We review our coverage of Mouwasat Medical Services (MMS) and raise our target price to SAR 122.60 (previously, SAR 97.50), indicating an upside of 13.1% from the current market price. Hence, we assign an Accumulate rating on the stock, as compared to Hold, previously, as we increase our revenue and earnings growth estimate incorporating an estimated capacity increase towards the end of our forecast period with the addition of some new hospitals. Currently, the stock trades at FY’23e P/E of 31.6x and EV/EBITDA of 22.3x, slightly below its blended forward 3-year average daily P/E of 29.2x and the 3-year average blended forward daily EV/EBITDA of 21.9x.
Investment rationale
1. New upcoming hospital projects to increase Mouwasat’s presence in the Kingdom from six cities currently to eight cities.
2. Accordingly, the company’s hospital beds and clinics are estimated to grow by slightly over 30% and 20% during the next 3-4 years.
3. Revenue growth is expected to rise at an increasing pace, driven by capacity increase with the market dynamics likely remaining favorable, as almost every healthcare player posted better utilization and higher patient traffic.
4. Margins are estimated to nudge up gradually with the management focusing on expense rationalization and utilization improvement.