Equity Analysis /
Saudi Arabia

Al-Hammadi: Weak results on higher opex and finance costs

    SNB Capital
    28 July 2019
    Published bySNB Capital

    Al Hammadi reported a lower than expected set of Q2 19 results, with net income coming flat yoy (-17.2% qoq) at SAR20mn. This compares to the NCBC and consensus estimates of SAR23mn and SAR22mn respectively. Despite revenue coming higher than our expectations (+18.3% yoy), we believe higher than expected opex related to Nuzha hospital, credit provisioning and finance costs impacted earnings.

    NCBC view on the results:

    Al Hammadi reported a lower than expected net income of SAR20.0mn in Q2 19, coming flat yoy (-17.2% qoq). This is below the NCBC and consensus estimates of SAR23mn and SAR22mn, respectively. We believe the variance is attributed to higher opex related to AlNuzha hospital, credit provisioning and finance costs as net sales came higher than our estimates and increased 18.3% yoy. 

    Revenues grew 18.3% yoy (+10.5% qoq) to SAR254mn, coming higher than our estimates of SAR235mn. This is the highest revenue since Q1 13. We believe the growth in revenues is supported by 1) an improvement in overall utilization rates and 2) higher pharma revenues. The opening of Al Nuzha hospital in Q1 18 resulted in additional capacity of 64 clinics and 120 beds. This increased total clinic and bed capacity by 46% and 16%, respectively. 

    Gross margin expanded to 28.0% in Q2 19 vs 24.8% in Q2 18. However, it came lower than our estimate of 30.0%. We believe the variance in margins is attributed to higher than expected operating cost of Al Nuzha hospital and government related fees. This variance led to gross profit coming in-line with our estimates. Gross profit increased +33.4% yoy (+8.4% qoq) to SAR71mn. 

    Operating profit increased 8.0% yoy (-8.8% qoq) to SAR34mn, coming in-line with our estimates of SAR35mn. Operating margin stood at 13.2% vs.14.5% in Q2 18 and our estimate of 14.9%. We believe higher opex of Al Nuzha and increased credit provisioning adversely effected the margins.

    Based on our calculations, we believe financial expenses stood at SAR9.5mn vs. SAR8.1mn in Q2 18. This is higher than our estimates of SAR8.5mn. 

    In light of the weaker results, we will revisit our estimates, rating and target price once full financials are released.