We initiate coverage on Saudi Healthcare Sector with five names in focus – Dr. Sulaiman Al Habib, Mouwasat Medical Services, Dallah Healthcare, Al Hammadi Holding, and Middle East Healthcare (Saudi German Health or SGH). Overall, we have a positive view of the sector, given the government’s resolve to transform the Kingdom into an economic and tourist hotspot that will lead to an increased inflow of people over the coming years, thereby driving the healthcare demand higher. We have used two valuation methodologies (DCF, and relative valuation – P/E) to arrive at the target price. • The government aims to transform the KSA healthcare sector with 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. • Demographic changes, unhealthy living, and rising instances of lifestyle diseases are some of the key catalysts for the sector. Rapid economic development, resulting in more job opportunities and higher disposable income, coupled with technological advancements has led to increased affordability and dependency on gadgets in day-to-day life. While this has made our lives easier and more comfortable, it has also led to an increase in unhealthy eating habits, low physical activity, and higher work-related stress. These have led to rising instances of lifestyle-related diseases like diabetes, stroke, hypertension, obesity, etc., which will certainly create more demand for healthcare services in the coming times. • The government’s focus to boost private participation in healthcare sector development is a positive for listed players. Listed players in KSA are likely to benefit from the government’s move to increase the private sector’s share of the healthcare sector, which currently is dominated by the government and/or allied agencies. Almost all the listed players are adding new hospitals and clinics or expanding the capacity of existing facilities during our forecast period and beyond. We believe these new facilities would comfortably reach their optimum operating capacity in the due course of time, as the Kingdom’s ongoing transformation and development are expected to keep the demand for medical services high going forward. Among our coverage firms, Dr. Sulaiman is the largest player having superior financial metrics, while MEH is struggling to run a profitable business.