Al Hammadi reported a strong set of Q3 22 results, with a net income increasing by 1,495% yoy (-12.3% qoq) to SAR57mn. This compares with the SNB Capital and consensus estimates of SAR43mn and SAR51mn, respectively. The variance in earnings is largely due to higher-than-expected revenues and lower operating expenses compared to same quarter in previous year. Revenues for Al Hammadi grew 12.3% yoy (-12.4% qoq) to SAR247mn in Q3 22.
Revenues increased by 15.3% yoy (+3.7% qoq) to SAR2.29bn and came in-line with our estimate of SAR2.24bn. This is the highest quarterly revenue on record. We believe the yoy growth in revenue is mainly driven by higher B2B, 5G revenue and the return of international visitors following the removal of COVID-19 pandemic related restrictions.
Revenue increased by 12.3% yoy (-12.4% qoq) to SAR247mn and was higher than our estimates of SAR223mn. The company stated that increase in sales is due to an increase in medical services segment revenues from Al Hammadi Nuzha and Suwaidi branch hospitals resulting from an increased number of inpatients and outpatients compared to Q3 21. As compared to other healthcare companies, the revenue is higher than Care revenue growth of +5.8% yoy, while lower then HMG of +16.4% yoy.
Gross income declined by 5.3% yoy (-23.5% qoq) to SAR84mn, in-line with our estimates of SAR83mn. As a result, margins shrunk 627bps yoy (-488bps qoq) to 33.8% in Q3 22 compared to our estimate of 37.5%.
In absolute terms, operating expenses decreased sharply by 51.8% yoy (-50.8% qoq) to SAR17mn in Q3 22 lower than our estimate of SAR30mn. Opex-to-sales stood at 7.0% in Q3 22, higher than our estimate of 13.3%. The lower expenses are due to decrease in provisions in the current quarter compared to Q3 21 and Q2 22.
Operating profits increased by 26.7% yoy to SAR66mn (-10.4% qoq) in Q3 22, ahead of our estimate of SAR54mn. Consequently, operating margin expanded to 26.8% in Q3 22 compared to 23.8% in Q3 21, higher than our estimate of 24.2%.
The net profit increased yoy to SAR57mn (Q3 21: SAR4mn) resulting in net margin increase to 23.1% in Q3 22 compared to our estimate of 19.3%.
The company has declared its dividend policy of paying 60% of net profits as dividends each quarter for next three years. In Q3 22, Al Hammadi has declared cash dividends of SAR48mn.
Based on our last update, we are Neutral on Al Hammadi with PT of SAR40.8. We believe higher utilisation of Al Nuzha hospital is one of the key drivers, however, a substantial level of receivables remains a cause of concern. The stock trades at 2023PE of 26.3x compared to peer average PE of 30.6x.