NCB Capital initiates on Mouwasat with overweight rating

14/11/2012 07:34 AST

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.

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