Dallah Healthcare Co. posted a disappointing set of result in Q2 2019 with net profit of SAR 15.3 million, significantly below Aljazira Capital’s and the market consensus estimates of SAR 31.5 million and SAR 32.8 million, respectively, Aljazira Cap said in a report.
The profit miss was mainly ascribed to a lower than expected gross margin owing to higher startup operating expenses at Namar Hospital. The rise in operating levels at Namar Hospital led to higher OPEX, the brokerage added.
Aljazira recommended a “Neutral” recommendation on the stock with a target price of SAR 54.20.
“We believe the operations at Namar Hospital, which commenced in Q2-18, continue to have an adverse impact on the company’s profit. We believe it would take a couple of years for margins to increase as full capacity expansion would take effect by FY-21,” Aljazira Cap added.
Increased capacity utilization at Namar Hospital and the new hospital opening at AlNakheel would constitute key revenue growth drivers, it stated.
The company’s retail-based model places it in a favorable position over its peer set with respect to receivables. However, Dallah needs to make prudent capital allocation decisions while executing its expansion plans, it noted.
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