NCB Capital initiates on Mouwasat with overweight rating

NCB Capital, the GCC’s leading wealth manager and the Kingdom’s largest asset manager initiated on Mouwasat with an overweight rating and a PT of SR 61.2, indicating an upside of 20 percent. NCB Capital believes that the low health care penetration, favourable demographics, and the expansion into new hospitals supports NCBC’s positive outlook on the company. According to a new report issued by NCB Capital, Mouwasat stock currently trades at a 2013E P/E of 12.6x vs. its peer global average of 10.6x; NCB Capital believes the premium is justified given the growth outlook of the company. Mouwasat is one of the leading providers of medical services in the Eastern region of Saudi Arabia, in a sector which is expected to grow at a CAGR of 16.8 percent by 2017E. Given its reputation amongst blue chip companies such as Aramco and SABIC, in addition to the country’s growing population, increasing life expectancy, and the rising occurrence of chronic illnesses, NCB Capital believes Mouwasat is well positioned to grow in the coming years. “Mouwasat is planning to open a 175 bed hospital in 2013E in Riyadh, a 250 bed hospital in 2016E in Alkhobar and expand its Jubail facility by doubling its inpatient capacity with the addition of 115 beds,” said Farouk Miah, Head of Equity Research at NCB Capital. “The new hospitals and the expansion of the Jubail facility will add 47.6% to the current capacity in terms of beds and 35.0 percent in terms of outpatient clinics. We believe these facilities will be the major driver behind the CAGR of 13.2 percent in revenue and 13.0 percent in net profit which we expect at Mouwasat in the coming five years.” NCB Capital believes the planned addition of 540 beds (a 47.6% increase to the current capacity) in the coming four years, is a major catalyst for Mouwasat. Management are planning to open a new hospital in 2013E with 175 beds and a new hospital in 2016E with 250 beds. Additionally, it is aiming to double the capacity of the Jubail hospital through the addition of 115 beds. Given the strong demand for quality health care in Saudi Arabia, the lack of supply and the experience of Mouwasat, NCB Capital believes these new hospitals will perform strongly. According to the Report, the growth in demand for health care is expected to remain strong in the coming years due to low health care penetration in Saudi Arabia, a growing and ageing population, and an increase in ‘lifestyle diseases.’ “The health sector in Saudi Arabia remains relatively under penetrated with around 2.2 beds per 1000 population against a global average of 2.7, and around 4 for the West and Europe. This is coupled with an expected population growth of 2.13% over the coming four years and with life expectancy set to increase from 74.1 years to 75.3 years by 2016E. In addition to this, the increasing occurrence of “lifestyle diseases” will support demand for high quality health care in Saudi Arabia,” Explained Mr. Miah. The NCB Capital report highlights that the government of Saudi Arabia has emphasized investment into the public health care sector as one of its key aims. However, given the demand factors described above, NCB Capital believes the role of the private health care sector will remain vital to the health sector in Saudi Arabia. Over the last decade, the proportion of outpatient visits occurring at private facilities has increased from 19 percent to 30 percent. Although this trend may slow down going forward given the government’s investment into the public sector, we believe the private sector will continue to play a vital role in the provision of health care in Saudi Arabia. NCB Capital believes a key strength of Mouwasat is its strong and long standing relationships with major Saudi companies such as Saudi Aramco, SABIC, the General Organization of Social Insurance (GOSI) and Saudi Electricity (SEC). Given the blue chip nature and strong brand of these companies, NCB Capital believes this will act as a strong signal to potentially attract further blue chip companies and individual patients to the medical facilities offered by Mouwasat. This in turn will increase the company’s revenue stream, and therefore positively impact the stock. The NCB Capital report highlighted some of the investment risks in the sector, Private health care providers such as Mouwasat are faced with an increasingly difficult labour market given the pressure to hire locals and wage inflation. Through the implementation of the ’Nitaqat‘ Saudisation programme, coupled with increased investment in training locals for professions in the health sector, it has become increasingly difficult to hire foreign health staff. With the subsequent increase in demand for local health professionals, coupled with the premium in pay they enjoy over foreign staff, the wage inflation is a major concern for private firms such as Mouwasat. NCB Capital believes the outlook for the Saudi health care segment is promising due to continued investment from the government, demographic factors supporting growth, increasing private sector participation and the current insufficient supply of various services. NCB Capital believes all these factors will create strong growth opportunities for health care companies and providers such as Mouwasat. NCB Capital expects total spending into the health care segment to increase by an average of 10% between 2011 and 2016E. “We are currently estimating 6.8% of Saudi Arabia’s GDP to be spent on health care in 2016E. This comes as a result of the rapid population growth and the increasing life expectancy amongst other key factors,” highlighted Mr. Miah. From : Arabnews