SMC Q2 profit rise driven by cost efficiency

Hani Charani, CFO of Specialized Medical Co. (SMC), said the 24% increase in the company’s Q2 2026 net profit, compared with revenue growth of approximately 5%, was primarily driven by improved operating efficiency and optimization of several expense categories.

Speaking to Argaam, Charani said the company recorded lower general and administrative, financing, sales, and marketing expenses. He noted that the comparable period last year included costs related to the company's rebranding initiative, which also contributed to stronger earnings growth in the current period.

“We have focused on improving operational efficiency across our workforce, operating costs, and supply chain by establishing dedicated committees to renegotiate contracts and reduce procurement costs, which positively impacted the company's financial performance,” he said.

Charani added that consolidating certain functions and shared services across the group will generate additional efficiencies as newly opened hospitals become operational. Spreading fixed costs across a larger network of facilities is expected to further improve profitability and operational efficiency over time.

57 New Clinics Support Patient Growth

Charani said the company completed the opening of 57 new outpatient clinics last year, with most becoming operational during the second half of the year. Their operational and financial contribution has become increasingly visible during 2026.

He explained that newly opened clinics require time to build a patient base, particularly when recruiting new physicians, as utilization gradually increases through patient familiarity, referrals, and recommendations.

Growth in outpatient visits also supports inpatient admissions, surgeries, and emergency services, as a portion of outpatient cases are referred for inpatient treatment.

The official also noted that the average conversion rate from outpatient clinics to inpatient admissions ranges between 2% and 3%, although this varies among hospitals depending on case mix, medical specialties, and the complexity of surgical procedures.

Expanding Capacity Through Operational Efficiency

Charani explained that measuring clinic utilization in the healthcare sector depends not only on the number of consultation rooms or clinics, but also on operating hours, physician availability, and the number of patient appointment slots.

He added that the company can increase capacity by extending operating hours and running certain services around the clock. Some radiology departments, for example, now operate 24 hours a day.

A facility that previously accommodated around 3,000 patient visits several years ago is now capable of serving nearly 8,000 patients, thanks to extended operating hours and better utilization of available space and resources.

The company has also begun implementing a more efficient operating model at one of its new hospitals, whereby each physician is assigned multiple examination rooms. Initial assessments and vital sign measurements are completed while physicians move between rooms, reducing waiting times and improving physician productivity.

Healthcare Demand Remains Strong

Charani reaffirmed that demand for healthcare services in Saudi Arabia remains robust, supported by population growth, urban expansion—particularly in northern Riyadh—and the increasing transfer of beneficiaries from the public sector to private healthcare providers.

He added that new residential developments accommodating between 200,000 and 300,000 residents are creating demand for additional healthcare facilities. The growth reported by healthcare companies also confirms that demand across the sector is expected to remain strong.

He further noted that expanding health insurance coverage to new groups, including employees of certain government and semi-government entities as well as large corporations, has significantly increased the number of beneficiaries in the private health insurance market.

Government Business Accounts for Less Than 2% of Revenue

Revenue generated from government entities accounts for less than 2% of the company's total revenue, a relatively low proportion compared with some healthcare providers, where government contracts contribute between 35% and 40% of revenue, according to Charanii.

He explained that the company's limited exposure to government clients reduces the risk of payment delays and expected credit loss provisions. Instead, SMC has chosen to focus on insured patients, given the stronger returns generated from this segment compared with certain government contracts.

SABIC Specialized Behavioral Care Hospital Contract Extends for 15 Years

Commenting on the operating agreement for the SABIC Specialized Behavioral Care Hospital, Charani said the total value of the project is approximately SAR 3.8 billion over a 15-year period, adding that the company has not yet determined its annual financial contribution.

The agreement includes a guaranteed minimum operating capacity, while any increase in bed utilization will depend on the number of patients referred to the hospital. Occupancy may therefore rise either rapidly or gradually during the initial years.

The company expects to disclose further financial details regarding the project during Q3 after completing discussions with its external auditors on the appropriate accounting treatment.

SAR 70M Capital Expenditure Planned for 2026

Charani said that SMC continues to target capital expenditure of approximately SAR 70 million in 2026, unchanged from its previous guidance.

Capital spending will be directed toward ongoing renovation projects and the replacement and upgrading of medical equipment, as hospitals require continuous investment in MRI machines, CT scanners, and other medical equipment.

Moreover, SMC is currently installing a new MRI machine in the building where the new outpatient clinics were opened, while also adding pharmacy, laboratory, and radiology services within the same facility, reducing the need for patients to move between hospital buildings, according to the CFO.

SMC is also adding a new cardiac catheterization laboratory to expand capacity, with operations expected to commence during 2026.

Outlook

As for his expectation for Q3 expectations, Charani said business activity has recovered after being temporarily affected by geopolitical tensions, during which some patients postponed elective surgeries and non-urgent medical procedures due to heightened uncertainty.

He added that patient volumes have since rebounded following the easing of conditions, with positive momentum continuing through July, noting that the company is comfortable with its current performance relative to its full-year targets.