Flat revenues on an unfavorable base effect
CLHO reported flat 1Q22 revenues of EGP637 million (+0.6% YoY, -1.8% QoQ), in line with our estimates of EGP640 million. Revenue performance is driven by an unfavorable solid base effect in 4Q21 and 1Q22, that were partially fueled by solid covid revenues business. Revenues were driven by a healthy 16% YoY growth in non-covid business, offsetting a 50% YoY decline in covid-related revenues.
CLHO served 0.26 million cases (+10% YoY), driven by higher volumes across all services (surgeries (7.7% YoY), OP clinic (+12% YoY), Inpatient visits (+5.9% YoY), ER (+3.1% YoY), and Catheterizations (+4.2% YoY)). This was as well supported by ramping up of the Group’s Centers of Excellence and enhanced cross-asset referrals.
During 1Q22, CLHO maintained revenues almost flat YoY, but surpassing pre-covid levels. Annual performance came despite a continuous decline in covid related revenues sequentially.
Revenue growth capped by slowdown in covid revenues (El Katib and Queens)
Revenues from Queens Hospital (Covid-19 treatment facility) recorded a decline of 38.8% YoY and 23.1% QoQ during 1Q22, on the back of lower covid demand/cases. El-Katib Hospital’s (Covid-19 treatment facility) contribution stood at 0.9% in 1Q22 (-5.7pps YoY, -2.0pps QoQ) and recorded a decline in revenues of 85.7% YoY and 68.4% QoQ, on the back of slower demand due to lower covid-19 cases. Queens Hospital is currently shut down to undergo the necessary repurposing works. The facility is scheduled to reopen in early 2023 operating as a regular facility.
For Al Katib Hospital, the Group initiated the facility’s post-COVID-19 strategy with the launch of the hospital’s new muti-specialty surgical model in the first weeks of the year. Management is expecting to see the impact of the new service offering reflect on the Group’s results later in 2022.
During 1Q22, Cleopatra Hospital, recorded a healthy YoY increase of 13.6% and minimally increasing quarterly by 4.6% in revenues for 1Q22, contributing 39.2% (+4.3pps YoY, +2.2pps QoQ) to consolidated top line.
Cairo Specialized Hospital revenues grew by 6.3% YoY and came in flat sequentially in 1Q22 with the facility’s contribution to total revenue standing 18.6% for the quarter (+0.9pps YoY, +0.3pps QoQ). Nile Badrawi Hospital and Al Shorouk Hospital contributed to around 13.8% and 16.1% of total revenue for the quarter; respectively.
CHG’s East and West Cairo Polyclinics and CHG Pharma contributed to 3.3% of total revenues in 1Q22. The IVF venture, Bedaya, contributed to 2.5% of consolidated revenues in 1Q22 where revenues grew by 60.0% YoY and 6.7% QoQ, despite the Group only taking over operations in 4Q20.
Margins contracts on significantly lower high margin covid revenues
Gross profit came in at EGP222 million in 1Q22 (-8.0% YoY, -7.6% QoQ), implying a GPM of 34.8% in 1Q22 (-3.2pps YoY, -2.2pps YoY). The decline can be attributed to a 50% YoY decline in covid related revenues (-50% YoY), where CLHO’s long-term efficiency enhancement strategy and management’s cost reduction and optimization efforts introduced over the last year, have prevented a sharper margin contraction.
On a per hospital basis, Cleopatra Hospital, which continues to include Queens Hospital’s results, made up 57% of the group’s consolidated gross profit in 1Q22. Cleopatra Hospital (excluding Queens) made up around 50% of total gross profit for the period, while Queens' contribution to gross profit stood at 7% in 1Q22. Cleopatra Hospital recorded GPM of 45% in 1Q22, which is above the group’s GPM average. CSH contributed 16% of consolidated gross profit, followed by ASH and NBH, contributing 14% and 10%; respectively, to the total gross profit for the quarter. El Katib Hospital, which operated on a reduced capacity level as it transitions back to a regular service offering, reported a gross loss during 1Q22.
Adjusted EBITDA, factoring out acquisition expenses, impairments, provisions, the LTIP’s noncash charge, pre-operating expenses, and contributions from other income, stood at EGP179.5 million for 1Q22 (-10.3% YoY, -8.8% QoQ), mirroring gross profit performance, implying an EBITDA margin of 28% in 1Q22 (-3.4pps YoY, -2.2pps QoQ).
Bottom line pressured by margin contraction and flat revenues
CLHO recorded net attributable profit of EGP96 million in 1Q22 (-5.3% YoY, -16.8% QoQ), in line with our estimates of EGP97 million. NPM stood at 15.1% YoY (-0.9pps YoY, -2.7pps QoQ).
Bottom line performance was driven by:
Flat revenues during the quarter (+0.6% YoY, -1.8% QoQ),
GPM contraction of 3.2pps YoY and 2.2pps QoQ
EBITDA margin contraction of 3.4pps YoY and 2.2pps QoQ
However, lower provisions (-53.8% YoY, -60.3% QoQ) and higher net interest income (+101% YoY, +38.2% QoQ) prevented a sharper decline in margin contraction and further decline in net profit for the quarter.
Al Ahly Pharos 2022 Earnings Expectations
We expect CLHO to record 2022 net attributable profit of EGP436 million, a growth of 13% YoY, implying NPM of 16.0% (+0.8pps YoY). This should be driven by moderate revenue growth of 7% in 2022f to stand at EGP2.73 billion, along with EBITDA of EGP791 million (+4% YoY) on the back of a better 2H2022 that is expected to partially offset 1H2022 weakness.
Expansion is a Key Value Driver
We expect CLHO to show a healthy 2022, despite a weak 1Q2022 on an unfavorable strong base effect, driven by patient volumes’ gradual normalization and growing above 2019 levels, reflecting management’s successful strategy to focus on its long-term strategic objectives and continuous efforts to tailor the company’s business model to weather transitional challenges.
In December 2021, the Group finalized an agreement to operate, for a 27-year period, Sky Hospital, a c.200-bed brownfield general hospital located in East Cairo’s Fifth Settlement area. Under the agreement, ownership of the land and buildings will remain with the three state-run petroleum companies that partnered with CHG for the project. The Group has taken over the site and is starting completion work, with operations expected to commence in late 2023.
CLHO is currently trading at 2022f P/E of 19.6x and EV/EBITDA of 9.0x.