Earnings Report /
Saudi Arabia

Saudi German Hospital: Earnings miss due to lower margins

  • Revenue increased by 11.3% yoy (-1.0% qoq) to SAR508mn, in-line with our estimates

  • Gross profit increased by 4.0% yoy (-3.8% qoq) to SAR159mn, but was lower than our estimate of SAR171mn

  • The operating expenses grew by 3.0% yoy (+5.6% qoq) to SAR137mn

SNB Capital
8 August 2022
Published bySNB Capital

Saudi German reported a weak set of results. Although net income increased by 14.1% yoy (-49.1% qoq) to SAR10mn, but it was lower than SNB Capital and consensus estimates of SAR22m and SAR16mn, respectively. We believe the variation was largely due to ramp-up activities and higher initial running costs of two new facilities, which put pressure on gross margins. Revenues increased by 11.3% yoy (-1.0% qoq) to SAR508mn and were in-line with our estimates.

  • Revenue increased by 11.3% yoy (-1.0% qoq) to SAR508mn, in-line with our estimates. We believe the growth was driven by recovery of business volume from a key client, ramp-up of Dammam hospital and better pricing from some of the key clients. The qoq revenue decline is attributed to seasonality of demand due to Ramadan and Eid Holidays. Furthermore, we also believe ease of travel has also effected patient volumes on qoq basis.

  • Gross profit increased by 4.0% yoy (-3.8% qoq) to SAR159mn, but was lower than our estimate of SAR171mn. Gross margin declined by 218bps yoy to 31.2% and were lower than our estimate of 34.0%. We believe the variance is largely due to higher operating cost in Dammam hospital and start-up cost related to two new facilities in Jeddah and Aseer.

  • Going forward, the margins could further remain under pressure as SGH has recently announced the commencement of operations at its Makkah hospital.

  • The operating expenses grew by 3.0% yoy (+5.6% qoq) to SAR137mn, marginally higher than our estimate of SAR133mn. The opex-to-sales ratio declined by 217bps yoy to 27.0% but was in-line with our estimate of 26.4%.

  • Operating profit increased by 10.8% yoy (-38.3% qoq) to SAR22mn, but was behind our estimate of SAR38mn. Subsequently, operating margin remained flat on yoy basis at 4.3% but was lower than our estimate of 7.6%.

  • Non-operating expense increased by 8.0% yoy (down 23% qoq) to SAR11.3mn and was lower than our estimates of SAR15.0mn. We believe the lower non-operating expense can potentially be due to lower zakat expense.

Outlook

We are Neutral on SGH with a PT of SAR36.2. We believe the ramp-up of Dammam hospital and other expansion plans are key stock catalysts. However, high account receivables remain a concern. The stock trades at 2022f PE of 44.5x vs peer group PE of 37.0x.