Equity Analysis /
Saudi Arabia

Mouwasat: Growth in outpatient revenues drives earnings

    SNB Capital
    28 July 2019
    Published by

    Mouwasat reported an in-line set of results in Q2 19 with a net income of SAR90mn, increasing +2.8% yoy (-15.8% qoq). This is in-line with the NCBC and consensus estimates of SAR92mn and SAR89mn, respectively. We believe the yoy growth in earnings is attributed to a growth in outpatient revenues due to expansion in specialized departments. We are Overweight on Mouwasat with strong expansion pipeline being a key driver for the stock.

    NCBC view on the results: 

    Mouwasat reported a net income of SAR90mn, increasing 2.8% yoy (-15.8% qoq). This is in line with the NCBC and consensus estimates of SAR92mn and SAR89mn, respectively. We believe the yoy growth in earnings is attributed to a strong revenue growth driven by higher outpatient revenues on opening of new speciality clinics and better contractual terms. Opening of Al Khobar also had a positive impact on the topline, though the facility continued to report losses in Q2 19(SAR-14.6mn). 

    Revenues grew 13.2% yoy to SAR446mn (-3.5% qoq), coming in-line with our estimates. We believe the growth in revenues is attributed to 1) a growth in outpatient revenues, 2) the opening of Al Khobar hospital in September 2018, and 3) better contractual agreements. Al Khobar hospital has a total capacity of 100 clinics and 280 beds, increasing Mouwasat’s total clinic and bed capacity by 30% and 33%, respectively. 

    Gross profit increased 4.5% yoy to SAR194mn (-8.1% qoq), in-line with our estimates. However, gross margin declined to 43.5% vs 47.1% in Q2 18, 45.7% in Q1 19. The decline in gross margin is due to the opening of Al Khobar hospital in Q3 18. 

    Operating income increased 5.3% yoy to SAR104mn (-14.7% qoq), in-line with our estimates. Operating margin came in at 23.3% vs 25.0% in Q2 18, 26.4% in Q1 19. Opex-to-sales stood at 20.2% vs. 22.1% in Q2 18, 19.3% in Q1 19.

    We are Overweight on Mouwasat with a PT of SAR96.9. Strong expansion pipeline, favourable client mix and presence in the Eastern province remain key drivers for the stock. Mouwasat currently trades at a 2019 PE of 22.8x, higher than peer average of 20.1x.