Earnings Report /
Saudi Arabia

Mouwasat: Expansion activities lead to earnings miss

  • Revenue increased by 5.9% yoy (-1.6% qoq) to SAR558mn and was in-line with our estimate.

  • Gross profit increased by 4.7% yoy (-3.6% qoq) to SAR258mn, marginally behind our estimate of SAR264mn.

  • Due to increased costs the net income margin fell by 148bps yoy to 25.4% in Q2 22 resulting in flat yoy

SNB Capital
16 August 2022
Published bySNB Capital

Mouwasat reported a broadly in-line set of Q2 22 results. Although the net income remained flat yoy (-5.8% qoq) at of SAR141mn in Q2 22, it was in-line with the SNB Capital and consensus estimates of SAR148mn and SAR145mn, respectively. The flat bottom-line was a function of 5.9% yoy (-1.6% qoq) revenue growth to SAR558mn, which was offset by a contraction of gross margins.

  • Revenue increased by 5.9% yoy (-1.6% qoq) to SAR558mn and was in-line with our estimate. The revenues increased due to 1) performance improvement of newly specialized resources; 2) enhancement of operating efficiency of available resources; 3) increase in other revenues. We believe the holiday season in Q2 22 has resulted in qoq decline in revenues, which is also a sector-wide theme.

  • Gross profit increased by 4.7% yoy (-3.6% qoq) to SAR258mn, marginally behind our estimate of SAR264mn. The company’s gross margins, however, declined by 53bps yoy (down 97bps qoq) to 46.3% in Q2 22 and were lower than our expectations of 48.0%.

  • Operating profit stood at SAR155mn, flat yoy (-2.7% qoq) compared to our estimate of SAR161mn. Opex stood at SAR103mn and was in-line with our estimates of SAR103mn. The opex-to-sales ratio of 18.4% in Q2 22, broadly in-line with our estimate of 18.7, however higher than 17.3% in Q2 21. Resultantly operating margin declined by 154bps yoy to 27.8%.

  • The non-opex costs increased slightly by 3.3% yoy (+46.4% qoq) to SAR14mn and were in-line with our estimate of SAR13mn.

  • The reason for the decline in profit margins is increased opex and non-opex costs resulting from expansion activities in Dammam hospital and the new Mouwasat hospital in Madinah.

  • Due to increased costs, the net income margin fell by 148bps yoy (down 113bps qoq) to 25.4% in Q2 22 resulting in flat yoy (-5.8% qoq) net income of SAR141mn which was behind our estimate of SAR148mn.

Outlook

According to our last update published in July 2022, we have a PT of SAR207.8 with a Neutral rating. Superior profitability profile, timely expansion, and healthy cash flow generation are Mouwasat’s key strengths. However, capacity expansion although a key growth driver in 2022f will also put pressure on margins at least in the near term. The stock currently trades at a 2022 P/E of 38.7x compared to 23.3x for peers.