Equity Analysis /
Saudi Arabia

Saudi Healthcare Sector | Expansions and NHIC to support the sector

  • MoH initiatives to support sector growth

  • 2022f earnings: expansions to drive growth

  • Sector positives are priced-in

SNB Capital
26 July 2022
Published bySNB Capital

We remain positive on the Saudi healthcare sector driven by the Healthcare Transformation Program (HSTP). The establishment of the Healthcare Holding Company (HHC) and National Health Insurance Company (NHIC) are among the first steps taken by the MoH to achieve its long-term goal of restructuring the sector. We believe the establishment of NHIC is expected to lead to higher patient inflows for the private sector and potentially reduce the receivables cycle. For stocks under coverage, we believe the current valuation fully reflects all the positives. Although we are Neutral on HMG with a PT of SAR201.7, it is our top pick in the sector, backed by strong growth in capacity (+77% by 2024f), stable margins, and a healthy receivable cycle. We remain neutral on Mouwasat, SGH, and Hammadi.

  • MoH initiatives to support sector growth: HSTP was introduced to restructure the sector into a comprehensive and effective health system. The program aims to restructure the Saudi healthcare sector, improving its status and capacity as an effective, integrated, value-based, patient-centred system. Moreover, establishing HHC, NHIC, and redefining the role of MoH as a regulator are a few of the initiatives under the program which should impact the private healthcare sector positively. Setting up NHIC is expected to bring the entire local population under the insurance coverage, which we believe would potentially result in higher footfall for private hospitals.

  • 2022f earnings: expansions to drive growth: In 2021, the sector continued its growth trajectory with a net income of SAR2.0bn vs SAR1.8bn in 2020, driven by growth in HMG (+30% yoy). In 2022f, we expect the sector's earnings to grow by 22% yoy, backed by strong performance across our coverage. We expect the number of beds to increase by 7.0%, 15% and 11% in 2022f, 2023f and 2024f, respectively. SGH's major expansion (c500 beds in 2022f, 46% yoy) is expected to lead to a recovery in earnings. We expect HMG to record a net income growth of 15% yoy in 2022f on higher patient footfall and margins improvement. Mouwasat is expected to post a net income of SAR656mn for 2022f, backed by higher patient inflow. Hammadi is expected to post earnings of SAR145mn in 2022f (+18.2% yoy) due to Improved utilization at Al Nuzha Branch and lower depreciation expenses.

  • Sector positives are priced-in: Although the outlook for the sector is positive, we believe the positives are priced in at the current valuation. In general, we prefer companies with 1) strong expansion plans, 2) favourable customer mix, and 3) a healthy receivables cycle. HMG is our top-pick due to its strong expansion pipeline (+77% bed capacity by 2024f) and improved efficiency. We have revised our PT for HMG to SAR201.7, while maintaining our Neutral rating. HMG trades at a P/E of 41.8x at an 8% premium to the sector.