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Saudi German Hospital: Continued losses at Dammam drag earnings

  • Revenues declined 4.1% yoy (-11.1% qoq) to SAR418mn and were lower than our estimate of SAR428mn
  • Gross profit decreased by 16.1% yoy (-23.4% qoq) to SAR123mn and was lower than our estimate of SAR132mn
  • Operating income stood at SAR17mn, compared to SAR24mn in Q1 20, and lower than our estimate of SAR21mn

Saudi German reported a weak set of Q1 21 results, as net income declined 42.9% yoy (-57.6% qoq) to SAR12mn. This compares with the NCBC and consensus estimates of SAR17mn and SAR21mn, respectively. The weakness primarily came from lower revenues, which declined by 4.1% yoy (-11.1% qoq) and were lower than our estimates of SAR428mn. The decline is attributed to lower volumes from one of its key clients.

  • Revenues declined 4.1% yoy (-11.1% qoq) to SAR418mn and were lower than our estimate of SAR428mn. We believe the variance is attributed to decrease in business volume from one of the company’s key clients.

  • Revenues of the listed Healthcare sector increased by 22.0% yoy (+1.0% qoq) to SAR3.63bn. HMG and Hammadi revenues grew by 26.2% yoy (flat qoq) and 34.7% yoy (-4.6% qoq) in Q1 21, while Mouwasat revenues increased by 8.1% yoy (flat qoq).

  • Gross profit decreased by 16.1% yoy (-23.4% qoq) to SAR123mn and was lower than our estimate of SAR132mn. Similarly, gross margins also contracted 422bps yoy to 29.4% and were lower than our estimate of 30.7% and Q1 20 levels of 33.7%. In comparison, gross margins of the listed sector expanded by c210bps to 35% in Q1 21 vs 33.0% in Q1 20, with all the companies recording higher margins except SGH.

  • In absolute terms, operating expenses declined by 13.7% yoy (-15.2% qoq) to SAR106mn vs SAR123mn in Q1 20 and SAR125mn in Q4 20. This compares with our estimate of SAR111mn. Consequently, opex-to-sales decreased to 25.3% in Q1 21 vs 28.1% in Q1 20 and was broadly in-line with our estimate.

  • Operating income stood at SAR17mn, compared to SAR24mn in Q1 20, and lower than our estimate of SAR21mn. Operating margins declined from 5.6% in Q1 20 to 4.2% in Q1 21, which we believe is due to continued losses at the new hospital. Dammam facility reported a loss of cSAR20mn in Q1 21 vs loss of SAR19mn in Q1 20.

  • SGH’s net income declined by 42.9% (-57.6% qoq) in Q1 21 vs a growth of 33.0% yoy (+8.0% qoq) for the sector.

We are Neutral on SGH with a PT of SAR39.8. We believe improved operating efficiency and the ramp-up of Al Dammam hospital are key stock catalysts. However, high account receivables remain a concern. The stock trades at 2021f PE of 14.3x vs the peer group average of 37.5x (30.5x excluding HMG).


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