Y at 20%) on 37% increase in SG&A expenses. The increase in SG&A expenses is likely attributable to the increase in overheads associated with the 114-bed expansion in Jubail hospital that commenced operations in May 2016 (adding 13% to the company’s operational capacity) when the company announced that it had sourced the medical and administrative staff needed, while  occupancy ramp-up is likely not yet in place.   We expect a solid Y-o-Y 21% rebound in 2016 recurring earnings; 2015 was a low base (-3% Y-o-Y) due to EBIT margin weakness on raised costs from the opening of the new hospital in Riyadh. We expect earnings growth in 2016 to be helped by a slight margin recovery and 16% revenue growth, driven by: i) ramp-up in occupancy rate at Riyadh hospital (175 beds, 65 clinics); and ii) new 114-bed additions at Mouwasat Jubail hospital. (Earnings release, Tarek El-Shawarby, Adham El Badrawy)   Mouwasat Medical Services: SAR113.93 as of 19 October 2016, Rating: Buy, FV: SAR151.50 per share, MCap: USD1,519mn, MOUWASAT AB / 4002.SE