NCB Cap remains ‘Neutral’ on Saudi German Hospital, TP up to SAR 39.80/share

NCB Capital maintained ‘Neutral’ recommendation on Middle East Healthcare Co. (Saudi German Hospital), and raised the stock’s target price (TP) to SAR 39.80/share, from SAR 27.60/share.

The stock’s higher TP was driven by a slump in interest rates, in addition to higher price-to-earnings (P/E) as well as profitability of peer companies, the brokerage firm said in a recent report.

Saudi German Hospital is forecast to make SAR 122 million in net income in 2020, and SAR 133 million in 2021, it said.

Planned expansions and the company’s operating efficiency strategy are key upside risks, while the downside factors include inflated cash cycle and higher leverage.

Improved operating rates in Dammam Hospital for Q3 2020, cost-cutting policy, and price negotiations with insurance companies are expected to boost the medical services provider’s profitability.

“Rising receivable accounts represent a factor of concern, as they jumped to SAR 1.5 billion in Q3 2020, (39% of total assets), which will likely squeeze the company’s balance sheet further,” NCB Cap indicated.

Saudi German Hospital, based on its cash balance, is estimated to freeze dividend for 2020 and 2021, whereas dividend distribution will be resumed by 2022.