Earnings Report /
Saudi Arabia

Saudi German Hospital: Weak Q2 results on higher opex

    SNB Capital
    20 August 2019
    Published by

    Saudi German Hospital (SGH) reported a weak set of Q2 19 results, with net income declining 64.2% yoy to SAR12.3mn (-15.9% qoq). This is the lowest net income since Q1 14 and is significantly lower than NCBC and consensus estimates of SAR15.9mn and SAR22.1mn, respectively. We believe the variance is attributed to higher opex. Revenues and gross profit came in line with our expectations.

    NCBC view on the results: 

    SGH reported weaker-than-expected set of Q2 19 results with net income declining 64.2% yoy to SAR12.3mn (-15.9% qoq). This is the lowest earnings level since Q1 14 and is significantly lower than the NCBC and consensus estimates of SAR15.9mn and SAR22.1mn, respectively. We believe the variance is due to higher than expected opex. 

    Revenues grew 2.0% yoy to SAR353mn (+0.9% qoq), coming in line with our estimates. We believe the revenue growth is attributed to a gradual pick up in utilisation rates of the newly opened facilities. In 2018, SGH opened outpatient clinics at Aseer (40 clinics) and Jeddah, Beverly Clinics (21 clinics), increasing the clinic capacity by 18%. In 2017, SGH opened a new hospital at Hail (150 beds) increasing the bed capacity by 18%.

    Gross profit declined 12.1% yoy to SAR103mn (+1.1% qoq). Gross margins stood at 29.1% in Q2 19 vs 33.8% in Q2 18, coming in line with our estimate. We believe the yoy contraction in gross margins is attributed to higher employee and depreciation cost. 

    Operating income declined 76.1% to SAR8mn (-58.6% qoq), coming significantly lower than our estimate of SAR20mn. Opex-to-sales stood at 26.9% vs. 24.6% in Q2 18 and our estimate of 24.4%. We believe the yoy increase in opex is due to higher salary costs and maintenance expenses. The variance declined at the net income level due to higher-than-expected other income.

    SGH announced the completion of Dammam hospital in June 2019 and is awaiting MoH approval to announce the date of actual operations.

    We are Overweight on SGH, with a PT of SAR30.6. We expect margins to recover driven by an improvement in utilisation rates going forward.