Dallah Q1 lifted by provisions reversal, says Al Rajhi Cap

Dallah Healthcare Co.’s Q1 2017 net profit grew 46.3 percent year-on-year (YoY) to SAR 85 million, beating Al Rajhi Capital's estimates of SAR 64 million as well as the consensus expectations of SAR 63 million, the brokerage said in an earnings review.

“We believe the profitability during the quarter was primarily boosted by reversal of provisions, after the company received payments from government authorities,” the review noted.

Revenue for Q1 stood at SAR 302.8 million, compared to the estimated SAR 310 million. However, the revenue growth has slowed to about 6 percent y-o-y, considerably lower than the 14-22 percent y-o-y top line growth seen over the last four quarters, the report said.

Net profit margin expanded about 770 basis points y-oy to 28.1 percent. Operating expenses were much lower than expected, which led to a 38.6 percent y-o-y increase in operating profit. This was supported by reversal in provisions on account of material cash collections from governmental authorities, and lower selling & distribution expenses.

Dallah has aggressive expansion plans-- adding new capacity at its Riyadh hospital by 2018, and completion of its new Namar Hospital by H2 2018. In addition, the company has also signed an MoU to build a hospital in Jeddah.

"We believe these expansion plans will ensure strong earnings growth for the company over the next few years,” the brokerage noted.

Al Rajhi Capital has revised Dallah’s estimates post the stronger-than-expected earnings. Though revenue expectations are weaker, margin forecasts have been raised.

It has raised the target price for Dallah to SAR 105 per share and recommended a ‘Neutral’ rating on the stock.