National Medical Care Co.’s net profit of SAR 11.4 million came below expectations of Al Rajhi Capital and consensus' estimates of SAR 23 million and SAR 25 million, respectively.
The weak results are attributed to lower than expected top-line due to decline in overall number of patients on the back of macro-economic concerns (including expat levy and reduction in disposable income), and better-than expected cost (reached 81.2 percent of revenue), Al Rajhi Capital said in an earnings review.
Care is waiting for final approval from the Ministry of Health to commence expansion operations, which are expected in Q4 2018.
"Going forward, we believe that Q4 will witness a small increase in number of in-patient and out-patient as there are no holidays (seasonally strong quarter). However, margins are unlikely to improve as the utilization of expansion needs time," the brokerage firm added.
In the medium term, growth could pick up for the company, driven by better utilizations of new expansions, coupled with the company’s cost saving initiatives.
In case there are no further long-term expansion plans, the management is likely to focus on improving profit margins through efficiency enhancements and cost optimization plans.
Al Rajhi Capital added that it remained "neutral" on the stock, downgrading its target price to SAR 45.5 from SAR 50.
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