Al Hammadi’s Q3 misses estimates on lower revenues: NCB Cap

Al Hammadi Company for Development and Investment’s (Al Hammadi) net profit of SAR 23.6 million for the third quarter of 2017 missed NCB Capital and the consensus’ estimates of SAR 28.1 million and SAR 27.6 million, respectively.

“We believe the variance in earnings came as a result of lower than expected revenues and higher financial charges and Zakat,” the brokerage said in an earnings review.

Revenues stood at SAR 163 million, 15.3 percent higher year-on-year (YoY) but dropping 7.8  percent on a sequential basis, missing the brokerage’s estimates of SAR 182 million due to lower than expected utilization rates.

Growth in revenue was driven by full quarter contribution of Al Olaya hospital operation, which was closed for two months in Q3 2016 after a fire incident.

Improvement in contract terms with insurance companies and increase in the average length of stay also contributed to revenue growth, NCB Capital said.

Gross profit, which only rose 3.3 percent YoY to SAR 58 million, is believed to have been affected by higher employee cost due to hiring new staff at Al Nuzha Hospital.

Meanwhile, gross margins contracted by 414 basis points YoY to 35.8 percent, beating the brokerage’s estimate of 33.3 percent.

Earnings before interest and taxes (EBIT) rose 29.4 percent YoY to SAR 34 million, while opex-to-sales stood at 14.7 percent, in-line with the expectations of 14 percent.

The company likely implemented cost efficiency measures to support margins and decrease opex levels, the report said.

“Despite the opex efficiencies, we believe higher than expected financial charges and Zakat led to the high variance on the net income level. Financial charges and Zakat stood at SAR 10.8 million, higher than our estimates of SAR 7 million,” NCB Capital noted.

The brokerage maintained a “neutral” rating on the stock with a target price of SAR 40.4 per share.