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4009

Governance: C

SAUDI GERMAN HEALTH

Middle East Healthcare Co.

33.98 SAR / Share

As of: May 28, 2026

18.2x P/E Ratio Trailing 12 Months

1.6x P/B Ratio Price to Book Value

1.5% Dividend Yield Annual Dividend / Share

3.13B SAR Market Cap Total Valuation

1.35 Beta Systematic Risk Index

5.5% Net Margin Net Profit / Revenue

The Story

Saudi German Health is a major healthcare provider in Saudi Arabia experiencing steady top-line expansion, but its aggressive capital reinvestment and heavy debt load currently constrain its economic value creation.

Source: Q1 2026 (2026-05-13)

Value Creation -4.4% Excess Return on Capital (Spread between ROIC/ROE and Cost of Capital)

Cash Flow Payback — Estimated years of operating cash flows required to cover Enterprise Value

Performance & Distributions

Dividend Yield Trailing annual dividends paid relative to share price

1.5%

Sustainable Growth Rate Rate at which company can grow internally using reinvested profits

+11.0%

Payout Ratio Percent of net profits distributed as dividends

26.8%

Net Margin Net profit margin generated from total operational revenue

5.5%

ROIC Return on Invested Capital

4.8%

Market Pricing Multiples

P/E Ratio Market value compared to corporate net earnings

18.2x

P/B Ratio Market capitalization compared to corporate book value

1.6x

EV / EBITDA Operating multiple reflecting core operational leverage

11.7x

EV / SALES Asset pricing multiple relative to total topline revenue

1.8x

Growth Story

Saudi German Health's growth story is characterized by continuous physical expansion, akin to a sprawling construction site. Revenue has grown steadily from SAR 2.65 billion in FY 2023 to SAR 2.88 billion in FY 2024, and reached SAR 3.10 billion in FY 2025, with TTM revenue standing at SAR 3.13 billion. This top-line expansion is fueled by an extraordinary 5-year average reinvestment rate of 229.74%, reflecting massive capital expenditures (such as the TTM Capex of SAR 464.16 million) directed toward hospital renovations, digitalization projects, and new clinic openings. Despite this aggressive reinvestment, the company's long-term growth capacity is moderated by its historical returns; with a 5-year average ROIC of 4.77%, the resulting sustainable growth rate is calculated at 10.95%. This indicates that while the company is successfully expanding its footprint and top-line revenue, the efficiency of translating this reinvested capital into high-yielding operational returns remains a key structural challenge.

Profitability Dynamics

The profitability story resembles a leaky steam engine, where significant energy is put in, but operational efficiency is lost along the way. While Saudi German Health generated a TTM EBIT of SAR 245.69 million and a NOPAT of SAR 225.14 million, its operating and profit margins remain thin at 7.84% and 5.48% respectively. More critically, the company's 5-year average ROIC of 4.77% falls short of its WACC of 9.17%, resulting in a negative value creation gap of -4.40%. This indicates that the company is currently destroying economic value on a risk-adjusted basis, as its returns do not cover its cost of capital (with a Cost of Equity of 10.29% and an after-tax Cost of Debt of 7.75%). Cash flow generation is also heavily pressured by the company's working capital requirements, which stand at a substantial SAR 1.80 billion, driven largely by trade receivables of SAR 1.91 billion that are highly concentrated with government and insurance entities.

Risk & Capital Structure

Beta Systematic market risk indicator relative to the TASI index

1.35

Cost of Equity Minimum required rate of return demanded by shareholders

10.3%

WACC Weighted average cost of total debt and equity funding

9.2%

Debt-to-Equity Ratio Proportion of corporate funding financed by debt creditors

78.7%

Risk Factors

The company's risk profile is defined by a heavy shield of debt and complex regulatory exposures. Saudi German Health carries a substantial debt load of SAR 2.46 billion against a cash balance of only SAR 24.10 million, exposing it to liquidity pressures, though mitigated by SAR 1.27 billion in undrawn committed borrowing facilities. This leverage is highlighted by its SAR 1.00 billion Sukuk issuance bearing a 7.2% annual return, alongside commercial bank loans tied to SIBOR. The company's systematic risk is elevated, as reflected in a relevered beta of 1.35. Beyond financial leverage, the company faces significant business-specific risks, including outstanding Zakat and withholding tax disputes with ZATCA totaling over SAR 140 million for historical periods, which the company has secured approval to install over 12 years. Additionally, the high concentration of receivables (88% from government and insurance entities) and extensive transactions with related parties for construction and IT services introduce operational and counterparty risks.

Governance Disclosures

Rating: C

We track 12 key governance and oversight matters for this company in our database.

Significance: 5/10 Tunneling

Related-Party IT Outsourcing Advances

The Group paid advances for outsourced IT services to Megamind IT Solution Company, an entity under common control. Transactions for the three-month period ended 31 March 2026 were SAR 28,555,224, with an outstanding balance of SAR 12,447,490.

Mitigating Factors: Pricing policies and terms of these transactions are approved by the Group’s management.

Significance: 6/10 Tunneling

Related-Party Construction and Renovation Transactions

The Group engaged International Hospital Construction Company, an entity under common control, to undertake design and build renovation, modification, and expansion works across selected hospital sites. Transactions for the three-month period ended 31 March 2026 amounted to SAR 24,011,003, with an outstanding balance due to the related party of SAR 16,227,071.

Mitigating Factors: Pricing policies and terms of these transactions are approved by the Group’s management. The contracts are remeasurement based, with payments linked to actual quantities executed, and allow for contract price adjustments.

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