Revenue growth on higher utilization rates



Al Hammadi reported broadly in-line 2Q17 results with a net income of SR25.7mn, growing +24.4% YoY (-8.3% QoQ). This is in-line with the NCBC and consensus estimates of SR26.7mn and SR25.8mn, respectively. The growth is attributed mainly to strong revenue growth (+28.0% YoY) driven by an improvement in the overall utilization rates. We are Neutral on Al Hammadi with a PT of SR40.4. The stock is currently trading at 2018E P/E of 19.5x inline with Saudi peers group average of 19.3x.

Al Hammadi reported a broadly in-line 2Q17 net income of SR25.7mn, growing +24.4% YoY (-8.3% QoQ). This compares to the NCBC and consensus estimates of SR26.7mn and SR25.8mn, respectively. The results are supported by the +28.0% YoY growth in revenue.

The company reported a revenue of SR176.7mn, a growth of +28.0% YoY (- 2.0% QoQ). This is in-line with our estimate of SR178.9mn. The growth in revenue is due to 1) full quarter contribution of Al Olaya hospital operation as the hospital was closed in 2Q16 after a fire incident and 2) the ramp-up of Al Suweidi hospital operation. The company has also attributed the growth to the improvement in contract terms with insurance companies. The QoQ decline in revenue is due to seasonality (i.e. Ramadan and summer break).

Gross profit came-in 13.3% lower than our estimate at SR58.2mn (flat YoY but a decline of -6.2% QoQ) with a gross margin of 32.9%. This is less than 41.7% in 2Q16 and 34.4% in 1Q17 and our estimate of 37.5%. We believe the variance in gross margin is due to higher employees cost from hiring new medical staff for Al Nuzha hospital, which is expected to commence commercial operation in 4Q17.

Operating income stood at SR33.8mn, increasing 16.2% YoY and 5.1% higher than our estimates. Opex came in at SR24.3mn, less than 2Q16 Opex of SR28.4mn and our estimate of SR34.8mn. We believe that lower (or reversal of) doubtful debt provision explains the decline in Opex.

The variance on the net income line has contracted to -3.8% due to higher than expected financial charges. We believe financial charges stood at SR5.2mn vs. our estimates of SR2.5mn

We are Neutral on Al Hammadi with PT SR40.4. Although the opening of Al Nuzha hospital is a key catalyst, we believe it is already priced-in. The stock trades at 2018E P/E of 19.5x vs. Saudi peer group average of 19.3x.


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