Flash Report /
Egypt

Cleopatra Hospitals: Q219 conference call highlights

    Mohamed Hamza
    Al Ahly Pharos Securities Brokerage
    10 September 2019

    Operations:

    • Management stressed that Ramadan is a key factor for the sequential drop. It also advised that annual volume increase (+7% YoY) showcases management’s promise to continue to serve more patients. 
    • Management to maintain its annual price increase at 11-14% YoY, in line with inflation figures.

    Assets:

    • Management only operated 4 assets in FY18, expect to have 8 assets in total by FY19-end. Queens Hospital, IVF Center, Polyclinics and El-Katib Hospital should be added.
    • Management noted that surgeries growth has never recorded such impressive growth (+25% YoY), heavily attributed to the introduction of polyclinics in FY19, which act as a feeder network for core hospitals; therefore increasing number of cases served as well as gaining further coverage. 
    • Management have already selected the premises for the third and fourth polyclinics, expected to be announced by FY19-end.
    • Management noted that they are currently awaiting current owners of El-Katib Hospital to get ahead with their OGM in order to finalize the transaction. CLHO expects it to be fully operating the asset by Oct19.
    • Management expects to have Nahda Hospital up-and-running by 4Q20 with over 90 beds to be utilized.
    • Management is currently finalizing due-diligence for the recently signed IVF Center. Management expects to own around 60-70% of the business and looking to expand it in the future. Management discussed the potential of the IVF market in Egypt, where it was noted that there has been an increased demand for such service. On the other hand, supply does not cover demand needs. Therefore, management believes it is an opportunity to create a strong brand name for such service that goes in line with CLHO’s reputation as one of the leading hospitals in Egypt. The IVF business currently operates on an EBITDA margin of 40% as well as operating exclusively on cash-basis.
    • ‘Brownfield Hospital’, located in New Cairo, is currently in the due-diligence phase following the agreement on the final yet undisclosed price. Expected to show developments by FY19-end.

    Other:

    • CLHO’s current Long-Term Incentive Plan, (LTIP) entails management to a bonus scheme which is highly dependent on stock performance. For this reason, 2Q19 LTIP accounted for around EGP31 million as a result of enhanced stock performance during the previous 6 months. Management noted that this plan is set to expire in June 2020. Going forward, management will adopt a new ESOP (Employee Stock Ownership) Plan, which entails employees to acquire stocks in the company. 

    Guidance:

    • Topline to grow by 25-30% YoY.
    • Organic assets are currently achieving a GPM of 37%. However, management anticipates FY19 to be a transitional year where GPM will be driven down by 2pps as a direct result of integrating new assets to CLHO’s portfolio. Therefore, management expects FY19 margins to record similar margins to FY18.