Saudi German Hospital earnings will rise, but miss 2018 estimates: NCBC

NCB Capital expects Middle East Healthcare Co. (MEAHCO), which owns and operates Saudi German Hospitals (SGH), to report a 3.3 percent year-on-year (YoY) increase in net income to SAR 310 million but miss its initial estimates by 30 percent due to the reduction in utilization rates.

The brokerage firm also estimates revenue to grow by 3.1 percent YoY to SAR 1.68 billion, but will be 17 percent below its previous estimates, it said in a new report on Monday

"In 2017, we estimate that bed utilization rate stood at 63 percent, less than 2016’s rate of 67 percent, impacted by the decline in policyholders. We expect bed utilization rate to decline further to reach estimated 61 percent in 2018 as the number of policyholders is estimated to continue declining," the report noted.

MEAHCO is planning to expand its current bed capacity 29 percent by 2021 and is currently building a new hospital in Dammam with 100 clinics and 150 beds that will commence operation in 2020. In addition, it has announced plans to expand the Riyadh hospital’s capacity by adding 76 clinics and 147 beds.

These plans should support earnings growth in the future, with a projected (2017-2022E) CAGR of 10 percent, NCBC added.

However, the introduction of new expat levy on family members and value-added tax (VAT) are expected to have an adverse impact on private providers, the report said.

Meanwhile, NCBC maintained the "overweight" rating on the stock, keeping the target price at SAR 67.4.