Al Rajhi Capital expects COVID-19 measures to impact Saudi healthcare sector

Saudi Arabia’s healthcare sector is expected to get impacted due to the preventive measures of the government to deal with the COVID-19 outbreak, Al Rajhi Capital said in a research note.

The decline in the number of patients and postponement of the higher-margin inpatient/surgeries in the private hospitals may directly affect the financials of the healthcare providers and even result in price relaxations.

Furthermore, most of the facilities may be fully operational and would continue to incur the cost of operations, which may affect margins, the report noted.

However, companies such as Dr. Sulaiman Al Habib Medical Group (HMG) have made efforts to minimize the impact by activating remote medical consulting services, as well as delivering medicines and other medical services to its customers at their homes. These efforts will help offset the impact on revenue due to lower utilization and prices.

Related: Dr. Sulaiman Al Habib Group says operations impacted by COVID-19 measures

According to the report, the utilization of the private healthcare companies will decline drastically in Q2 2020, but will start normalizing from Q3 2020 once the curfew is lifted.

In addition, the stimulus package announced by the government, in terms of payment of receivables and discount on electricity bills, is expected to be fruitful for the healthcare companies as the sector has high receivables from the government as well as about 5% of revenue is utilities expenses.

On the other side, Al Rajhi Capital said the impact of the coronavirus and lower oil prices are likely to drive patients to visit public hospitals than private clinics in order to get free treatment. These factors are likely to affect the margins and cash flows significantly for private healthcare companies.

Al Rajhi Capital revised its 2020 earnings estimates for healthcare companies as below: