31-Jan-2017
Saudi Healthcare: Mixed 4Q16 results on receivables challenge; Mouwasat is the best performer
Mouwasat is the best player operationally; Dallah is next
The hospitals sector reported mixed results operationally and they also leaned their balance sheets at the end of the year, particularly as negotiations with MoH to pay its dues resumed, as well as with other clients. On the operational level, Mouwasat performed the best, with 36% Y-o-Y growth in 4Q16 revenue, supported by recent expansions (ramp-up in occupancy rates at Riyadh hospital that opened in 2015 and expanding operations at specialised clinics), followed by Al Hammadi (+16%, uncovered), post the re-opening of Al-Olaya hospital and the ramp-up in newly-opened Al Suwaidi hospital, and Dallah (+14%) on higher utilisation rates and better contractual terms with some clients. MEAHCO (uncovered) revenue softened 3% Y-o- Y due to a change in its client mix, while Care was the worst performer (-14%).
Provisions hit 4Q16 bottom-line, except for Mouwasat
Mouwasat’s top-line growth filtered through to earnings, which soared 34% Y-o-Y, while the other four listed companies’ bottom-lines declined due to the booking of receivables and impairments. Dallah (-5%) and MEAHCO (-14%) reported moderate earnings declines, while Al Hamadi earnings plunged 70%, and Care reported a net loss of SAR71mn. The booking of provisions came post negotiations with their main clients, particularly government and semi-government organisations, which would entail a cut in receivables collection. Mouwasat and Dallah (the latter also booked receivables and impairments related to Dallah Pharma’s restructuring) have the lowest exposure to government referrals, while Care, Al Hammadi and MEAHCO have high exposure. Companies received the first payment in months from the MoH in 2H16 and expect another payment in 1Q17.
We still like Mouwasat & Dallah; forecasts under revision
Only Mouwasat surpassed our estimates (+12% for revenue and earnings); Dallah was broadly in line operationally, while Care disappointed. We still like Mouwasat, followed by Dallah. Mouwasat should continue to benefit from capacity additions (including a new project in Madinah that is not included in our forecasts), while it has been reporting better-than-expected results for a while and has low dependence on MoH referrals. Dallah has been booking robust operational results, and it should start to benefit soon from the launch of Namar hospital in Riyadh, and it has a relatively limited exposure to government referrals. Main challenges to the sector include the pace at which the MoH pays its dues, impact of competition on occupancy rates (especially at new hospitals in Riyadh), and higher labour costs. We will adjust our forecasts and valuation to reflect FY16 results and recent trends.
Tarek El-Shawarby
Wafaa Baddour, CFA
Adham El Badrawy
The hospitals sector reported mixed results operationally and they also leaned their balance sheets at the end of the year, particularly as negotiations with MoH to pay its dues resumed, as well as with other clients. On the operational level, Mouwasat performed the best, with 36% Y-o-Y growth in 4Q16 revenue, supported by recent expansions (ramp-up in occupancy rates at Riyadh hospital that opened in 2015 and expanding operations at specialised clinics), followed by Al Hammadi (+16%, uncovered), post the re-opening of Al-Olaya hospital and the ramp-up in newly-opened Al Suwaidi hospital, and Dallah (+14%) on higher utilisation rates and better contractual terms with some clients. MEAHCO (uncovered) revenue softened 3% Y-o- Y due to a change in its client mix, while Care was the worst performer (-14%).
Provisions hit 4Q16 bottom-line, except for Mouwasat
Mouwasat’s top-line growth filtered through to earnings, which soared 34% Y-o-Y, while the other four listed companies’ bottom-lines declined due to the booking of receivables and impairments. Dallah (-5%) and MEAHCO (-14%) reported moderate earnings declines, while Al Hamadi earnings plunged 70%, and Care reported a net loss of SAR71mn. The booking of provisions came post negotiations with their main clients, particularly government and semi-government organisations, which would entail a cut in receivables collection. Mouwasat and Dallah (the latter also booked receivables and impairments related to Dallah Pharma’s restructuring) have the lowest exposure to government referrals, while Care, Al Hammadi and MEAHCO have high exposure. Companies received the first payment in months from the MoH in 2H16 and expect another payment in 1Q17.
We still like Mouwasat & Dallah; forecasts under revision
Only Mouwasat surpassed our estimates (+12% for revenue and earnings); Dallah was broadly in line operationally, while Care disappointed. We still like Mouwasat, followed by Dallah. Mouwasat should continue to benefit from capacity additions (including a new project in Madinah that is not included in our forecasts), while it has been reporting better-than-expected results for a while and has low dependence on MoH referrals. Dallah has been booking robust operational results, and it should start to benefit soon from the launch of Namar hospital in Riyadh, and it has a relatively limited exposure to government referrals. Main challenges to the sector include the pace at which the MoH pays its dues, impact of competition on occupancy rates (especially at new hospitals in Riyadh), and higher labour costs. We will adjust our forecasts and valuation to reflect FY16 results and recent trends.
Tarek El-Shawarby
Wafaa Baddour, CFA
Adham El Badrawy