Sector currently out of flavour, overlooked by the flow driven (MSCI & FTSE) Tadawul index as none of the names qualified into MSCI T30 index

Transcription

1 Saudi Arabia Healthcare itin Garg, CFA ext 5059 GCC Equities Healthcare Sector Report 10 February 2019 KSA Healthcare Searching Value in this eglected Sector Declining patient volume is leading to lower revenues and slow ramp up at new facilities, additional capacity comes online when utilization rates are trending lower led by expat exodus Sector currently out of flavour, overlooked by the flow driven (MSCI & FTSE) Tadawul index as none of the names qualified into MSCI T30 index Following the de-rating, the earnings multiples have declined below emerging market peers, triggering some Buy opportunities Mouwasat (Buy, TP SAR 90/sh) and Care (Buy, TP SAR 55/sh) are our preferred picks The Saudi Hospital sector has been overlooked by the trending Tadawul index as Healthcare was among the worst-performing sectors in tadawul in 2018, led by significant negative earnings surprises. The sector s consolidated net profit declined 23% YoY for 9M18 despite 6% revenue growth as consolidated net margins declined to 14.7% from 20.1%. We believe that hospitals are facing the heat from weak macros led by expat exodus as the private healthcare market is dependent on expatriates owing to mandatory private insurance requirement. Following the de-rating, the earnings multiples have declined below emerging market peers, triggering some Buy opportunities. Mouwasat (Buy, Target price SAR 90) - Consistent track record with significant institutional ownership. The stock is trading 24% below its 52 week high despite strong set of earnings in 9M18. It is the only name in the sector which reported earnings growth (+15% YoY) and just 40bps margin contraction. Care (Buy, Target price SAR 55) Care could benefit from brownfield expansions carried out in 2018 (62 beds) and 1Q19 (75 beds) and potential margin improvement from pricing strategy, resource optimisation and shared services with MC Health. Dallah (eutral, Target price SAR 75) Dallah has been the worst performer; 9M18 earnings declined 53% YoY, net margins declined to 12.7% from 26.2% and stock price declined 44% in We cut our 2019/20 revenue and margin estimates as we are seeing some slowdown in Dallah s main akheel hospital driven by down-trading and slower ramp-up at amar hospital led by expat exodus which also affected its 2018 performance. Hammadi (Buy, Target price SAR 30) The capex cycle is behind as all expansion projects are commissioned. We believe that it will focus to optimize the operations at Sweidi and uzha hospital and we expect cost to moderate by late The name is offering sector leading growth 13% CAGR ( ) owing to lower base at premium valuation, 27x 2019EPS. We upgrade the name to Buy as the stock price has declined 10.5%/32.3% in 2017/18. Please refer to the disclaimer at the end of the report

2 Sector Report February Middle East Healthcare (Buy, Target price SAR 38) The name is cheapest on valuation (14.4x 2019 EPS) and is a high risk and reward play. Key risks include- dividend cut, higher funding needs, receivable impairment, longer payment cycle and flat earnings in medium term. Exhibit 1. Coverage summary ame Stock Price, LC Rating Target Price,LC P/E Dividend yield ew Old ew Old 2018e 2019e 2018e 2019e Al Hammadi 25.1 Buy eutral % 3.0% Dallah 68.8 eutral eutral % 2.9% Mouwasat 74.2 Buy eutral % 2.7% Care 45.1 Buy eutral % 2.8% MEH 31.6 Buy eutral % 3.2% Source: SICO Research Valuations: Our preferred name Mouwasat and Care trading at reasonable multiples The Saudi healthcare sector is trading at a median 2018/19 PER of 23.7x/20.9x, c20% discount to the emerging market peers, and offers two year earnings CAGR ( ) of 11%. Both our preferred names Mouwasat and Care are trading in line with median at 20x/20.9x PER FY19. Hammadi continues to trade at premium valuation (27x 2019 EPS, 29% premium) although the premium has come down from historical levels of 50% to 29% after the sector de-rating. Dallah trades at 23.9x 2019 EPS compared to 20.9x for sector median and has gained 22.4% YTD compared to decline of 7.8%/10.4%/2.6% in Mouwasat/Care/MEH. Top pick Mouwasat is trading 24% below its 52 week high despite strong set of earnings in 9M18. It is the only name in the sector which reported earnings growth (+15% YoY) and just 40bps margin contraction. We believe that Mouwasat is a quality name available at 4% discount to the sector median and scores better than its peers on most key metrics (exhibit 2). Least preferred pick- MEH is trading at a 31% discount to sector median (14.4x 2019 EPS), perhaps with justification, as its scores less than its peers on most key metrics (exhibit 2). Key risks include- dividend cut, higher funding needs, receivable impairment, longer payment cycle and flat earnings in medium term. Qualitative peer comparison on key metrics We present peer comparison of KSA healthcare names on key metrics for investors keen to take exposure to healthcare names. On a collective basis, we prefer Mouwasat and Care on these metrics and MEH is least preferred name.

3 Sector Report February Exhibit 2. Qualitative peer comparison Mouwasat Dallah Hammadi Care MEH Valuation Cheap Expensive Expensive Reasonable Cheap ear term margin outlook 9M18 earnings performance Strong Poor modest modest Poor Earnings growth low moderate high moderate low Leverage moderate moderate high low moderate Rising cost led by capacity additions moderate moderate low low high Receivable risk low low moderate low high Funding needs moderate moderate high low high Source: SICO Research 9M18 earnings performance The sector s consolidated net profit declined 23% YoY for 9M18 despite 6% revenue growth as consolidated net margins declined to 14.7% from 20.1%. 9M18 revenues declined for Dallah/Care/ Hammadi by 3%/7%/2% as the hospitals faced weaker patient volumes due to expat exodus and slow ramp up at newly opened facilities, revenues increased 28% at Hammadi driven by the addition of the recently acquired pharma business and 17% at Mouwasat as it continued to benefit from improving utilisation at Riyadh hospital and better contract terms. et margins also declined across the board led by startup cost of the new facilities, lower tariffs from the govt. business and decline in patient volumes. Exhibit 3. Sector profitability in 2018 Revenues et profit et margins 9M17 9M18 var 9M17 9M18 var 9M17 9M18 var Mouwasat 1,076 1,263 17% % 22.1% 21.7% -0.4% Dallah % % 26.2% 12.7% -13.5% Care % % 9.9% 9.9% 0.0% Hammadi % % 14.8% 10.8% -4.0% MEH 1,098 1,080-2% % 21.6% 13.1% -8.5% Total 4,207 4,454 6% % 20.1% 14.7% -5.4% Source: Company Data, SICO Research Hospital stocks were among the worst-performing sectors of the market in 2018, led by big negative earnings surprises. The sector de-rated after the companies attributed poor earnings to drop in patient volumes and slow ramp of new facilities. Only Mouwasat and Care closed positive for 2018 led by earnings growth in Mouwasat and JV deal with MC Health in Care.

4 Sector Report February Exhibit 4. Stock performance 20% 15.4% 15.5% 10% 6.3% 0% -10% Mouwasat Dallah Care Hammadi MEH -7.4% -6.6% -20% -30% -40% -50% -44.4% -32.3% -40.2% -39.8% -60% Source: Bloomberg -52.9% et profit growth 9M18 Stock performance FY18

5 Sector Report February Mouwasat (Buy, Target price SAR 90) Resilient earnings performance- Mouwasat s 9M18 revenues/gross profit /EBIT/net profit increased 17%/22%/16%/15%YoY. The strong set of earnings were primarily driven by higher contribution from Riyadh Hospital, better utilization and contract terms. Mouwasat started commercial operations at green-field Al Khobar hospital on September 15. The startup of new hospital will likely put pressure on margins at overall group level over the next few quarters, however, based on 3Q results (net income at SAR 81mn (+5%YoY and -8%QoQ), it looks that Mouwasat has been able to manage costs at the Khobar facility without a significant impact on group performance. Expansion plans- Aggressive Mouwasat has aggressive expansion plan- brownfield: 200 beds at Dammam expansion. Greenfield: 220 beds at Al Khobar hospital (started in 15 Sep 2018). Total capacity is expected to reach 1,300 beds by 2020 from 870 beds. The BoD of Mouwasat have also approved building a new hospital branch in Yanbu Industrial city for a cost of SAR 325mn. Saudi ministry of finance will finance 30% of the project, while 50% will be financed through credit loans and 20% from the company s resources. Project completion timeline has not been provided. Estimate changes and valuation We marginally revised down our medium term estimates for Mouwasat as we are now more conservative on 2019 margins and 2020 revenue growth/ margins, considering the general macro weakness and drop in patient volumes seen in private hospitals. Accordingly, our lower estimates have led us to cut our target price for Mouwasat to SAR90 from SAR105. Exhibit 5. Mouwasat- estimate changes 2019E 2020E SAR mn ew Old variance ew Old variance Revenue 1,813 1, % 2,001 2, % EBIT % % EBIT margin 23% 25% 23% 25% et Profit % % et margin 20% 22% 20% 22% EPS % % Source: SICO Research Dallah (eutral, Target price SAR 75) Poor earnings performance- Dallah s 9M18 Gross profit/ebit/net profit declined 21%/52%/53% YoY, revenues declined 2.7% YoY. The weak set of numbers are due to multiple factors- primarily being decline in inpatients and outpatients numbers for akheel Hospital led by down-trading by certain corporate in addition to slow ramp up of amar Hospital. Start-up expense for amar Hospital, increase in depreciation and finance expenses from this expansion (as now this is expensed) is weighing on overall group profitability considering that a new hospital generally takes 12 to 18 months to start operating at normal capacity utilisation and efficiency levels. Dallah started commercial operations at amar hospital in April 2018 with the capacity of 150 beds.

6 Sector Report February Expansion plans- Scale up at amar hospital Riyadh- West expansion at akheel hospital with additional capacity of 150 beds and 30 clinics expected to start by end 2019 (current capacity at akheel 448 beds). The company will study increasing bed capacity at amar Hospital, if needed, to scale up further from 150 beds. amar Hospital has a capacity of 400 beds. Jeddah- Dallah recently extended the JV with AWJ Investment Company to build green-field hospital in Jeddah by seven months to June 2019 in order to obtain the required licenses and approvals. In ovember 2017, Dallah signed 56:44 JV with AWJ Investment Company to build and operate a full service hospital in Al Manar area in Jeddah with an initial capital of SAR 500 thousands. After obtaining the required permits - Dallah will invest SAR 350mn for the construction of the hospital which would be financed from Dallah profits and bank facilities. AWJ Investment Co will provide an in kind contribution of a land in the size of 150 thousands square meters valued at SAR 270mn. This can give a strong foothold to Dallah in Jeddah which is seen as an attractive market in Saudi Arabia after Riyadh. Estimate changes and valuation We have cut our medium term estimates for Dallah following weak 9M18 results. The rampup at amar Hospital is slower than expected due to overall drop in patient volumes led by expat exodus and higher than expected start-up costs. This has led us to cut our 2019/20 revenue and margin estimates as we are seeing some slowdown in Dallah s main akheel hospital driven by down-trading by certain corporates and we now see slower ramp-up at amar hospital. Accordingly, our lower estimates have led us to cut our target price for Dallah to SAR75 from SAR105. Exhibit 6. Dallah- estimate changes 2019E 2020E SAR mn ew Old variance ew Old variance Revenue 1,363 1, % 1,565 2, % EBIT % % EBIT margin 13% 20% 13% 19% et Profit % % et margin 12% 18% 12% 17% EPS % % Source: SICO Research Care (Buy, Target price SAR 55) Moderate earnings performance- Care s 9M18 revenues/gross profit/net profit declined 7%/3%/8% YoY due to decline in inpatients and outpatient numbers and one-off provision against settlement of SAR 7.5mn with one of the insurance companies. The BoD appointed Dr. Abdulaziz Saleh Alobaid as CEO taking effect on after the resignation of Raed Abdullah Altamimi. Dr. Abdulaziz has more than 23 years of experience in healthcare field and was Care s Chief Medical Officer.

7 Sector Report February Expansion plans- mainly brownfield CARE added 62beds at Riyadh Care hospital in 2018 taking total beds at the facility to 330 beds from 268 beds. It will also add 75beds at ational hospital in 1Q19 taking total beds at the facility to 400 from 325. The total capacity addition will be 22% in and since both are brownfield expansions, we see a lower impact on margins than green field expansions. CARE will also benefit from the new contract with the Ministry of ational Guard, which will add SAR7mn per month in revenues (10% of group revenues) MC deal MC formed a joint venture with Hassana Investment (the investment arm of GOSI) in KSA, through the contribution of existing assets by MC and GOSI s investment in Care. The JV will be owned by 51% MC and 49% GOSI and will own MC s KSA assets and a 38.9% stake in Care. The JV has a strong platform with pan KSA presence and MC believes that it offers strong synergy potential to support sustainable value creation. We believe that there is room for improvement at Care in terms of cost optimization by workforce rationalization, improvement in tariffs by better service offering and patient experience, receivable collection. Estimate changes and valuation We revised down our medium term estimates for Care as we are now more conservative on 2019/20 revenue growth and margins, considering the general macro weakness and drop in patient volumes seen in private hospitals. Accordingly, our lower estimates have led us to cut our target price for Care to SAR55 from SAR65. Exhibit 7. Care- estimate changes 2019E 2020E SAR mn ew Old variance ew Old variance Revenue 912 1, % 969 1, % EBIT % % EBIT margin 12% 12% 13% 13% et Profit % % et margin 11% 11% 11% 12% EPS % % Source: SICO Research Hammadi (Buy, Target price SAR 30) Modest earnings performance- Hammadi s 9M18 Gross profit/operating profit increased 6.3%/3.6% YoY but net earnings declined 6.6% YoY due to multiple factors- primarily being decline in inpatients and outpatients numbers in addition to slow ramp up of uzha Hospital. Start-up expense for uzha Hospital, increase in depreciation and finance expenses resulted from start of operations (as now this is expensed) on overall group profitability. Revenues jumped 28% YoY revenues driven by the addition of the recently acquired pharma business (Medical Support Services Company in early February 2018). Excluding pharma sales, revenues from the hospital was up by just 3% despite the opening of new uzha hospital. The company has started commercial operations at uzha branch, which will initially operate with 120 beds. The number of beds will be increased gradually. The company had expected 10%

8 Sector Report February overall revenue growth from uzha branch in 2018, negative EBITDA of SAR 18mn and expected breakeven in 4Q19. Revenue diversification through pharma sales in positive Pharma Serve (subsidiary of Hammadi) was awarded, a two-year contract worth SAR 347mn by ational Unified Procurement Co. (UPCO) to provide vaccines to government health authorities. Hammadi fully-owned subsidiary was awarded SAR 20mn deal to supply vaccines to the Ministry of Health which should benefit it from 1Q19 onwards. Estimate changes and valuation We revise lower our medium term estimates for Hammadi as we become more conservative on 2019/20 margins after factoring slower ramp-up at uzha hospital, considering the general macro weakness and drop in patient volumes seen in private hospitals. Accordingly, our lower estimates have led us to cut our target price for Hammadi to SAR30 from SAR35. Hammadi trades at 2019E P/E of 27x significantly higher than the Saudi peer group average of 20.9x. Exhibit 8. Hammadi- estimate changes 2019E 2020E SAR mn ew Old variance ew Old variance Revenue 1, % 1,180 1, % EBIT % % EBIT margin 16% 20% 15% 21% et Profit % % et margin 11% 16% 11% 16% EPS % % Source: Middle East Healthcare ((Buy, Target price SAR 38) Recap- MEH s 9M18 Gross profit/ebit/net profit declined 14%/37%/40% YoY, revenues declined 1.6% YoY. The weak set of numbers is due to multiple factors- primarily being decline in inpatient and outpatient numbers, higher salaries and admin cost, increase in depreciation and finance expenses resulted from start of operations at Hail Hospital. The BoD appointed Dr. Ahmed Mohamed Shebl Al-Atris as the new acting CEO who has been with the company since Expansion plans- Aggressive Dammam Hospital- Saudi German Hospital in Dammam was 66% complete as of Dec 31 and the project is expected to be completed by June 6, The facility will have a capacity of 150 beds and 100 outpatient clinics. We have pencilled in 2020 start up in our valuation model. The project will be financed by a SAR 300mn Islamic loan from SAMBA, and the rest through internal cash generation. Riyadh hospital expansion- Addition of 147 beds and 76 clinics in medical tower, work was expected to start in July 2018 with 3 years completion timeline. It will be funded partly through bank loans and internal cash flows.

9 Sector Report February Makkah Greenfield project- Greenfield hospital with 300 beds and 100 clinics. Work was expected to start in July 2018 with 3 years completion timeline Estimate changes and valuation We revised down our medium term estimates for MEH as we are now more conservative on 2019/20 revenue growth and margins, considering the general macro weakness and drop in patient volumes seen in private hospitals. Accordingly, our lower estimates have led us to cut our target price for MEH to SAR38 from SAR65. Exhibit 9. MEH- estimate changes 2019E 2020E SAR mn ew Old variance ew Old variance Revenue 1,478 1, % 1,537 1, % EBIT % % EBIT margin 14% 17% 13% 15% et Profit % % et margin 14% 18% 13% 16% EPS % % Source: SICO Research

10 Sector Report February Company financials

11 Sector Report February Mouwasat Financials Income Statement (Consolidated) Revenue 1,507 1,729 1,813 2,001 Cost of Goods Sold (706) (809) (851) (949) Gross Profit ,052 Selling, General and Admin. Expenses (341) (420) (435) (476) EBITDA Operating Profit Other Income et Interest Income (5) (3) (13) (16) Tax (23) (24) (24) (26) Minority Interest (19) (25) (25) (27) et Profit Balance Sheet (Consolidated) Cash & Short Term Deposits Other Current Assets Investments et Fixed Assets 1,663 1,851 2,048 2,182 et Intangible Assets Total on-current Assets 1,705 1,893 2,090 2,224 Total Assets 2,479 2,795 3,109 3,441 Current Liabilities Total Debt Other Liabilities Total Liabilities 907 1,031 1,173 1,304 Minority Interest Share Capital Reserves & Surplus 990 1,182 1,354 1,554 Shareholders Funds 1,490 1,682 1,854 2,054 Total Equity & Liabilities 2,479 2,795 3,109 3,441

12 Sector Report February Cash Flow Statement (Consolidated) et profit before minority Depreciation Other Adjustments Working Capital Changes (3) (39) (13) (30) Cashflow from Operations Capital Expenditure (305) (300) (325) (250) Other Investing Activities (1) Cashflow from Investing (333) (300) (325) (250) Debt Raised/Repaid Dividend (125) (150) (175) (200) Other Financing Activities (15) Cashflow from Financing (42) (53) (51) (106) et Chg in Cash Key Ratios (Consolidated) EPS EPS Growth (%) Gross Margin (%) EBITDA Margin (%) EBITDA Growth (%) et Margin (%) ROAE (%) ROAA (%) Debt/Equity (%) Valuation Ratios PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: SICO Research, Company Data

13 Sector Report February Care Financials Income Statement (Consolidated) Revenue Cost of Goods Sold (660) (616) (693) (736) Gross Profit Selling, General and Admin. Expenses (103) (94) (105) (110) EBITDA Operating Profit Other Income et Interest Income (2) (4) (5) (5) Tax (15) (19) (20) (21) Minority Interest et Profit Balance Sheet (Consolidated) Cash & Short Term Deposits Other Current Assets Investments et Fixed Assets et Intangible Assets Total on-current Assets Total Assets 1,425 1,448 1,483 1,520 Current Liabilities Total Debt Other Liabilities Total Liabilities Minority Interest Share Capital Reserves & Surplus Shareholders Funds 993 1,033 1,074 1,123 Total Equity & Liabilities 1,425 1,448 1,483 1,520

14 Sector Report February Cash Flow Statement (Consolidated) et profit before minority Depreciation Other Adjustments Working Capital Changes (107) 69 7 (21) Cashflow from Operations Capital Expenditure (73) (60) (60) (60) Other Investing Activities Cashflow from Investing (73) (60) (60) (60) Debt Raised/Repaid (24) 15 (20) (20) Dividend 0 (45) (56) (56) Other Financing Activities Cashflow from Financing (24) (30) (76) (76) et Chg in Cash Key Ratios (Consolidated) EPS EPS Growth (%) 73.9 (2.6) Gross Margin (%) EBITDA Margin (%) EBITDA Growth (%) 10.3 (41.3) et Margin (%) ROAE (%) ROAA (%) Debt/Equity (%) Valuation Ratios PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: SICO Research, Company Data

15 Sector Report February Dallah Financials Income Statement (Consolidated) Revenue 1,212 1,179 1,363 1,565 Cost of Goods Sold (653) (727) (840) (976) Gross Profit Selling, General and Admin. Expenses (251) (292) (344) (392) EBITDA Operating Profit Other Income et Interest Income (2) (12) (10) (10) Tax (10) (6) (9) (10) Minority Interest et Profit Balance Sheet (Consolidated) Cash & Short Term Deposits 90 (17) Other Current Assets Investments et Fixed Assets 1,772 2,089 2,281 2,351 et Intangible Assets Total on-current Assets 1,937 2,254 2,447 2,516 Total Assets 2,528 2,772 2,989 3,126 Current Liabilities Total Debt ,006 Other Liabilities Total Liabilities 836 1,045 1,210 1,277 Minority Interest Share Capital Reserves & Surplus 1,102 1,137 1,189 1,258 Shareholders Funds 1,692 1,727 1,779 1,848 Total Equity & Liabilities 2,528 2,772 2,989 3,126

16 Sector Report February Cash Flow Statement (Consolidated) et profit before minority Depreciation Other Adjustments Working Capital Changes (46) (60) 25 (41) Cashflow from Operations Capital Expenditure (431) (400) (300) (200) Other Investing Activities Cashflow from Investing (412) (400) (300) (200) Debt Raised/Repaid Dividend (118) (118) (118) (118) Other Financing Activities (2) Cashflow from Financing (37) (64) et Chg in Cash (96) (108) Key Ratios (Consolidated) EPS EPS Growth (%) 31.3 (48.1) Gross Margin (%) EBITDA Margin (%) EBITDA Growth (%) 26.8 (34.0) et Margin (%) ROAE (%) ROAA (%) Debt/Equity (%) Valuation Ratios PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: SICO Research, Company Data

17 Sector Report February Hammadi Financials Income Statement (Consolidated) Revenue ,012 1,180 Cost of Goods Sold (450) (666) (655) (773) Gross Profit Selling, General and Admin. Expenses (128) (121) (202) (236) EBITDA Operating Profit Other Income et Interest Income (20) (34) (35) (36) Tax (15) (15) (18) (20) Minority Interest et Profit Balance Sheet (Consolidated) Cash & Short Term Deposits Other Current Assets Investments et Fixed Assets 1,798 1,917 1,988 2,061 et Intangible Assets Total on-current Assets 1,798 1,917 1,988 2,061 Total Assets 2,303 2,488 2,619 2,642 Current Liabilities Total Debt Other Liabilities Total Liabilities 916 1,093 1,202 1,221 Minority Interest Share Capital 1,200 1,200 1,200 1,200 Reserves & Surplus Shareholders Funds 1,387 1,395 1,417 1,421 Total Equity & Liabilities 2,303 2,488 2,619 2,642

18 Sector Report February Cash Flow Statement (Consolidated) et profit before minority Depreciation Other Adjustments Working Capital Changes 81 (21) (2) (3) Cashflow from Operations Capital Expenditure (197) (171) (124) (126) Other Investing Activities Cashflow from Investing (197) (171) (124) (126) Debt Raised/Repaid Dividend 0 (90) (90) (120) Other Financing Activities Cashflow from Financing (114) et Chg in Cash (64) Key Ratios (Consolidated) EPS EPS Growth (%) 48.0 (9.0) Gross Margin (%) EBITDA Margin (%) EBITDA Growth (%) et Margin (%) ROAE (%) ROAA (%) Debt/Equity (%) Valuation Ratios PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: SICO Research, Company Data

19 Sector Report February MEH Financials Income Statement (Consolidated) Revenue 1,629 1,470 1,478 1,537 Cost of Goods Sold (865) (931) (943) (1,002) Gross Profit Selling, General and Admin. Expenses (490) (342) (333) (330) EBITDA Operating Profit Other Income et Interest Income (12) (10) (15) (21) Tax (5) (7) (7) (7) Minority Interest et Profit Balance Sheet (Consolidated) Cash & Short Term Deposits Other Current Assets 1,041 1,063 1,069 1,080 Investments et Fixed Assets 1,110 1,328 1,533 1,727 et Intangible Assets Total on-current Assets 1,273 1,490 1,696 1,890 Total Assets 2,425 2,701 3,006 3,322 Current Liabilities Total Debt Other Liabilities Total Liabilities 924 1,102 1,305 1,522 Minority Interest Share Capital Reserves & Surplus Shareholders Funds 1,449 1,555 1,665 1,772 Total Equity & Liabilities 2,425 2,701 3,006 3,322

20 Sector Report February Cash Flow Statement (Consolidated) et profit before minority Depreciation Other Adjustments Working Capital Changes (30) (30) (2) 5 Cashflow from Operations Capital Expenditure (62) (300) (300) (300) Other Investing Activities (173) Cashflow from Investing (235) (300) (300) (300) Debt Raised/Repaid Dividend (184) (92) (92) (92) Other Financing Activities 25 (8) (8) (8) Cashflow from Financing (150) et Chg in Cash (44) Key Ratios (Consolidated) EPS EPS Growth (%) (17.3) (34.2) 2.3 (1.7) Gross Margin (%) EBITDA Margin (%) EBITDA Growth (%) (16.6) (20.5) et Margin (%) ROAE (%) ROAA (%) Debt/Equity (%) Valuation Ratios PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: SICO Research, Company Data

21 Jan-15 Mar-15 May-15 Jul-15 Sep-15 ov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 ov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 ov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 ov-18 Jan-19 Sector Report February Price, Target Price and Rating Change History Chart of (MOUWASAT AB) Date Closing Price Target Price Rating Initiation 13-Oct B X 18-Feb B 31-May B 9-ov Aug Feb Jun Feb B B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R= Under Review B B B B 45 Closing Price Target Price Rating Initiation B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R = Under Review Analyst Stock Rating Definitions *ote:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), eutral (-10% to +10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile.

22 Jan-15 Mar-15 May-15 Jul-15 Sep-15 ov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 ov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 ov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 ov-18 Jan-19 Sector Report February Price, Target Price and Rating Change History Chart of (CARE AB) Date Closing Price Target Price Rating Initiation 13-Oct A X 18-Feb B 31-May S 9-ov S 22-Aug Jun Feb B B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R= Under Review S 60.0 A S 50.0 B B Closing Price Target Price Rating Initiation B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R = Under Review Analyst Stock Rating Definitions *ote:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), eutral (-10% to +10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile.

23 Jan-15 Mar-15 May-15 Jul-15 Sep-15 ov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 ov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 ov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 ov-18 Jan-19 Sector Report February Price, Target Price and Rating Change History Chart of (DALLAH AB) Date Closing Price Target Price Rating Initiation 13-Oct A X 18-Feb B 31-May B 9-ov Aug Jun Feb B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R= Under Review A B 80.0 B Closing Price Target Price Rating Initiation B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R = Under Review Analyst Stock Rating Definitions *ote:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), eutral (-10% to +10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile.

24 Jan-15 Mar-15 May-15 Jul-15 Sep-15 ov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 ov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 ov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 ov-18 Jan-19 Sector Report February Price, Target Price and Rating Change History Chart of (ALHAMMAD AB) Date Closing Price Target Price Rating Initiation 13-Oct A X 18-Feb B 9-ov Aug Jun Feb B B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R= Under Review A B 30.0 B Closing Price Target Price Rating Initiation B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R = Under Review Analyst Stock Rating Definitions *ote:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), eutral (-10% to +10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile.

25 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Sector Report February Price, Target Price and Rating Change History Chart of (MEH AB) Date Closing Price Target Price Rating Initiation 31-May X 6-Sep B 9-ov Aug S 12-Jun Feb B B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R= Under Review S B 40.0 B Closing Price Target Price Rating Initiation B=Buy, A=Add, =eutral, R=Reduce, S=Sell, U/R = Under Review Analyst Stock Rating Definitions *ote:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), eutral (-10% to +10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile.

26 Sector Report February Time Horizon Short term SICO Research issues a Short term outlook if the analyst feels that there are factors which might affect the short-term performance of the stock during the immediate six months after issuing a rating. This might be due to both quantitative and qualitative factors which the analyst think can affect the stock price. Long term SICO Research s Long-term rating is based on the Target Price calculated by the analyst. The Target Price is arrived at using both fundamental and/or comparative valuation methods based on the detailed financial models developed by analysts incorporating current expectations and analyst s assumptions. Target price for a stock is calculated one year forward from the valuation date Recommendation (Short term) Positive Analyst expect positive triggers in the short term which might affect current price positively (> 10%) eutral Analyst does not expect any short term triggers/events (+/- 10%) egative Analyst expect negative triggers in the short term which might affect current price adversely (< 10%) Recommendation (Long term) Buy eutral If Risk profile is High Target price estimate offers 20%+ return from the current share price. If Risk profile is ormal Target price estimate offers 15%+ return from the current share price. If Risk profile is High Target Price estimate offers 0% to 20% return from the current share price. If Risk profile is ormal Target Price estimate offers 5% to 15% return from the current share price Sell If Risk profile is High Target price estimate offers less than 0% return from the current share price. If Risk profile is ormal Target price estimate offers less than 5% return from the current share price. Risk High ormal Stock volatility (360 days standard deviation) exceeds 2x of S&P GCC market volatility Stock volatility (360 days standard deviation) lower than 2x of S&P GCC market volatility

27 Sector Report February Contact Details P.O Box 1331, BMB Centre, 1 st Floor Diplomatic Area Manama, Kingdom of Bahrain Investment Research research@sicobank.com Head of Research ishit Lakhotia, CFA, CAIA T: (Direct) Brokerage Mariam Isa Tel: (Direct): Chief Capital Markets Officer Fadhel Makhlooq Tel: (Direct): Visit us at sicobank.com Disclaimer This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. othing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related Investments. Additional information on the contents of this report is available on request. Among stocks under our coverage, Ahli United Bank and ational Bank of Bahrain owns 11.9% and 12.5% respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA), Al Baraka Banking Group, Bank ABC, Eskan REIT, Batelco and GFH. APMT is under IPO Market & is not included in BHB index/volume & value traded calculation Copyright otice Securities and Investment Company This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part.