Saudi German Hospital Q2 profit misses estimates, says NCB Cap

Middle East Healthcare Co. (MEAHCO), the operator of Saudi German Hospital, reported a Q2 2017 net income of SAR 57.1 million, which was lower than NCB Capital’s (NCBC) and consensus estimates of SAR 85.9 million and SAR 85 million, respectively, the brokerage said in an earnings review.

“We believe the variance is due to weak sales, mainly from lower than expected utilization rate and prices,” the report said.

Revenue came in at SAR 392 million – down 4.5 percent year-on-year (YoY) – lower than NCBC’s estimates of SAR 454 million.

MEAHCO attributed the YoY decline in revenue to the new Ministry of Health pre-set prices, which were revised lower, as well as a decline in utilization rates.

Gross profit also decreased by 15.6 percent YoY to SAR 179 million. In addition, gross margin came in at 45.7 percent, lower than NCBC’s estimated 50.2 percent due to lower utilization rate and higher employees cost.

NCB Capital rated the stock as “overweight” with a target price of SAR 95.3.

“Expansion plans and attractive valuation are the stock’s key positives,” the brokerage said.

High account receivable is a key concern due to its influence on working capital needs and the ability to sustain the dividends, it added.