Earnings Report /
Saudi Arabia

Saudi German Hospital: Q3 22 Results Analysis | Initial costs on new hospitals cause earnings miss

  • Revenue increased 2.7% yoy (+0.8% qoq) to SAR512mn and was in-line with our estimates

  • Gross profit declined 11.7% yoy (-4.1% qoq) to SAR152mn and was behind our estimate of SAR165mn

  • The operating expenses declined 15.9% yoy (-8.6% qoq) to SAR125mn which is lower than our estimate of SAR141mn

SNB Capital
10 November 2022
Published bySNB Capital

Saudi German reported lower than expected net income which declined 22.6% yoy (+6.5% qoq) to SAR11mn. This was lower than SNB and consensus estimates of SAR13m. We believe the variation was largely due to ramp-up activities and higher initial running costs of Makkah Hospital, Hai Jama Hospital and Abha Clinic, which put pressure on gross margins. Revenues increased by 2.7% yoy (+0.8% qoq) to SAR512mn and were in-line with our estimates. 

  • Revenue increased 2.7% yoy (+0.8% qoq) to SAR512mn and was in-line with our estimates. We believe the growth was driven by ramping-up of Hai Jama in Jeddah and Abha Clinics in Aseer, and case mix. Additionally, Ramadan and Eid holidays also impacted the top line in Q2 22 and has aided in revenue growth in Q3 22. The yoy revenue growth for SGH was lowest in the sector during the quarter.

  • Gross profit declined 11.7% yoy (-4.1% qoq) to SAR152mn and was behind our estimate of SAR165mn. Gross margin dipped by 484bps to 29.7% compared to our estimate of 31.5%. We believe the variance is largely due to ramp-up activities in the new hospitals and clinics.

  • The operating expenses declined 15.9% yoy (-8.6% qoq) to SAR125mn which is lower than our estimate of SAR141mn. As a result, the opex-to-sales ratio declined by 542bps yoy, 252bps qoq to 24.4% and was lower than our estimate of 27.0%.

  • Operating profit increased by 15.6% yoy (+23.7% qoq) to SAR27mn and was ahead of our estimate of SAR24mn. The operating margin increased c59bps yoy, 97bps qoq to 5.3%, higher than our estimate of 4.5%.

  • SGH’s net income declined 22.6% yoy (+6.5% qoq) translating into SAR11mn which is lower than our estimate of SAR13mn. The variance was due to higher cost on opening of new facilities, and higher financial charges due to utilization of loan facilities.

Outlook

We are Neutral on SGH with a PT of SAR36.2. We believe the ramp-up of Makkah hospital and other expansion plans are key stock catalysts. However, high account receivables remain a concern. The stock trades at 2023f PE of 38.4x vs peer group PE of 31.0x.