Recommendation Fair Value (SR) Price as of 23 rd of April 2014 (SR) Expected return Company data Tadawul symbol 52- week high (SR) 52-week low(sr) YTD change Average trading volume (thousand shares) Market Cap (million SR) Market Cap (million USD) Number of shares issued (million) Free float Financial indicators Revenues (million SR) Net Income (million SR) EPS (SAR) PE ratio (x) P/BV (x) Dividend yield Net Income growth *Ending 2014 220 200 180 160 140 120 100 80 2011 527 113 2.40 38.73 9.37 0.0% %72.2 Underweight 80.00 2012 637 133 2.83 32.94 3.94 2.1% %62.1 3102 750 137 2.89 32.15 3.69 1.6% %7.2 93.06-14.0% 4004.SE 97.25 58.00 33.4% 413 4,392 1,171 47.2 48.3% LTM* 781 138 2.93 31.81 3.69 1.6% %7.2 Dallah Tadawul Retail Index Tadawul Index Sources: Albilad Capital estimates, Tadawul For more information you may contact: Turki Fadaak Research & Advisory Manager tfadaak@albilad-capital.com Or Albilad Capital Head Office: Tel : +966 11 203 9892 Fax : +966 1479 8453 P.O. Box 041 Riyadh 00400 Our website: www.albilad-capital.com/en/research Initiation of Coverage Established in 1987, Dallah Hospital initially began operations with an amount of paid in capital of SAR 100 million and under the sole ownership of Mr. Saleh Abdullah Kamel. In 1994, the company was transformed to a limited liability company under the name of Dallah Healthcare Holding Company (DHHC). Subsequently, in December 2012, the company was listed on the Saudi stock exchange. The operational activities of DHHC are organized under four business divisions, namely: 1) Dallah Hospital; 2) Dallah Pharma; 3) Operations & Management; and 4) Investments. Dallah Hospital provides in-patient and out-patient medical services. Meanwhile, Dallah Pharma s activities include wholesale distribution of pharmaceutical, herbal and cosmetic products. The Operations & Management division is involved in the management and operations of hospitals owned by third-parties. Finally, within the investments business division, the company holds several investments from the healthcare industry based within the Middle East region. First: Dallah Hospital: Dallah Hospital currently holds 352 beds and furthermore has a capacity of servicing 728 thousand out-patient visits per year through its out-patient clinics. The hospital has established a strong track record as a leading hospital within Saudi Arabia. Additionally, Dallah Hospital has accomplished many significant achievements through its operations including being: The first private hospital in Saudi Arabia to offer laparoscopic surgery. One of the first hospitals in the world to provide fertility treatment through in-vitro fertilization which is one of the most advanced ART procedures. First hospital in Saudi Arabia to deliver a baby through sperm extraction. First private hospital in Saudi Arabia to receive a license to provide medical treatment using radioactive materials from King Abdulaziz City for Science and Technology. First hospital in Riyadh to open catheterization laboratory practices that allows Dallah Hospital to treat heart related illnesses without the need to carry out open heart or bypass surgeries. Second: Dallah Pharma: Dallah Pharma was established in 1994 and is a wholesale distributor of pharmaceutical, herbal and cosmetic products. Dallah Pharma distributes these products to retail pharmacies, health and beauty stores, hospitals and government agencies and has exclusive distribution rights in Saudi Arabia for 45 pharmaceutical products, 12 herbal products and 8 cosmetic products. Third: Operations and Management: In 2006, leveraging the brand equity generated by Dallah Hospital over the previous years, the company started managing and operating hospitals owned by third-parties. DHHC provides operational expertise in exchange for a fixed annual fee and / or a variable fee based on the earnings of the hospitals being managed. Within this division, Dallah currently manages Al-Khafji hospital and Mahail hospital. Al-Khafji Hospital: DHHC has been managed this hospital, which has been owned by Aramco Gulf Operations Company and Kuwait Gulf Oil Company, since April 2011, for five years for an aggregate fee of SAR 88.9 million. The hospital provides healthcare services to 3,000 employees and their dependents in both companies. The hospital has a total of 100 beds, 13 out-patient clinics and 2 operating rooms. Mahail Hospital: This hospital is a private hospital located in Aseer and DHHC has managed the hospital since November 2010. It is a general hospital with 100 beds, 25 out-patient clinics and 2 operating rooms. The contract value for managing this hospital is SAR 4.5 million per annum plus a 10% share of income for five years. The hospital currently operates with a workforce comprising 194 employees and 28 physicians. 1
Fourth: Investments: The DHHC investment portfolio includes Aseer, Makkah Medical Center, Al-Ahsa Medical Services Company and the Jordanian Pharmaceutical Manufacturing Company. Company Ownership Operations Aseer 1% Investment Makkah Medical center 8% Medical Al-Ahsa Medical Services Company 0.80% Medical Services Jordanian Pharmaceutical Manufacturing Company 0.50% Pharmaceuticals and Medical Supplies Company Ownership Operations Expansion plans Going forward, Dallah aims to capitalize on the buoyant demand for health care services and products within Saudi Arabia. The company has unveiled a SAR 1.5 billion expansion plan for the next three years. As part of the planned expansion DHHC intends to: Establish a new Dallah hospital located to the west of Riyadh with an investment cost of SAR 508 million. Expand the current out-patient clinic in the existing hospital in Riyadh at a cost of SAR 72 million. The new clinic is expected to start operations in the fourth quarter of 2015. Establish a new hospital in the north of Riyadh to serve this area and the needs of its growing population. The company purchased the plot of land for SAR 101.8 million. Acquire Bagedo and Erfan hospital in the city of Jeddah. Dallah has signed a memorandum of understanding to execute the deal. Geographical Revenue Breakdown 2013 Revenue Breakdown 2013 4% 4% 5% 3% 92% 92% Central Province Western Province Eastern Province Dallah Hospital Dallah Pharma Head Office 2
Sector Overview Population growth and longevity are considered to be the key drivers of demand for the health care sector in KSA. Saudi Arabia`s population stood at 29.9 million at the end of 2013, which is 2.7% higher than the previous year. The total population, of which Saudi citizens constitute 67.5%, is projected to grow to 35 million by 2025. Moreover, the Saudi government spending on health care is steadily increasing. The Cabinet has allocated SAR 79 billion from the 2014 budget to the Ministry of Health, compared to SAR 54.4 billion that was budgeted for 2013. The substantial spending on health care from the Ministry has increased the total number of hospitals to 420. In terms of in-patient beds, there were 58,000 beds in 2013, 58% of which are provided by the public sector. The Ministry of Health operates 251 hospitals and 2,109 medical centers while the private sector currently owns and operates 130 hospitals and 2,185 medical centers as of the end of 2013. The government plans to establish four large medical hubs in the four main regions of the kingdom to ensure a sufficient level of health care provision for each of the regions. The government also intends to add 1,258 medical centers and more than twenty thousand inpatient beds to reach a target of 2.5 hospital beds per one thousand people before 2015. It is worthwhile mentioning that the current rate is 2.2 beds per one thousand people, which is much lower than the average level of 5.5 currently found in developed countries. Ministry of Health Budget (Billion SAR) KSA Population (Million) 90 80 70 60 50 40 30 20 10 31.0 30.0 29.0 28.0 27.0 26.0 25.0 24.0 Aiming to meet the growing demand in health care, the government imposed a compulsory medical insurance scheme on private sector employers in 2010. The kingdom also plans to increase the number of private health care providers through attracting global health care leaders into the region. Moreover, Saudi Arabia will pave the way for new market entrants through the easing of bureaucracy and by offering long term financing with more favorable terms than those previously available. 3
Financial Analysis Income Statement During the first quarter of 2014, revenues increased by 17.2%, compared to the first quarter of 2013, to reach SAR 215 million. Gross profit margin for the company declined to 44.31% versus 45.93% over the same period during 2013. Selling, general, and administrative expenses increased by 15.2% to SAR 45 million. Thus, during the first quarter of 2014, the company realized an increase in net income by 3.74% recording SAR 41 million compared to SAR 39 million during the same period in 2103. The company s net income margin, however, declined to 18.80% versus 21.25% during the first quarter of 2013. During 2013, revenues increased by 17.67%, compared to 2012, to SAR 750 million. The cost of goods sold increased by 7.31% to SAR 422 million, which resulted in the increase in the gross profit margin by 544 basis points to reach 43.68%. Selling, general, and administrative expenses increased by 98.86% to SAR 166 million. Thus, during 2013, the company realized an increase in net income by only 2.45%, recording SAR 137 million compared to SAR 133 million during 2012. This was also a result of the increase in zakat recorded during the fiscal year. Thus, the company s net income margin declined by 270 basis points to 08.23% during the fiscal year ending December 2103. Balance Sheet In the first quarter of 2014, total assets grew by 1.59%, in comparison to the 2013 year end, reaching SAR 1,502 million. Key highlights: 1. Dallah has seen an increase in fixed assets due to capital expenditures amounting to SAR 418 million and SAR 39 million during the year of 2013 and the first quarter of 2014, respectively. 2. An increase in the first quarter of 2014 inventory by 17.75% and 21.27% compared to the 2013 year end and the first quarter of 2013, respectively, to reach SAR 69 million in March 2014. 3. An increase in 2014 first quarter accounts receivable ending balance by 2.49% and 27.25% compared to 2013 year end and the first quarter of 2013, respectively, to reach SAR 230 million in March 2014. 4. An increase in 2014 first quarter accounts payable ending balance by 15.57% compared to 2013 year end and a decline by 12.29% versus the first quarter of 2013 to reach SAR 62 million in March 2014. 4
Latest Developments On March 30 th 2014 Dallah Healthcare Holdings signed the memorandum of understanding to acquire Bagedo & Dr Erfan Hospital in Jeddah. The deal value was not disclosed but the company noted that the payment of this acquisition will be executed in cash and new Dallah shares issued through capital increases. In March 2014 Dallah announced the signing of a SAR 5.8 million agreement with Al-Ostool Al-Aali for undertaking construction and drilling work in the hospital's site in West Riyadh. The company expects the project to be completed in the second quarter of 2016 and will cost SAR 508 million. In December 2013, Dallah Healthcare completed the purchase of 45 thousand square meters of land in the north of Riyadh area at a total value of SAR 101.8 million. The company plans to build a new general hospital to serve the northern area of Riyadh that is experiencing steadily increasing demographic growth. During the same month, DHHC inaugurated a SAR 011 million children s section in its hospital in Riyadh. This section includes 26 clinics for children - with 70 beds, 27 beds for intensive care and 70 nursery beds. In May 2013, the health care provider purchased a plot of land in the west of Riyadh area with a total area of approximately 40 thousand square meters for SAR 59.5 million to build a general hospital. The company expects to start the construction work for the new hospital during the current quarter and the work is forecast to be ongoing for 36 months. 5
Valuation and Recommendation We valued Dallah Healthcare Holding Company`s share using the following measures: Price to Earnings ratio, Enterprise Value to EBITDA and Enterprise Value to Sales. We valued the company relative to GCC listed health care providers and we reached a fair value per share of SAR 80.00, which is 14.0% lower than the current market price, thus we assign an Underweight recommendation to the company`s share. Gulf Medical Company Saudi Mowasat Kuwait Mowasat Yiaco Julphar Company Projects Country Saudi Arabia Kuwait Kuwait UAE UAE Weighted Average Currency Million SAR Million USD Million USD Million USD Million USD Income Net 217 1.7 0.1 33 22 Revenues 927 3.9 32.1 373 028 EBITDA 233 0.3 2.1 74 22 Market Cap 4,712 2.1 03.2 828 433 Net Debt 030 3.7 7.3 091 90 Enterprise Value 4,833 8.7 23.8 0,148 227 P/E Multiple 3322 527 0.20 022. 0522 0522 EV/EBITDA 0227.22 0022 0.23 3122 0.27 EV/Sales 722 022 125 322.20 322 Fair Value 80.00 Price as of 7 th of May 2014 93.06 Expected Return -14.0% Rcommendation Underweight 6
Balance Sheet (million) 2010 2011 2102 2102 Change Balance Sheet (million) 2013 2014 Change Current Assets 252.3 305.7 823.2 500.0-39.3% Current Assets 768.8 487.5-36.6% Investments 10.9 11.7 12.0 128.6 975.8% Investments 90.9 135.5 49.2% Fixed Assets 221.6 380.3 437.6 821.3 87.7% Fixed Assets 467.5 851.9 82.2% Other Assets 6.5 28.7 0.0% Other Assets 27.2 27.2 0.0% Total Assets 491.2 697.7 1,272.7 1,478.6 16.2% Total Assets 1,354.4 1,502.2 10.9% Current Liabilities 94.2 188.7 108.0 228.1 111.2% Current Liabilities 146.8 199.9 36.2% Other Long Term Liabilities 42.4 40.2 49.1 60.5 23.2% Other Long Term Liabilities 52.7 65.1 23.5% Shareholders' Equity 354.6 468.8 1,115.6 1,190.0 6.7% Shareholders' Equity 1,154.9 1,237.2 7.1% Total Liabilities and Shareholders' Equity 491.2 697.7 1,272.7 1,478.6 16.2% Total Liabilities and Shareholders' Equity 1,354.4 1,502.2 10.9% Income Statement (million) 2010 2011 2102 2102 Change Income Statement (million) 2013 2014 Change Revenues 472.5 527.3 637.1 749.7 17.7% Revenues 183.7 215.4 17.2% Cost of Revenues 302.7 337.5 393.4 422.2 7.3% Cost of Revenues 99.3 120.0 20.8% Gross Profit 169.8 189.9 243.6 327.4 34.4% Gross Profit 84.4 95.4 13.1% Selling, General, and Admin. Expenses 63.6 69.0 83.3 165.7 99.0% Selling, General, and Admin. Expenses 38.8 44.7 15.2% Provisions 17.4 22.9 29.3 24.2-17.4% Provisions 7.2 11.0 53.0% Net Interest Expense 0.8 2.2 2.7 0.3-87.3% Net Interest Expense - - - Other Expenses/(Income) (10.8) (21.4) (6.7) (10.9) 62.0% Other Expenses/(Income) (2.1) (2.3) 5.9% Total Other Expenses/(Income) 70.9 72.7 108.6 179.3 65.2% Total Other Expenses/(Income) 43.9 53.4 21.8% Net Income Before Zakat 98.9 117.2 135.1 148.1 9.7% Net Income Before Zakat 40.5 42.0 3.6% Zakat 4.4 3.8 1.7 11.5 576.9% Zakat 1.5 1.5 0.2% Net Income 94.5 113.4 133.4 136.6 2.5% Net Income 39.0 40.5 3.7% Cash Flow Statement (million) 2010 2011 2102 2102 Change Cash Flow Statement (million) 2013 2014 Change Net Income 94.5 113.4 133.4 136.6 2.5% Net Income 8.1 11.1 36.0% Depreciation and Amortization 18.6 25.5 28.9 36.1 25.1% Depreciation and Amortization (23.0) (10.4) -54.9% Inventory 7.7 1.6 (3.2) (21.3) 567.4% Inventory (28.3) (16.7) Accounts Receivable (14.7) (33.2) (65.5) (84.6) 29.2% Accounts Receivable 15.6 8.3-46.7% Accounts Payable (7.0) 2.2 5.8 (1.9) - Accounts Payable 5.7 (3.0) - Prepaid Expenses and Other Current Assets (0.4) (25.7) (16.5) 3.3 - Prepaid Expenses and Other Current Assets 15.3 4.1-73.1% Other Current Liabilities 7.9 8.9 (1.1) (1.7) 48.6% Other Current Liabilities 12.2 17.0 39.4% Operations 19.9 35.3 43.4 40.4-6.8% Operations (38.5) (39.3) 1.9% Change in Fixed Assets (29.9) (72.2) (86.4) (417.8) 383.6% Change in Fixed Assets (305.3) 99.8 Investing Activities (2.2) 0.7 0.1 (244.9) - Investing Activities 6.1 (42.1) - Change in Debt 0.0 77.1 (72.0) 115.9 - Change in Debt - - Dividends Paid 0.0 (105.1) (6.5) (70.8) 992.8% Dividends Paid 0.2 - - Financing Activities (48.6) (10.3) 515.2 0.2-100.0% Financing Activities 560.5 50.0-91.1% Beginning Cash Balance 21.0 66.8 85.0 560.5 559.6% Beginning Cash Balance 267.7 119.5-55.4% Ending Cash Balance 66.8 85.0 560.5 50.0-91.1% Ending Cash Balance 8.1 11.1 36.0% Source: Dallah Health Filings 7
Definitions Earnings Per Share It is an indicator of the company's profit in Saudi Riyals per each outstanding share. It is calculated by dividing the company s net income of by the number of outstanding shares. Revenue Is the amount of income that is brought into a company by its business activities. Gross profit A company s profit after deducting the cost associated directly with its sales or production. Does not include indirect cost like depreciation, interest, tax and non-operating expense. Price-to-earnings (P/E) Ratio It is the price paid by the company shareholders for the earnings of one of its shares. It is used to compare the prices of the company s shares with that of another company within the same sector. If the P/E is higher than the sector s average, it indicates either the share is overpriced or that there is a greater expectation for the company to generate more profits in the future, and vice versa. It is calculated by dividing the price of a share by the share s earnings in Saudi Riyals Book value per share The company's book value represents the value of the company in the event of liquidation or exit. Dividing the shareholders equity by the company s outstanding shares represents the book value per share. Price-to-book (P/B) ratio It represents the market price per share vis-à-vis its book value. It is used to compare between companies within the same sector and comparing them to the sector s average. If the number is higher than the average, it means that the company s price is traded higher than its book value. This means that either the share is overpriced or that the company is in a growth state; and vice versa. The number is calculated by dividing the share s market price by its book value. Return on equity It is a percentage representing the extent of the company's efficiency in achieving earnings from the shareholders investment. It is calculated by dividing the company s net income by Shareholders' equity. The higher the percentage, the higher the efficiency, and vice versa. Net Debt Total long-term debt after deducting cash on hand and in banks. Enterprise Value It is the market capitalization plus net debt. Time horizon We recommend using a Time horizon of 9 to 12 months, during which the current price might reach the Target price Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight: The Target share price exceeds the current share price by 01%. We expect the share price to reach the Target price over the next 9-12 months Neutral: The Target share price is either more or less than the current share price by < 10% We expect the share price to reach the Target price over the next 9-12 months Underweight: The Target share price is less than the current share price by 01%. We expect the share price to reach the Target price over the next 9-12 months To be Revised No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials, waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research. 8
Albilad Capital Client Services E-mail: clientservices@albilad-capital.com Tel: +966-11-203-9888 Toll-free: 800-116-0001 Asset Management E-mail: falqutub@albilad-capital.com Tel: +966-11-203-9870 Research & Advisory E-mail: research@albilad-capital.com Tel: +966-11-203-9892 Website: www.albilad-capital.com/en/research Brokerage E-mail: myabes@albilad-capital.com Tel: +966-11-203-9840 Investment Banking E-mail: mmandil@albilad-capital.com Tel: +966-11-203-9859 Disclaimer AlBilad Investment Co. exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Investment Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Investment Co. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Investment Co. preserves all rights associated with this report. 9