Operator: On behalf of SNB Capital, I would like to welcome you to our conference call with HMG Management regarding Q3 2026 earnings of the company. With us on the call today, Mr. Faisal Al Nassar, the CEO, Mr. Usama Al Mashoom, Finance VP, and Mr. Ziyad Aldahami, Head of Treasury and Investor Relations.
Operator: Please note that this call is open for analysts, investors, and shareholders only. Any media personnel, please disconnect at this point. We will now listen to the management feedback, and following that, we will open the floor to questions. HMG Management, please begin with your feedback.
Ziyad Aldahami: Thank you so much, Ziad, and good afternoon, ladies and gentlemen. Welcome to the Dr. Sulaiman Al Habib Medical Services Group earnings call for the Q3 of 2026. Also, we appreciate SNB Capital for hosting the call today. Our Q3 2026 financial results were officially announced on Sunday 25 October and available on both Tadawul website and IR website.
Ziyad Aldahami: Please note that we, as a listed company, cannot provide any forward-looking guidance or statement, and any forward-looking statement made during this call today may differ materially from the actual results. Please allow me now to hand over to our CEO, Mr. Faisal Al Nassar, who will provide an overview of HMG performance. After that, we will be happy to take your questions. Sir.
Faisal Al Nassar: Thank you, Ziad. Salam alaikum. Ladies and gentlemen, thank you for being with us on the call. First of all, let me begin by praying to Almighty God to protect our country, nation, leadership, and whomever lives here. And a special thanks to our government, despite what is happening during our daily life. Normal life is going normal, and we are performing as if there is nothing happened.
Faisal Al Nassar: Following, as you know, the recent airport incidents, our hospital received and cared for some of those who have been affected. We are really proud to have played our part in the response as part of our national duty, and we wish all for those injured, a full and speedy recovery.
Faisal Al Nassar: The response that we have made reflects the readiness of our hospital and medical teams, and we remain committed to serving our country and community whenever called upon. Thanks to the government, to all the support that we have received from them to enable us to perform our duty. As usual, we will just go through our financial performance, and project updates, and then we leave the rest of the call for the Q&A. So now turning to our financial performance.
Faisal Al Nassar: As you have seen, Alhamdulillah, we have delivered sound growth across all profit lines in the Q3 as to compare to the Q2. Looking at now slide number five, the financial highlight for Q3. Another sound quarter in terms of growth and earnings momentum as described as compared to Q2. Revenue reached during Q3, SAR 4.10 billion compared to SAR 3.47 billion. This is almost an 18.4% growth.
Faisal Al Nassar: The growth was supported by higher patient volume and occupancy across the network, the continued revenue contribution of the new hospital launched under our expansion, and strong pharmacy sales on the back of a larger patient base. Of course, the new expansion, especially on the hospital side, remained at a different stage of their operational ramp-up, and their contribution continued to improve as they moved more and more toward optimal utilization. Gross profit reached SAR 1.25 billion. This is a growth of almost 19.5%. Gross margin was 30.6% compared to 30.3%. This is an increase of almost 27 basis points. EBITDA reached SAR 1.08 billion compared to SAR 890 million. This is a growth of 21.2%. EBITDA margin has also improved to 26.3% from 25.7%. This is almost 60 basis point improvement. Net profit reached SAR 682 million compared to SAR 602 million, which is a growth of 13.2%.
Faisal Al Nassar: Related margin, of course, was at 16.6% compared to 17.4%. As you know, depreciation and higher financial costs with the expansion partially offset the improvement in operating performance. This has resulted in earnings per share for Q3 increased to SAR 1.95 from SAR 1.72. If we look at the performance in Q3 versus Q2, despite the fact that there was on the healthcare facility, there was a 16.6% improvement of growth in terms of revenue. And 21.2% growth in pharmacy. Solutions has also posted 77.2% growth. So the growth was broader based across all operating segments. Important to highlight here that even in net income or net profit, there was also an improvement when it comes to the bottom line.
Faisal Al Nassar: If we go to nine months, compared to the nine months of 2025, just to go quickly through them, revenue has witnessed a growth of 15.4%, gross profit 9.2%, EBITDA also at 16%. Looking at the net profit, improved almost 5.6%. Net profit margin was 16.0% compared to 17.5%, to the same reason that we have mentioned earlier. Looking at segmental growth, hospital improved at 14%, pharmacy at 18.4%, and Solutions witnessed a 42.2% growth during the nine months. If we go to slide number seven, which is the balance sheet as of 30 September. As you can see, we continue to invest in long-term growth. Total assets is up to SAR 25 billion compared to SAR 22.7 billion. This is almost an increase of 9.9% or SAR 2.2 billion, and same goes for non-current assets. The growth of almost 8.4% or SAR 1.46 billion.
Faisal Al Nassar: Of course, reflecting our continuous investment in hospital, medical center, and also supporting infrastructure. Same goes for current assets, which has grown by 14.9%. If we look at from within current assets, cash and cash equivalents is SAR 2.10 billion compared almost to the same, quarterly unchanged. Receivable has witnessed an increase of SAR 417 million from SAR 1.63 billion to SAR 2.05 billion. And this increase is, as you can see, aligned with the growth in revenue, higher insurance driven volume, and the ramp-up of the newly launched facility. Having said that, we continue to focus on claim quality, reconciliation, collection, and at the same time, discipline provisioning exercise. On the inventory side, as you can see, we have witnessed a growth, almost SAR 323 million.
Faisal Al Nassar: This is in one side reflecting our expanded hospital and pharmacy network, and also some sort of precaution of critical stocks and life-saving medical supply to safeguard against any potential supply chain disruption, considering the current situation. Looking at total liability, it reached SAR 14.95 billion compared to SAR 14.6 billion. This is an increase of 9.2 between current assets and non-current assets. Sorry, current liability and non-current liability have reached SAR 5.7 billion compared to SAR 4.8 billion. This is almost a SAR 915 million increase or 19%, and 22.9% of total assets from 21.1%. This increase is partially linked to higher inventory procurement required for the new hospital and pharmacy operation, in addition to construction payable and retention related to ongoing expansion. In all, this movement reflects normal working capital timing associated with the expansion cycle in addition to the required accrual expenses related for working capital needs.
Faisal Al Nassar: On the non-current asset, non-current liability reached SAR 10.23 billion compared to SAR 9.8 billion, an increase of SAR 430 million or 4.4%. Their weight fell to 40.8% of total assets from 43%. Total equity reached SAR 9.10 billion compared to SAR 8.18 billion, an increase of SAR 919 million or 11.2%. This increase is supported by retained earnings and now funds almost 36.3% of total assets. Going to slide number eight. If we look at the indicator or return metrics, remained very strong and sound. Return on equity was 30.1% compared to 31%. Return on assets was 10.2% compared to 10.8%. Our return on capital employed improved to 15.2% from 15%. As you can see, return on equity and return on assets moderated over the nine months as the group assets and equity bases expand ahead of the earning contribution from recently commissioned facility that is under or remain in the ramp of phase.
Faisal Al Nassar: This represents a timing effect from capital deployed and return on capital employed as you can see, already started to improve as operating profit grow faster than the capital employed. As the newer facility progress toward higher utilization, their growing earning contribution supports a gradual improvement, a return ratio, a trend already feasible, and return on capital employed. Looking at the ratio, current ratio at 1.08 compared to 1.1. The liquidity nevertheless remain adequate for current operation and planned growth supported by recurring operating cash flow generation and access to committed funding, but also reinforce the need to maintain discipline while the expansion continue. HMG maintains a healthy liquidity position. Looking at receivable days, were 44 compared to 38. As you can see, the movement reflect the increasing credit activity and the larger contribution from recently opened hospital.
Faisal Al Nassar: As we mentioned earlier, we remain focused on the quality and aging of receivable, insurance settlement, claim acceptance, and timely collection. Payables were 73 compared to 80 as the cost of revenue grew faster than the trade payables. However, operating suppliers turn on net change, inventory days were 41 compared to 38 days. The group carries inventory support clinical operation. As I mentioned, pharmacies and then expanded network while maintaining supply, continuity and avoiding any disruption. Leverage, very slight improvement. Debt to equity improved to 1.07x compared to 1.1x. Net debt to EBITDA improved to 1.92x from 2.06x. This is a reflection of the improvement in profitability and their contribution to the equity. Debt service lower than previous, however, remain in principle at a healthy position.
Faisal Al Nassar: On slide number 10, as you have seen from the announcement, we continue to be committed on the dividends of the minimum payout ratio of 70%. It is very important to mention that the declared revenue in this particular quarter considered to be the highest among all previous quarters since we were public. On the project update, slide number 12. The project pipeline, as you have seen from last quarter, has not changed. Construction continues to progress in line with the approved plan. As you can see, we have 4 hospitals. We have Tabuk, Jubail Industrial City, Dammam, and also Munsiyah in Riyadh. Both are going as planned and would be expected to be opened either on or even before the announced date. Same thing goes for Tabuk, which is now expected to complete during Q3 2027, as announced. On Red Sea and AMAALA, just a quick update.
Faisal Al Nassar: These are operating contracts. As you have seen during the last couple of months, we have announced the opening of Red Sea, and now start receiving patients on daily basis. AMAALA, while it was scheduled to during this year, we expect it to be operational hopefully in Q1 2027. With that, this is a quick brief about the performance in Q3 and the 9 months compared to 2025 and Q2 this year. Please, now will allow the time for Q&A. Please feel free to ask. I am eager to have as many questions answered as possible. If you could please kindly limit yourself to 2 questions, so others can also have the chance to ask more questions. Thank you very much.
Operator: Thank you, Faisal. I will now open the floor to questions. Please raise your hand or type in the chat box if you want to ask a question. The first question comes from the line of Alexander Stepanov. Alexander, you are unmuted. Please unmute your device and go ahead.
Alexander Stepanov: Hi, Mr. Faisal. Congrats on the wonderful set of results, and my condolences for the country for what is going on. A couple from me. If we just start with EBITDA and utilization and where we sit there. Sorry, EBIT margin and utilization. It grew 30 basis points year-on-year, quarter-on-quarter to 19.5%. If you could so kindly provide a bridge as to what has driven that. From my understanding, it would not seem that the ramp-up is going as fast as we initially expected, but it is moving in a positive direction.
Faisal Al Nassar: Yeah. I believe there are two aspects when you look at this particular. As you have mentioned, it is improving. Maybe it is not based on whatever you have planned, but I believe from our planning as budgeting exercise also, to each and particular assets, I believe it is going into the right direction. Sometimes when the ramp-up is, I would say, better than that you have expected, then it signals opening more and more, I would say, capacity, which comes also with an additional OpEx, I would say. But I think to answer your question, it is a timing issue. Maybe if you do not look at it from a quarter perspective, but a longer period, maybe you will have a better overview on the improvement.
Faisal Al Nassar: But what I can tell you is if we look at each and every, especially on the new assets, I believe quarter-to-quarter, and in particular Q1 to Q2. Sorry, Q2 and Q3, I think it is now going into the right direction, and to certain extent, it is better than our internal expectation in terms of ramp-up.
Alexander Stepanov: Okay. Understood. If you were to look at forward guidance, not necessarily formal guidance, but how would you look at Q4 given where you are right now?
Faisal Al Nassar: Well, if things continue on the same of what we are seeing, and this is maybe an answer that I have mentioned also in the last earning call. If things remain the same, whether on the macroeconomic level, on the geopolitical, et cetera, I think the positive performance will also be seen in Q4.
Alexander Stepanov: Okay. Then just the last one on utilization. Could you give some context to what the utilization from the new hospitals and the old ones?
Faisal Al Nassar: I think now, and this is maybe an answer to your first question. As we are reaching now the, I would say, operated capacity, we are reaching above the balance. I believe in the last quarter, we are talking about something in the 65% range. Of course, when we have this plus other triggers, this always signal that we should be planning ahead of time, even ahead of opening that particular additional capacity. When it comes to manpower, it is a trigger that we add more. But I would expect now the operated capacity is at 3,300. We are in the process now of evaluating adding additional capacity.
Faisal Al Nassar: I cannot, in particular, mention the exact number, but we are now in the process of also adding to this existing operated capacity more. Of course, the OpEx sometimes comes a bit earlier than the actual operating or the actual opening of those additional capacity. That is why sometimes it is a bit slow down the growth or the improvement in the EBITDA parts as you mentioned, but it gives you even more boost to the next following at least two quarters. If things continue with this current level of capacity, I think we are heading into the right direction.
Alexander Stepanov: Thank you, Mr. Hazem.
Operator: Thank you. The next question coming from the line of Maen Sawaf. Maen, please unmute your line and go ahead.
Maen Sawaf: As-salamu alaykum. Thank you for this presentation. One question from my end. We see Bupa Arabia increasing and targeting your most profitable clients, Tawuniya as well with Meena. What is your strategy to counter this?
Faisal Al Nassar: Okay. I don't think that competition, at least from the way we take it internally, I don't think competition is something not good. I believe this is, although it's more pressure, but I think it always push us to do more and to improve the service, patient experience, and also to even more and more activate our online channel. I'm not talking about the medium term, but at least on the short term, I don't see an effect. But definitely we are not going to be in a relaxing mood and wait for the effect to come.
Faisal Al Nassar: What we are doing today is we are activating a lot of initiative on the improvement of the service, the accessibility of the service, especially through medical center, the activation of more and more online channel, whether on the LiveCare that we have or on the e-pharmacy that we have, et cetera. I think we are more and much more equipped to even outperform the competition. I have no doubt on this, but the key here is not to always challenge ourself and always provide better service than others. As I mentioned, on the shorter term, I don't see an effect, but this doesn't mean that we will just stay and watch. It is a good pressure on us to provide better service, better patient experience, and also more and more activation to our online channel.
Maen Sawaf: Okay. Thank you.
Operator: Thank you. We will now take some questions from the Q&A box, then we will return to the audio questions. Mark Lawrence is asking about the breakeven of hospitals. He said at the IPO, you guided for new hospitals to breakeven within 12 to 18 months. In 2024, that increased to 1.4 to 2 years, and now Al Kharj and Al Hamadiya are at around 16 to 17 months, and still below breakeven. His question is basically, the occupancy rate is also low. He is asking, is now the breakeven target structurally changed, and if so, why is that?
Faisal Al Nassar: Well, just to correct, Al Hamadiya is already breakeven. It is just a correction for the info. When I say for Al Hamadiya, it is not from EBITDA perspective, it is from a bottom line perspective. It is already breakeven. On Al Kharj, yes, it is not. On the averages, I do not think if we take out Al Kharj as we speak from the equation, I think on average, we have outperformed our at least previous averages. Previous averages, to recap, it was 16 on EBITDA and almost 22 to 24 months of bottom line. Compared to the existing hospital, I think an EBITDA positive of on average, so there is certain project that have done it in 8 and others have done it in 12. Let us take a 10 months of average of EBITDA and also less than 16 or 14 months of breakeven in terms of bottom line.
Faisal Al Nassar: I think this is an indication of outperforming your previous averages. If we look at Al Kharj as we speak, Al Kharj has already reached breakeven when it comes to EBITDA. On profitability, yes, it is taking more time. But I think a secondary city is not like a main city. We are now following up on Al Kharj very closely, but again, Al Kharj, in terms of size, et cetera, I think it is considered to be a small to medium hospital or medium to small hospital. But this does not mean that we are not taking it as a focus of our internal operation, and we will definitely, inshallah, improve it to breakeven in terms of bottom line.
Faisal Al Nassar: So in summary, we are still better than previous, outperforming previous averages across the board with a few, I would say, anomalies, if we may say so, like Al Kharj, which has its own factors unlike the main city.
Operator: Thank you, Faisal. Another question in the Q&A box from Al-Amouda Rashid. She is asking about the impact of the recently increased electricity and water tariffs. What would be the impact, and also what would be the impact of the increase of the minimum wage that is eligible for Saudization?
Faisal Al Nassar: Yes. First, let me answer the second question, which is, I do not think there is a material impact because if you took most of our population is 5,000 plus. Okay? So the impact, I would not worry about this impact because it is going to be minimal. Very few job category, I would say, that is below 5,000. As a matter of fact, that is below even 6,000. So the effect here, I do not think it is going to be material. The effect on the increased tariffs for electricity and water, this decision was just made a few days ago. We are now evaluating, okay, the effect. If it is material, of course, we are going to have to, as directed by CMA, to announce it publicly. But I do not think water is going to be something material, but electricity, we need to validate it before I can comment on this.
Faisal Al Nassar: But during the few days to come, we will evaluate it. If it is significant, you will hear about it as a formal announcement. But if you do not hear an announcement, that means it is not significant.
Operator: Thank you, Faisal. The next question comes from the line of Mohammed Al Qahtani. Mohammed, unmute your microphone and go ahead.
Mohammed Al Qahtani: Assalamualaikum. Can you hear me?
Faisal Al Nassar: Waalaikum salaam.
Mohammed Al Qahtani: Yes. This is Mohammed Al Qahtani from Mazen Investments. I have a couple of questions, if you can help me understand. Your new hospitals that opened after 2024, at what occupancy levels are they currently operating at?
Faisal Al Nassar: I think it is very important to differentiate between their full capacity or build-up capacity and operated capacity. I think it is very important for you especially to factor in your modeling, out of the operated capacity, how is delivered. As of Q3, operated capacity now is reaching above 70% for the new project. As I mentioned, once this is happening, this is triggered with us, an increase of the existing operating capacity, sometimes by 30%, sometimes to the full capacity of the hospital. There are certain triggers or KPIs that whenever it has reached, it always trigger with us that we need to increase the capacity. One of which is, for example, above 70%, one of which others is there are certain days where you have full occupancy, and you are in your operating sub-capacity, so you need to increase the availability, et cetera.
Faisal Al Nassar: To answer your question, now we are above 70% occupancy in the operated new hospital capacity.
Mohammed Al Qahtani: A follow-up.
Faisal Al Nassar: For the existing one, of course, the existing one is steady, it is mature. It is +3% to 5% or plus or minus. Normally, most of the existing hospital, you are talking about reaching out to 80% of the existing matured hospital of the network.
Mohammed Al Qahtani: Yeah, okay. A follow-up on your new projects.
Mohammed Al Qahtani: In order to reach your full capacity of projects for new hospitals, is it like an increase of 50% in bed capacity or 40% on the total portfolio of new assets?
Faisal Al Nassar: Yeah. If you recall, now we are operating at 3,300. Our total capacity is 4,000. So there is 700 yet to be added to reach our total built-up capacity. This 700 is divided into the big chunk of it goes to the big hospital like Sahafa, for example, or Mohammadiyah, and a smaller portion goes to the other small hospitals. Normally, what we do is we start with 30% and we increase it to another 30% of built-up capacity, and then to the remaining percentages as the project matures. How long this journey takes, I would say from four to five years. The more ramp-up and the better ramp-up, the more you shorten the five years. The 30%, this is a start. Almost at the time where we break even from EBITDA perspective, we added another 30%. I am talking averages.
Faisal Al Nassar: Each asset may vary. On averages, at the time when you break even in the EBITDA, you added the other 60%. The remaining 30% or 35%, it depends on how you are bringing this project to be a more ramped up and mature hospital. This remaining 40%, sometimes after the first 60% ramp up, I would say two to three years sometimes. Some of the hospital takes three years. All in all, we should reach the 80% plus of the total capacity within five years.
Mohammed Al Qahtani: Yeah. Clear. Have you seen a slowdown in patient traffic back end of September, beginning of Q4, due to the current geopolitical tensions? If I am not mistaken, Q1, there was talks that the war made people defer, reschedule, defer electives. Have you seen this trend?
Faisal Al Nassar: I would say no. I think now we are used to the current situation. Maybe the effect of closure of Riyadh airports, haven't seen yet. But as we speak, especially for Q3, we haven't seen any effect.
Mohammed Al Qahtani: Sorry, I took a lot of time. Just one last question. The increase in revenue year over year, can you help me understand?
Operator: Mohammed, I am sorry. We have a long queue, and we have to move to others. Please.
Mohammed Al Qahtani: For sure. Thank you very much. Thank you very much.
Operator: Okay, the next question is from the line of Jameel Bakhsh. Jamil, please unmute your line and go ahead.
Jameel Bakhsh: Hi. As-salaam-alaikum, everyone. Thank you for hosting this call. This is Jameel Bakhsh from Bank of America. Just one question from me. I think most of my questions have been asked already. If I may just talk about gross margin seasonality, especially with Q4 coming up. Historically, just across not only your business, but just hospitals in general, the Q4 is usually a period of elevated cost spend. Considering that you have got the margin profile expanding from your ramp-up of new facilities, do you think that the, I am trying to work out what do you think will be the main determining factor in thinking about margins in Q4. Do you think that the ramp-up of new facilities will provide expanding margins year on year, or do you think the natural cost pressures for the Q4 could cause maybe flat margins year on year?
Faisal Al Nassar: You are asking a very important question. We have not heard the change in the tariffs because I cannot quantify as we speak the effect. Let us just remove the effect of that particular one and qualify the statement. If we remove that effect because, to be honest, I have to calculate so I can give you a precise answer, but let us remove it for the sake of answering the question. I think normally, in a normal situation, Q4, considering the volume as compared to the Q4 over the years, is better. We would, in a normal situation, have an expanded, I would say, margin. But now there is some sort of factor which not yet, I would say, factored in. I know the change of tariffs, I believe, if I am not mistaken, will start in even January, if I am not mistaken. Yes, it is in January.
Faisal Al Nassar: Having this in mind, I think for Q3 to Q4, I would say on average, it is an expanded margin, not the other way around, because the volume is normally higher in Q4.
Jameel Bakhsh: Sure thing. That is well noted. Thank you very much, and yeah, we will look forward to let us see if there is any announcements about the tariffs. Thank you.
Operator: Thank you. We will take a question now from the Q&A box, from Mr. Oud Al Hamadi. Basically, his question is about insurance coverage that some entities are downgrading the coverage or removing the optional coverage of parents. Do you see an impact so far on this, or there is no change on your end?
Faisal Al Nassar: Well, on the parents removal, yes, we have seen. On the downgrade, I have not seen any. I will be very clear with you, we have not seen any. There has been certain renewal of, I would say, sizable policies, okay? We have not seen any downgrade. But removal of parents, we have seen some of the, I would say, semi-government. Government-related companies, yes, as I have heard this from you. I have heard it from, just like you heard it, from the market. You ask me, have I seen it in actual renewal? Not yet. But let me remind you that the renewal may be the big chunk of renewal is coming during Q4 and Q1. We will see it, and maybe we are in a better position to answer you even during Q4 or on the commentary of Q4 or full year result. But downgrade, we have not seen it.
Faisal Al Nassar: Removal of parents, we have heard about it, and they are discussing with us on certain ones, but I haven't actually physically have received a policy that have removed the parent. But this is something that, as you mentioned, we are expecting.
Operator: Okay. Thank you, first of all. There are two questions from Marina Mikhail. One about the cost inflation. So she's asking if the current cost inflationary pressures, do you expect insurance companies to implement broader price increases across the market? Her second question is about the regional competition. Where is the most intense competition, and how do you see the competition going forward in the coming years?
Faisal Al Nassar: Well, inflationary pressure, by the way, it has been and it will be always a subject that we will be discussing. Has happened in the past, and it will happen in the future. I think the question is by how much. At what percentage? But the fact that it's happening, I think it will happen all the time. Now, I cannot speak about the insurance and how they are going to be passing this. But let's speak about our company. Now, there is always a limit where you will be absorbing certain inflationary pressures. Okay? Through volume driven, through efficiency that we are doing. The level of project that we are implementing internally when it comes to efficiency, centralization, automation, using the AI, trying to do a lot of things in a more efficient way with lower cost and even higher quality is endless.
Faisal Al Nassar: This is the theme of all of our team members during, not now, but at least for the past 2 years. And we will continue doing so. Is it enough to absorb whatever pressure for us to maintain margin or even improve it? Well, up to now, it is working. I don't think that we can always absorb these inflationary pressure through efficiency and volume. There is a time where we will maybe have to take different strategy. Is it now? I don't think so. Okay? I don't think while we are in this growth mode that we would take such a move, but maybe during the coming changes in the reimbursement, during our negotiation on the DRG, et cetera, maybe it is time to start thinking about this seriously. But as we speak, I don't think that we are taking any step toward this particular issue.
Faisal Al Nassar: We will continue to lean, at least at the end of the year, beginning next year, on efficiency, on more automation, on how we can absorb these costs, as long as we are continuing to push for more volume.
Operator: The next question is from the line of Faisal Al Dandashi. Faisal, please unmute locally and go ahead.
Faisal Al Dandashi: Thank you guys very much. Most of my questions have been asked. I just have one question in terms of receivables. With the ongoing geopolitical situation and stuff, do you guys see there being an increase in receivable days, either from the government or the insurance companies, or is everything okay in terms of the aging profile?
Faisal Al Nassar: Sure. On the government side, we do not have exposure. We have very small exposure to the government. To answer your question, maybe you will see this more marginal with those providers that they have more exposure to government. To answer the question in particular, yes, there is delay in collection from government, but we do not have that much of an exposure. Our exposure is very small. On the insurance, to me or to us, is the most important. Yes, you can see an increase, a bit of increase. Is it alarming? No. Is it something or anything have changed, whether to the terms or to the agreements? No. I think it is a timing issue of certain settlement with them. But I do not see something, I would say, alarming or change or what have you. But of course,
Faisal Al Dandashi: Sorry, can we get some clarity on how many, like what's, if it's 90 days up to 95 or 90 to 100?
Faisal Al Nassar: No. If you look at the markets, the market is way higher. It's talking about above 100. If you look at the markets
Faisal Al Dandashi: 100, 105
Faisal Al Nassar: 150, 100, I think. No, 150, 151, if I'm not mistaken. Maybe you better have the number. But we are, as compared to the markets, we are very, very low. Yes, but now we are challenging ourself of being very low and how to maintain the level of being very low. So we have increased from 38 to 44. I don't think that this is still considered to be very healthy, and we want to maintain it this way. Is anything alarming? No.
Faisal Al Dandashi: Amazing. Thank you very much.
Faisal Al Nassar: My pleasure.
Operator: Thank you. The next question is from the line of Sylvia Richards. Sylvia, please unmute locally and go ahead.
Sylvia Richards: Hi. Thank you for taking my question. I have just got a few. Relating to the revenue growth year-on-year of around 15%, could you please share how much of that was from new assets versus your existing assets? My second question is around margins. Now that you have seen a sustained inflection in EBITDA margins, do you expect to see an inflection in net margins in the coming quarters as you continue to make progress on ramping up new assets? My final question is just around DRG. Would you be able to share the latest that you have heard from regulators? Have they, for instance, communicated any further delays for the rollout?
Faisal Al Nassar: Let's start with the first question about how much is coming from the new, how much is coming in terms of revenue from existing. While they are calculating the number. On the growth for Q3, almost 80% is coming from the new projects, 20% coming from the existing in terms of revenue. On the DRG, nothing has changed. As you have seen or as we have been told by the regulator that in July, there will be an announcement. Nothing happened. It was dragged a bit. I thought for a certain period of time that there will be an announcement during Global Health. Nothing happened. I do not know, but the plan was to start shadow billing for almost 2 years and maybe the real start of DRG in, I would say maybe January 2029, the real implementation, actual implementation. But the date is, I think, moving.
Faisal Al Nassar: I do not have a specific date. Now, we will just wait and see. But I would not expect anything of actual implementation of DRG before 1 January 2029. Now, when the shadow billing should start, I do not know, but maybe could be in January 2027, maybe for about 24 months. This is actually what I can say about the timing of DRG. As you know, it keeps moving. If we are talking about the readiness for DRG, I think we are in a very good shape. We have done all the required infrastructure changes, coding, coder desk, CDI, everything which is required.
Faisal Al Nassar: We have even coded all of our revenue for the past 3 years, which is not required, and the reason was to know exactly what is the issue at the time when we sit for negotiation with insurance company, to know where to concentrate and to achieve better negotiation. Also, during the 2 years of shadow billing, our concentration should be on the change management and awareness rather than preparing a basic infrastructure. This is what I can say on DRG. On the second question, I think I have answered this, and I said that considering the volume, I believe that there is going to be, and assuming everything is the same, during Q3, I think I would expect a sound, a good performance during Q4 and a better expansion in margin.
Sylvia Richards: Can I confirm that would be on net margins as well as gross margins?
Faisal Al Nassar: Okay. I think it is going to be if the gross margin improves, then the net margin will improve. But to say specifically, I cannot comment on this.
Sylvia Richards: Okay. Thank you. Very clear.
Operator: Thank you. We have a question in the Q&A box from Abdulrahman Al-Sheikh. He is asking on receivables. Again, he is saying that receivables increased year on year. Should we expect a spike in ECL, given that ECL for 9 months is lower than last year and why receivables are higher?
Faisal Al Nassar: To answer the question, ECL sometimes, the changes, or it is about when exactly sometimes you settle with them for a certain period. There is no specific quarter where we are now scheduled or what was the plan to do the settlement. Sometimes it happens certain quarter. The next year, sometimes it is in Q1, sometimes in Q3, sometimes come back to Q2. This is why sometimes you see changes from one quarter to another. The increase, I have answered the question. It is a normal, I think, related to from period to period, nothing alarming. I think we are still in a very low level compared to the market.
Faisal Al Nassar: But the cyclicality, or as you have mentioned, and you describe it as spike, I think this is something happens when there is a settlement in that particular quarter, but you should take it on year-to-year to see it in a better, or to have a better view.
Operator: Okay, another question from Sara Abdul-An. She is asking about the growth in the pharmacy segment. Is it from the hospitals or the retail network? And she is asking also about the quarter-on-quarter jump in Solutions. Is it recurring?
Faisal Al Nassar: To answer the question, the majority, of course, coming from the pharmacy inside the hospital or linked to the hospital. But I think now if we take the same period last year, the number of pharmacy is 44. In Q, in 9 months, this year is 55. So you are talking about almost 11 addition. This is part of the— Some of which are in the hospital, some of which are the added network of medical center. We are also having now an outlet, as you might have seen, in the metro. We have opened already 5 or 6 locations in the metro. But majority, in terms of percentage, of course, are coming from the pharmacy linked to the hospital. But we are capitalizing on this to increase more and more from things that is not linked to the hospital, and also from the online channel.
Faisal Al Nassar: On the Solutions part, I would say it is reoccurring, at least for the coming 5 years because part of it is the Red Sea starting, as I mentioned, started to operate. So you would see this at least for the coming 5 years from the Red Sea. And on the solution and flow, it depends, of course, on the projects. But I think with their level as we speak, I think that this can be, I would say, reoccurring. But in majority, it is coming from the Red Sea and also from the clinical engineering company doing certain projects for the government.
Operator: Thank you. The next question is from the line of Ahmed Ashaat. Ahmed, please unmute locally and go ahead.
Ahmed Ashaat: I just have a couple of questions from my end. My first question is related to the Red Sea. It started operations in September, as you've mentioned, but how much did it contribute to earnings and how exactly will it be recorded in the financials going forward, the Red Sea and AMAALA O&M? This is my first question. My second question is about some further capacity expansion in your existing hospitals. I think you've mentioned multiple times before that Sahafa Hospital in Riyadh can be expanded even further. Are there any other hospitals where you have capacity for further expansions going forward?
Faisal Al Nassar: Of course. We have, of course, Sahafa. Still, not all the capacity is being operated. Certain capacity, as you know, the expansion of woman health to Takhassusi. Takhassusi have certain expansion. There is an expansion of existing facility even in Rayyan, where we have moved certain clinic outside and for physiotherapy, and we are expanding in the hospital. These, for the existing hospital, I would consider this as a minor one, not a major one. The existing mature hospital, additional 50, 60 bed in total. The capacity, of course, or the available capacity that can be expanded is in the new project, Sahafa, for example, and also the new project that we have announced in Riyadh, which is Munsiyah, as we mentioned. This is as far as the capacity in Riyadh is concerned. On the second question, which is in the capacity side.
Faisal Al Nassar: No, I think you have mentioned also the Red Sea and how much have contributed to the growth of-
Ahmed Ashaat: Yes, please.
Faisal Al Nassar: of the solution. I think 67% of the growth that you have seen in Solutions is coming from Red Sea.
Ahmed Ashaat: Thank you and all the best.
Operator: Thank you. That was the last question that we are going to take in today's call. HMG Management, do you have any final remarks?
Faisal Al Nassar: Thank you, everyone. I know that some may not have the chance to participate in the question. Please, if you have any question, you have our website. You can address your question directly to our investor relations at any time. Thank you for being with us.
Operator: Thank you, Faisal. SNB Capital would like to thank HMG Management for taking the time to conduct this call. We would like also to thank all participants for attending. You are sure pleased today. Thank you. You may now disconnect.
