Earnings Report /
Saudi Arabia

Mouwasat: Q4 19 review – Operational efficiencies drive earnings growth

  • Revenues of Mouwasat increased by 10.7% yoy to SAR505mn (+13.9% qoq)

  • In Q4 19, gross profit increased 12.3% yoy to SAR230mn (+21.7% qoq)

  • Operating income increased 41.2% yoy to SAR139mn in Q4 19

SNB Capital
9 March 2020
Published bySNB Capital

Mouwasat reported a strong set of Q4 19 results, with net income increasing 53% yoy (+47.7 qoq) to SAR130mn. This is the highest earnings on record and is significantly higher than the NCBC and consensus estimates of SAR87mn and SAR99mn, respectively. We believe the variance is attributed to cost efficiencies. Furthermore, lower non-operating and zakat expense also reflected positively on the company’s bottom-line.

Revenues of Mouwasat increased by 10.7% yoy to SAR505mn (+13.9% qoq). This compares to SAR456mn in Q4 18 and our estimates on SAR440mn. We believe the improvement in the top-line is primarily due to higher patient count. This offset the impact of lower average revenue/patient. 

According to Mouwasat, the number of outpatients and inpatients increased in 2019 by c11% and c9%, respectively. We believe the growth in the overall number of patients is driven by the ramp-up of the company’s operations in the Khobar new hospital. Moreover, we estimate a decline in the average revenue/patient by 0.4% yoy in 2019.

In Q4 19, gross profit increased 12.3% yoy to SAR230mn (+21.7% qoq). Gross margin expanded +66bps yoy to 45.5% in Q4 19. This compares to our estimates of 42.4%. We believe this is potentially because of higher utilization rates at the new Khobar hospital. We believe the losses of Khobar operations declined significantly to SAR1.9mn in Q4 19 vs SAR15mn in Q3 19.

Operating income increased 41.2% yoy to SAR139mn in Q4 19, coming in higher than our estimates of SAR99mn. We believe this growth was mainly driven by opex efficiencies, with opex standing at SAR91mn in Q4 19. This is in-line with our estimates, however lower than SAR106mn in Q4 18. Opex-to-sales stood at 18.0% vs 23.3% in Q4 18 and our estimates of 20.0%

We believe the company reported a non-operating loss of SAR2.4mn in Q4 19 vs SAR0.5mn Q4 18, coming in-line with our estimates. We estimated Zakat expense at SAR3.7mn and believe it came-in SAR0.3mn in Q4 19. We believe the lower than expected Zakat expense further supported the bottom-line growth.

We have an Overweight rating on Mouwasat with a PT of SAR96.9. Strong expansion pipeline and favourable client mix remain key drivers for the stock. Mouwasat currently trades at a 2020f PE of 20.2x vs peer average of 22.0x.