Naba Alsaha is well positioned to benefit from expected higher healthcare spending in
the KSA with its medical facilities operating in the Riyadh
Planned opening of a new hospital in Riyadh to take total beds capacity from 125 beds
to 305 beds while clinics numbers to grow from 40 to 120 by 2026
Margins likely to improve from current healthy levels till 2025 and then may see some
temporary pressure on the start of a new hospital in 2026
Healthy balance sheet to provide adequate headroom to pursue future expansion
We initiate coverage on Naba Alsaha and assign a ‘BUY’ rating with a target price of
SAR 54.3/sh., offering an upside of 26.3%. The stock currently trades at FY 2023e P/E
of 10.2x. We are optimistic about the sector’s prospects and the government’s
commitment towards repositioning the KSA as an economic and tourist hub. We
believe Naba Alsaha with its location and planned capacity addition is well positioned
to benefit from this initiative and rise in medical tourism in the future. We have used
blended valuation methodologies (DCF and relative valuation – P/E) to arrive at the
target price.
Saudi Vision 2030: Focus on the KSA healthcare sector transformation through
private participation. Healthcare is among the priority sectors in the Kingdom’s Vision
2030 plan and hence it remains among the top 4-5 sectors in terms of government
budgeted spending allocation. As a steppingstone to achieving Vision’s objectives, the
government introduced a program in 2022 with the broad aim to restructure the
sector through increased participation of the private sector, improving the coverage,
quality, and efficiency of healthcare services for its residents and citizens, leading to
an increase in average life expectancy.
Naba Alsaha’s locational advantage and future capacity addition to complement
KSA’s planned healthcare inclusion. AL Zahra General hospital, operated and
managed by Naba Alsaha is located in Al-Qatif and has easy proximity across the area,
offering convenience and quick access to residents seeking medical services. With the
current capacity of 125 beds and 40 clinics, the company maintains healthy utilization
rate (74% in FY 2021) and intends to further expand capacity by opening a hospital in
Riyadh by FY 2026 (+180 beds). This bodes well with the government’s plan to bring
88% of Saudi’s population under healthcare services by 2025 and extending role of
private sector to deliver services to beneficiaries.
Healthy cash flows and strength in balance sheet offers headroom to sustain Capex
financing. Despite constant capacity, the company has maintained healthy margin
and cash flow profile in last couple of years. Further, the company’s FY 2021 leverage
multiple (debt/equity) of 0.3x indicates room for incremental debt required to finance
capex cycle for the new hospital, peaking at FY 2025 (32% of revenue). Moreover,
with incremental capacity gradually coming onboard starting FY 2026, should aid cash
flows to further bring down leverage multiple.