Saudi healthcare | Resilient to shocks; Mouwasat our top pick
Balancing risk with growth; Mouwasat stands out, Dallah lags. MMS’s story continues to unfold, with Riyadh Hospital’s contribution on the rise, improving revenue/patient and mitigating pressures from higher overheads stemming from Khobar Hospital (scheduled for 3Q18). MMS trades on a 2018e P/E of 23x vs. peers’ 25x, while offering RoE 22% vs. peers’ 13%. We believe Dallah will witness negative FCF in 2018-19 and flattish 2018 EPS growth, on pre-operating costs related to Namar and Nakheel expansions, translating into a 2018e P/E of 20x, a premium to the sector average (growth-adjusted). We raise our rating on Dallah to N from UW on improved pharma business margins and DCF rollover. The stock’s underperformance (-7% in 6M vs. TASI +9%, sector +18%) confirms our previous negative stance on the stock.
Al Hammadi, CARE on the path of recovery. We remain buyers of Al Hammadi, given: i) its superior growth prospects (2018-20e EPS CAGR of 35% vs. peers’ 21%), driven by delivering on expansions sooner than peers, ii) receivables halving in 4Q17, and iii) FCF turning +ve (facilitating dividends). CARE remains attractive on valuation grounds; 2018e P/E of 22x, while offering a 2018-20e EPS CAGR of 22% on par with peers. CARE, in our view, will outperform Al Hammadi in the ST, driven by +ve results as the new CEO (Aug-17) delivers on his turnaround agenda, aiming to raise avg. profitability to peer levels over 24 months (2017 NPM of 11% vs. peers’ 18%). A deal multiple of 13x EV/EBITDA, in line with recent M&A, would value CARE at SAR67/share (on 2019e EBITDA), an upside of c18%.
Receivables no longer a drag. A new arrangement for collection of government receivables, introduced in Nov-17, should lift the overhang on CARE and Al Hammadi (most exposed to the government). Both companies’ receivables were slashed by c50% in 4Q17 and 1Q18, significantly improving the cash cycle. Al Hammadi is also bidding for 2 government tenders for 250 beds (to be awarded in 2Q18), potentially covering all of Al Nuzha’s fixed costs, and posing upside.
Catalysts. Al Hammadi/CARE’s potential merger offers room for synergies and a vast foothold in Riyadh (43% private market share), although valuation remains a key watch factor (not yet disclosed). MMS’s renewal of its Bupa (30% of top line) and Aramco (19% of top line) contracts is due in Mar-18, potentially surprising, as we factor in prudent price escalation. Dallah’s Namar hospital (150 beds, 100 clinics) is complete (33% and 24% to in-patient and out-patient capacity), but any delay in obtaining approvals is a key risk (we assume operations to start in 2H18).
Al Hammadi Development and Investment Co. Al Hammadi Company for Development and Investment SJSC is a Saudi Arabia-based company engaged in the wholesale and retail sale of medical equipment and medicines. Furthermore the Company is engaged in the establishment, repair, management and operation of hospitals and medical centers. It owns, operates and manages Al Hammadi Hospital Al-Olaya, located in Al Olaya area in Riyadh, in addition to the establishment of two new hospitals in Al-Suwaidi and Al-Nuzha areas in Riyadh. Al Hammadi Hospital Al-Olaya comprises adjacent buildings that include wings for inpatients, operation rooms, laboratories, pharmacies and medical departments such as intensive care, radiology, physiotherapy, outpatient clinics, administration offices and lecture halls.
Dallah Healthcare Company SJSC Formerly known as Dallah Healthcare Co. Dallah Healthcare Company SJSC, formerly Dallah Healthcare Co, is a Saudi Arabia-based company engaged in the provision and operation of healthcare programs and utilities. The Company operates in the following business segments: Hospitals; Medicines, and Head Office. The Hospitals' segment objectives are to own, manage, operate and maintain healthcare facilities. The Medicines' segment objectives are to import, distribute, wholesale and retail medicines, as well as manufacture medicines, pharmaceuticals, herbals, health, cosmetics, detergents, disinfectants, and packaging materials. The Head Office's segment objectives are to operate, manage and maintain healthcare facilities; wholesale and retail surgical equipment, artificial parts, handicapped and hospitals equipment, as well as other supporting services.
Mouwasat Medical Services Company SJSC Formerly known as Mouwasat Medical Services Company. Mouwasat Medical Services Co SJSC is a Saudi Arabia-based company engaged in the ownership, management, operation and maintenance of hospitals, medical centers, drug stores, pharmacies and wholesale of medical equipment and drugs. The Company operates five hospitals, including Mouwasat Hospital in Dammam, Mouwasat Hospital in Jubail, Mouwasat Hospital in Madinah and Mouwasat Hospital in Qatif. In addition, the Company also operates specialized centers, which include Skin Care Centers, Mouwasat Care Fertility and Badana Clinic, as well as dispensaries and pharmacies. The Company's subsidiaries include Eastern Medical Services Company Limited, which is engaged in construction and operation of hospitals, dispensaries and special clinics, and Specialized Medical Clinic Company Limited, which is engaged in construction, management and operation of clinic (plastic surgery). The Company also has 50% ownership in Advance Medical Project Company (AMPC).
National Medical Care Company JSC. National Medical Care Company JSC is a Saudi-Arabia based company engaged in the provision of medical services and the establishment, ownership, operation and management of hospitals and health care units and centers, as well as the wholesale and retail trade of drugs, medical equipment and supplies. The Company's main activities include inpatient and surgeries, outpatient clinics, other medical sections, pharmacies, and general administration and pharmaceutical medical distribution. The Company manages two hospitals include Riyadh Care Hospital, which has a capacity of 340 beds and the National Hospital, which has a capacity of 124 beds. The Company's hospitals provide services through its departments, including Surgery, Internal diseases, Pediatrics, Gynecology, Dental, Ambulance, Occupational Hazards and Inpatients Diseases, among others. The Company also has stake in Pharmaceutical & Medical Distribution Company.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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