Ubhar Capital sets Dallah Healthcare rating, raises TP

Logo of Dallah Healthcare Co.

Ubhar Capital maintained its "Accumulate" rating for Dallah Healthcare Co.’s stock and raised its target price to SAR 183 from SAR 160.50 due to better than previously expected cash flows and lower capex estimates.

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The company's hospitals’ capacity is likely to rise slightly in the 1-2% range through expansion at existing facilities over the next 2-3 years before jumping by over 20% in 2027 as Al Arid Hospital starts, according to the brokerage.

The company’s total hospital beds and clinics are expected to increase by more than 20% each in 2027 to nearly 1,400 and 650 beds, respectively, thanks to the addition of 250 beds at Al Arid Hospital and the capacity increase at Namar and Kingdom Hospital.

The healthy revenue growth amid stable capacity and rising competition indicates strong demand, which bodes well for future business growth, according to the report.

Ubhar Capital added that earnings are expected to grow at a higher pace (versus revenue) over its forecast period, underpinned by efficiency gains and cost optimization.

According to the report, Dallah Healthcare's revenue is estimated to clock a high single-digit five-year compound annual growth rate (CAGR) between 2024 and 2028 on the back of both capacity and average revenue growth, benefiting from strong demand.

Margins are estimated to remain in an uptrend overall as efficiency gains and cost control form important pillars of the company’s ongoing five-year strategy ending in 2026, said Ubhar Capital.

It also pointed out that the capex estimate was revised lower given that expansion at existing hospitals is almost complete and Al Arid Hospital is the only new project slated to come online during the next five years.

The brokerage expects Dallah Healthcare's net profit to reach SAR 413.7 million and SAR 463.2 million in 2024 and 2025, respectively.