Higher patient visits and improved occupancy drive Mouwasat’s top line higher in 2Q24, matching Bloomberg consensus and U Capital’s estimates
Mouwasat Medical Services posted a 10.0% YoY rise in 2Q24 revenue to SAR 690.3mn, matching both the Bloomberg consensus (-2.2% variance) and our estimates (+2.4% variance). The company’s revenue in 1Q24 was driven by increased OPD patients, higher occupancies in inpatient departments, partly supported by Mouwasat Center in Madinah for rehabilitation & extended care which commenced operation in Jan’24, continued improvement in the performance of specialized resources, and the company improving some contractual terms with its customers.
Operating profit stood nearly flat, and net profit rose slightly, missing both Bloomberg consensus and U Capital’s estimate
Gross profit increased 5.2% YoY whereas operating profit rose marginally by 0.7% YoY, missing our estimate by 5.7%. While this indicated the company’s overall direct and indirect costs rose at a relatively higher rate as compared to revenue, specifically a continued rise in the expected credit loss provision weighed on Mouwasat’s operational profitability. This eventually constrained the net income growth, which grew slightly by 1.4% YoY to SAR 152.7mn, coming in below both the Bloomberg consensus (-10.3% variance) and our estimate (-8.7% variance).
Maintain rating and target price
The operating environment for the healthcare operators in the Kingdom appears good, considering the top-line performance of most of our coverage companies in the sector. However, considering Mouwasat’s 1H24 financial performance, we opine the company needs to sort out its receivables collection issues at the earliest, as this has been preventing the company from capitalizing on its decent revenue growth. Hence, as of now, we maintain our ‘Hold’ rating and SAR 122.60 target price on the stock.
Valuation
At the current market price, the stock trades at 32.1x on our FY 2024e EPS and 22.3x on FY 2024e EBITDA, in line with its average 3-year daily 12-month forward P/E of 32.4x, but slightly below the average 3-year daily 12-month forward EV/EBITDA of 23.9x.