Earnings Report /
Saudi Arabia

Mouwasat: Q3 22 Results Analysis | New hospital costs drive earnings miss

  • Revenue increased by 3.4% yoy (-1.6% qoq) to SAR549mn and was broadly in-line with our estimate

  • Gross profit increased by 1.1% yoy (-4.3% qoq) to SAR247mn, broadly in line with estimates at SAR266mn

  • Operating profit stood at SAR139mn, down 7.2% yoy (-10.4% qoq) compared to our estimate of SAR158mn

SNB Capital
10 November 2022
Published bySNB Capital

Mouwasat reported a weak set of results with a net income of SAR122mn, down 14.3% yoy (-13.6% qoq) in Q3 22. This is lower than the SNB Capital and consensus estimates of SAR142mn and SAR143mn, respectively. The variance in bottom-line was due to initial costs related to ramp up of expansion of Mouwasat Hospital in Dammam and the New Mouwasat Hospital in Madinah. Additionally, increase in financial costs also pressurized the earnings. Revenues for Mouwasat increased 3.4% yoy (-1.6% qoq) to SAR549mn. 

  • Revenue increased by 3.4% yoy (-1.6% qoq) to SAR549mn and was broadly in-line with our estimate. The qoq decline was primarily due to seasonality (Q3 22 had summer holidays and Eid-Al-Adha holiday). The revenue growth of Mouwasat was only more than Saudi German (+2.7%) in the sector during the said quarter.

  • Gross profit increased by 1.1% yoy (-4.3% qoq) to SAR247mn, broadly in line with estimates at SAR266mn. The company’s gross margins, however, declined by 104bps yoy, 127bps qoq to 45.0% in Q3 22 and were largely in line with our estimates at 45.3%.

  • Operating profit stood at SAR139mn, down 7.2% yoy (-10.4% qoq) compared to our estimate of SAR158mn. Opex stood at SAR108mn and was in-line with our estimates of SAR109mn. The opex-to-sales ratio of 19.6% in Q3 22 was higher than our estimate of 18.5% resulting in margin decline of 291bps yoy to 25.4%.

  • The non-opex costs increased sharply by 129.0% yoy (+22.9% qoq) to SAR17mn, primarily due to higher financial cost burden, and is slightly higher than our estimate of SAR15mn.

  • The reason for decline in profit margins is increased opex and non-opex costs resulting from expansion activities in Dammam hospital and Mouwasat hospital in Madinah.

  • Due to increased costs, the net income margin fell by 461bps yoy (down 311bps qoq) to 22.3% in Q3 22 resulting in net income decline by 14.3% yoy, 13.6% qoq to SAR122mn which was behind our estimate of SAR142mn.

Outlook

We are Neutral on the stock with a PT of SAR207.8 according to our update July 2022. We believe that the capacity expansion although a key growth driver in 2022f will also put pressure on margins in the coming years. The stock currently trades at a 2023f PE of 27.7x compared to 31.0x for peers.