Equity Analysis /
Saudi Arabia

Dr Sulaiman Al Habib: Strong growth prospects offset near-term headwinds; initiate with Overweight

  • HMG is the largest private player in Saudi in the key defensive healthcare sector

  • Expansion plans to fuel top-line growth; cost efficiencies leading to sustainability of margins

  • Initiate with an Overweight rating and PT of SAR70

SNB Capital
4 May 2020
Published bySNB Capital

We initiate coverage on Dr Sulaiman Al Habib Medical Services Group (HMG) with an Overweight rating and a PT of SAR70.4. HMG is the largest private player in Saudi in the key defensive healthcare sector, with over 20 years’ experience and a strong track record of growth. We believe HMG will benefit from Vision 2030 reforms aimed at increasing the role of the private sector in healthcare. We believe HMG’s long-term prospects remain strong, despite nearterm headwinds from the global coronavirus pandemic. New expansions, which will increase its capacity by +60% in the next five years, and improving operational efficiency will be the key earnings drivers going forward.

Expansion plans to fuel top-line growth: HMG is the largest private player in Saudi healthcare. HMG’s long-term prospects remain intact, despite nearterm headwinds from COVID-19. HMG’s key strength is its in-house capability to quickly establish and ramp-up operations of its healthcare facilities. HMG has expanded from 141 beds and 162 clinics in 2007 to 1,913 beds and 1,371 clinics by 2019. The company is planning and designing three new health facilities in Saudi Arabia, namely (1) North Riyadh Hospital, (2) South West Jeddah Hospital, and (3) North Jeddah Hospital. These expansions will increase HMG’s capacity by +60% by 2024f at a total cost of cSAR6.1bn. We expect clinics, beds and revenues to grow at a CAGR of 9.8%, 10.1% and 10.2%, respectively, between 2019 and 2024f. 

Cost efficiencies leading to sustainability of margins: HMG has undertaken several initiatives to increase efficiency. The average number of patients/physicians increased by 12.6% to 1,536 in 2019 from 1,365 in 2016. We believe improved efficiency has allowed the company to maintain its margins (EBITDA +20%) despite a decline in the average revenue/patient. 

Strong working capital management supports growth: HMG’s accounts receivables position remains the strongest amongst private players given its low reliance on MoH business. Receivables as a % of sales has gradually come down from 42% in 2016 to 30% in 2019, which is a key positive. 

Initiate with an Overweight rating and PT of SAR70.4: We initiate on HMG with an Overweight rating and a target price of SAR70.4. The stock is trading at an attractive 2021f PE of 18.8x vs domestic peers at 18.4x. Given its strong expansion pipeline and robust track record, HMG is well-placed to benefit from the Vision 2030 reforms aimed at increasing private sector participation in healthcare.