Estithmar Holding Q.P.S.C. (IGRD) Earnings Call Transcript & Summary

Hello, everyone. Good afternoon. This is Zeina Fares from EFG Hermes Research, and I'd like to welcome you all to Estithmar Holding's Fourth Quarter Results Conference Call. With us on the line today is Engineer Mohamed Bin Badr Al-Sadah, Group CEO; Mr. Walid Shalan, Group CFO; Mr. Marwan Dimas, Group Chief Sales and Marketing Officer. Without further delay, I'd like to hand over the call to management.

Hello, everyone. This is Walid Shalan. I'm the Group CFO of the Group Estithmar. With me Mr. Marwan Dimas, he is the Chief Marketing and Communication Officer. So can we move on. So as always, actually, as every cluster, we are the same actually working with 4 clusters, which is healthcare, ventures, contracting and industries and services. In the last year of 2024, we have a lot of growth in our investments and in our business in each cluster. So starting from healthcare in 2024, we officially opened the Korean Medical Center. We start in Iraq with 2 new projects. TVH, The View Hospital become -- reached the maturity. From ventures point of view, we are continuing in finalizing Rixos Baghdad and Rosewood Maldives and [Foreign Language] in Al Maha Island and other projects, we reached a stabilized position and actually enhanced our profitability by appropriate cutting cost strategy for the OpEx in Al Maha Island and in both hotels, which is Aspire Palace and Katara Hills, we diverse -- actually we mitigate our risk and actually we fully leased it to an operator with a minimum flow. In contracting, we start reaching a level to deliver our projects in Saudi Arabia. That's why actually we become the preferred general contractors in many PIF companies and [Foreign Language] we secured additional projects during the year 2024. In services, we started in Saudi Arabia in 2024. We started in Kazakhstan in 2024, and we are completing our success story in this cluster. Same story, actually, we are actually keep -- actually enhancing our expansion in the world. We are following the -- frankly speaking, actually properly discrete studied targets. It may be weird to go to Iraq or to Libya, but I can tell you this is actually the most profitable with the most secured structure of the deals. We are doing it in foreign currency, U.S. dollar. We are doing it through LSE in a European bank, and we are doing actually the account to deliver here in Qatar. So we have well structured, and I can tell you that this the most emerging country, is the most profitable country for us based on our experience in the last 2 years. I will leave this for my colleague, Mr. Marwan.

Yes. Good afternoon, everyone. As some of you might know the story of Estithmar Holding. So in 2020, we formed Elegancia Group with a group of companies that were in services, catering facility management and were in specialized contracting and some manufacturing of steel of joinery and of marble. So we formed Elegancia Group. In 2021, we formed Elegancia Healthcare, which is the healthcare arm, and we formed Estithmar Ventures, which is the real estate arm. Then in April of 2022, this is where through reverse acquisition, Estithmar Holding was born and had these 4 clusters under it, the healthcare, the services, the real estate and the specialized contracting, all the way up to 2024, where we rebranded Elegancia Healthcare into Apex Health. Now Apex Health is a stellar company for healthcare and our services cluster, our specialized contracting cluster and our real estate, what we call Estithmar Ventures are growing in parallel. Next slide, please. Our Board of Directors is still as it is. Our executive management is still as it is. No changes throughout the year. Going to the financial statements and the key highlights, I'll hand over the floor again to Mr. Walid.

Okay. So, again, in 2024, we have additional growth in addition to 2023 growth. We secured 44% growth in revenue. The growth in revenue majorly due to contracting and industries, the new businesses and the achievement we have in Saudi Arabia specifically. Plus we have the maturity and the stabilization of healthcare, some investments like The View Hospital starts maturing by 2024. In addition to that, we have growth in the Al Maha revenue as well in ventures and services is the most structured, let's call it, mature cluster in our story. From GP point of view, we grow 27%. The growth of 27% is due that now the project in Saudi is not targeting the same profitability that actually everybody was taking 3 years before because the competition becomes super high. So actually, despite the increase of 44% in revenue, the GP actually 27%, actually, we can call it as an achievement since we value engineer our projects and we secure proper cost at completion and margins. That's why actually we believe that our achievement in Saudi Arabia is one of the best companies and our management in securing the limit of direct cost is proper based on this achievement. Net profit, we are 20% more than the last year. I think this is one of the best, let's call it, growth in the markets based on what we see recently. We go from QAR 352 million to QAR 422 million. Thus earnings per share increased by 17% from QAR 0.1 to QAR 0.12 approximately. This is actually a balance sheet. But before that, I would like to speak about that the Board has recommended to make a dividend of 10% as bonus shares, which actually we are awaiting the AGM approval, which is on 12th March. And based on that, actually, it will be issued as bonus shares. As a 10%, 10% is approximately QAR 340 million share. And actually, as you know, it's the market share now approximately 1.9 or 1.86 or 1.87. So we are actually -- the profit is very good for each of the investors. From a balance sheet point of view, our assets keep growing due to actually our capitalizing our interest, our developments in Katara Hills, in Rixos Baghdad, in Rosewood, in KMC as well. Equity is increasing due to retained earnings. We are managing our liabilities properly. What we can say that actually the debt-to-equity ratio is the only one has increased compared with last year due to Sukuk issuance in September 2024. And other than that, actually, we are growing more healthy even actually liquidity we are 1.22. It's actually the industrial benchmark is 1. We are at 1.22. Return on assets, actually, we are approximately the same because actually our growth in assets is [Foreign Language] assets compared actually with others. Return on equity, return on capital employed all actually are better compared with last year. I think actually here, we are repeating the same story in The View Hospital, actually, we matured [indiscernible] now. In the feasibility study that actually we thought that we will mature at year 6. We matured at year 4 or year even 3 in TVH due to the deals that the management of TVH did with the government, with the even with the insurance companies. So actually, we actually we are matured even 3 years before the expected as per the feasibility study. And this is another development from our development, we can actually consider it as a secured and actually it's not, let's call it, a headache anymore for actually as a management from cash perspective and from a profitability perspective. KMC, as you know, KMC is Medical Center in Lusail Boulevard. It started in June 2024. As we know, actually, it is not an easy business. So actually, we need -- we are expecting the maturity of this in year 3 or in year 4. So we are -- however, actually, we are ahead of the budget from revenue, from profit -- from honestly loss because actually we are targeting net loss in the first year, which is logical in all investments. So even actually, we are ahead of the budget, we are better than the budget. As what I said in the beginning, the investments in Iraq and the investments in Libya are one of the best actually quite a deals we are doing. Here, we are -- we signed in 2024, 2 management contracts for 3 years each for 2 hospitals. Each of them is 492 bed. From a financial point of view, this is actually $81 million per year as a revenue with net profit approximately 27% with -- from cash perspective, the risk is mitigated. The contract in U.S. dollar. The contract actually is opened by LSE, renewed every year in a German bank. And actually, we received the money here in Qatar, not in Iraq. Even with repatriation tax, custom, we are actually -- we are waived. So I think actually this is the best deal that ever actually make and this is maximizing our profit, frankly speaking, actually maybe doubled compared with other non-emerging countries. Marwan?

So Apex Health is now -- has now in the past 2 years, become an important healthcare provider with a diversity of physicians, doctors and protocols and technologies, and they are all rooted in affiliations we have with the best institutes like Cedars-Sinai or Essen or JK Plastic or WMC from Germany. So all these international associations have made Apex be what Apex is today. And based on the deals that operation and maintenance deals that we did 2 in Iraq and 1 in Libya, we are now going forward, eyeing several other projects of the same nature of operation and maintenance, where we enhance the protocols, where we enhance technology, the training and the recruitment, and we can serve societies better. Also in Algeria, our development that we had announced before is the construction is moving ahead of schedule. It is going to be a 300-bed tertiary hospital with a state-of-the-art technological equipment. So this summarizes the healthcare arm. And then we go to the services arm. This is the cluster where we have the facilities management and the catering and the human resource supply. So we established in Saudi Arabia, a catering operation and the facility management operation. We started delivering catering in the airport of Riyadh and Jeddah. We secured soft FM contract in the airport of Jordan and Oman. And we established operations in Iraq. And here is a very important point. The 4 clusters of Estithmar have some integration that work together. So when we open a hospital or when we take a hospital in Iraq in management, then the facility management will follow and all the other services will follow. And this is part of our integration and part of our growth from within. Also in the services industry, we have diversified our offer beyond labor. So we have now white-collar solutions. We have engineer experts, and we are developing our medical staffing and recruitment capabilities. And this is driven by the growth of Apex. We are providing workforce solution also for facilities management, for sports big event and for the healthcare sector. And we enhanced our digital offering by digitizing all our processes in fleet management, corporate cafeteria and facility management, which saves a lot of cost and improve the quality of our service. In the ventures cluster, the real estate touristic cluster, we have Al Maha Island, which is continuing to be a success with over 13,000 visitors daily. We opened the third season of Winter Wonderland very successfully and is making the hype in the country. And all the restaurants are -- have a heavy entertainment calendar, and we are being with our privileged relationship with Visit Qatar and Qatar Tourism, hosting international DJs doing big scale events. And this is enhancing the attractiveness of the island and the revenues. So our boutique niche hotels, Katara Hills and Maysan, they are LXR hotels. As my colleague, Mr. Walid said, we have transformed our engagement, and we brought in an operator, which stabilized our revenue via rent contract. Still those brands are high-end retreats and they have high occupancy rates and the brands are growing. Our project in Baghdad, the Rixos Baghdad, the complex, the hotel, the residential building and the conference hall, 308 hotel rooms and 159 apartments. We are starting -- we will start to sell off plan very soon for the residential and the project is under construction and progressing on schedule. Rosewood in the Maldives, this is designed and planned to be one of the best resorts of the globe, unparalleled luxury is -- has started the hotel construction phase in view of opening also very soon. These 2 properties when they start working will be big revenue generators. In contracting, specialized contracting and this cluster has contributed a lot in the growth of revenue this year. We have started the implementation of Alwakra STP with a flow capacity of 150,000 cubic meters per day, cutting-edge technology. This has been started implementation in 2024. And we continue to deliver on our projects in Saudi Arabia with the PIF companies, Red Sea Global. And actually, today, I have just received the big news that we won with Red Sea Global, the best contractor ever that they worked with. There was a big celebration this morning. We also as -- this is an example of our integration. So we did the fit-out and MEP of KMC. And we won the contract, of course, of the 131,000 square meters built-up area MEP in Rixos Baghdad, our project as well. Next, corporate highlights. As you know, as we have already disclosed and announced, we have launched the first corporate Sukuk denominated in Qatari Riyal. The issuance is the inaugural tranche of the QAR 3.4 billion Sukuk program listed on the stock exchange. And as previously announced, also the signing of an MOU for a Push Letter from SACE, Intesa Sao Paolo Group. And these are just to highlight and emphasize the confidence that all these institutions have demonstrated in Estithmar Holding's story and sustainable growth. Corporate social responsibility as a Qatari company, we are involved in many corporate social events like the Qatar Sports Club, Ooredoo Marathon, Amir Cup, and we were part of the Sustainability Week. That's about it. That wraps the investor presentation for today, and we can now take your questions.

Thank you for the presentation. We will now open up the floor for questions. [Operator Instructions] We have a question coming in from [ Anastasios ] Can you please guide on your CapEx plans for 2025?

Yes. In 2025, we -- look, this actually I'm telling you our investment plan. We are not getting into new investment. I mean, CapEx spending unless actually we have an internal benchmark of 23% IRR. Currently, we don't have something actually on the table except completing Rixos Baghdad and completing the Rosewood. Rosewood actually currently it's around 25%, and we are expecting actually to complete actually in the coming 2 years. The total CapEx is approximately $675 million. For Rixos Baghdad, we are expect -- we are currently at 18% or 19%, and we are expecting to complete it by end of 2025. The total CapEx is around $400 million. So this is the only CapEx actually we are expecting to have unless we have a very attractive new investment will be set at investment committee. But as of today, no, we don't actually have any new investment that we have to invest in 2025.

We have a question coming in from [indiscernible]

I just had a couple of questions. One is what are your thoughts on future prospects with regards to your construction activity in Saudi Arabia, especially considering that there are a lot of new construction activities that could start up. You have World Cup happening, expo [indiscernible] And the second question is on the [indiscernible] the hospitals. I believe you have some hospitals in Qatar. So with the health insurance scheme probably being introduced any time now, I mean, what sort of impact will that have on your hospitals in Qatar?

Okay. Noted. Okay. So I will answer these actually 2 questions. Starting from the construction. Look, our concentration in the construction now from our cluster is in Saudi Arabia, in addition to following our footprint in our development in Iraq and in Libya or in Algeria. In Saudi Arabia, as you know, actually, the vision of Saudi Arabia has become longer because now actually they have a World Cup in 2034 and they have actually another milestone that actually, I don't think so it will be drive very soon. So all of us actually, we are following actually that strategy. And as what my colleague, Mr. Marwan said, actually, we are the preferred contractor for Red Sea Global and Amaala for actually 2024. So we just took additional QAR 1.3 billion project. We are expecting in 2025 and early 2026 to have approximately QAR 3.8 billion projects. And we believe that we can deliver this with a proper net profit margin of 15% to 18%, gross profit margin of 20% to 23%. So yes, we believe that our construction and growth in Saudi Arabia will continue. We believe that our construction growth will follow our footprints in our jurisdictions of developments. We know that the contracting, let's call it, industry is cyclical. However, actually, we are always thinking ahead in order to mitigate any cyclicality risk. That's why I'm telling you based on what we have now as a pipeline in Saudi and non-Saudi, we are secured at least for 2 to 3 years without any additional stuff. Okay. So the second point that actually you asked about the insurance, we are actually listed with all insurance companies in Qatar. That's why actually, as what I mentioned before, we stabilized in The View Hospital before the expected year as per the feasibility study because we have now actually listed with all approved as a hospital with all of the insurance companies in Qatar. In addition, actually that we have an agreement that it's announced in the Q3 about the agreement between us and between [indiscernible] that actually they are sending to us actually some urgent cases, which has become more and more in addition to [indiscernible] what happened actually in 2024, which is with the patients and others. So yes, we are listed in insurance, and we are listed in [indiscernible] as well. So I think actually View Hospital is a stabilized and is a complete story in the sense.

We have another question coming from [ Adrian ] We can't hear you. Okay. Let's take some questions from the Q&A box, and then we'll get back to [ Adrian ] Could you please provide more details on the private placement, a question coming in from [ Zoheb ].

[ Zoheb ] which one actually -- which private placement? You mean actually the one that is announced recently at the AGM will be happening before or in general, you mean the program of the private placement? The recent one. Okay. The recent one, look, we are current -- from the beginning of The View Hospital till 2024 end, it was rented. The rent was approximately QAR 9 million per month, plus 3% to 5% Y-o-Y based on the GDP growth. This one it was providing us with a good profitability. However, it was actually pressuring our cash flow and pressuring our balance sheet because it was actually capitalized only as per IFRS 6. There is no proper asset. So we took a decision to buy this hospital in order to have a 3 years vest period from funding. So actually, we have a proper cash flow structure in the first 3 years in order to boost our operation and boost our other investments. That's number one. In addition to have a proper balance sheet balancing, we have better asset, real asset. It's not IFRS 6, real asset in our balance sheet. And the P&L is better for us because eventually, everything I'm paying there, I was capitalizing. I was expensing actually, I'm capitalizing during the transaction of IAS 23. So we took a decision actually to buy that hospital at approximately QAR 2 billion valuated by evaluators. Then actually, this one, it will be actually bought in 2 ways. One, cash, which is approximately QAR 1.4 billion. And another one is QAR 0.618 billion is private placement. So actually, rather than I'm paying that as cash or actually as a debt, whatever, actually, I'm putting that actually as an equity. This will enhance my equity pool. That's number one. Number two, actually, I will not pay cash for them. Number three, actually is activating the -- it's complying with our strategy that actually we need to make our rights issues. We need to increase our equity. We need to enhance our balance sheet from equity side. So yes, this one actually, what I can brief you about it.

We have a follow-up question coming from him [ Zoheb ] Will the share price be adjusted when the new shares are issued?

What do you mean by adjusted, [ Zoheb ]? You mean actually go down, then actually adjusted or actually adjusted immediately. If actually we are -- in each private placement happening, it's expected actually that the first 2 weeks to have actually like a minor drop in the share price and actually go up and stabilize. However, as what I said before, there's a bonus share. So actually, the bonus shares that actually we are issuing as well for the investor in the first 1 to 2 weeks, it will actually drop up and actually it will be actually hike more better than what we have now. This is actually the market norm in general, actually in any private placement or any bonus shares strategy.

We have a question coming in from [ Mabel ] What is the order backlog for the contracting segment? Can we expect a similar revenue growth run rate in the coming quarters? And which segments within the clusters are benefiting the most?

Okay. So we are targeting in 2025, doubling our profit. not actually completing the semi growth. However, the most contribution will be from the healthcare cluster due to actually [ HMC ] contract. Our backlog from the contracting is approximately currently is QAR 2.5 billion. We are expecting that what I said before, is to be approximately QAR 4.5 billion to QAR 5 billion backlog. But this is actually the difference between actually the QAR 2.5 billion and the QAR 5 billion currently, it's a blue sky. So actually, we are targeting this, and we are negotiating. So nothing actually yet contracted, just to be clear for the gentleman.

The driver segment of this cluster is mainly MEP and fit-out. But this cluster is an integrated cluster. So when we go into a fit-out contract, we do our own joinery in our joinery manufacturing in Qatar, and we ship there. We do our steel here. So it's an integrated when we do fit-out contracting, when we do MEP or when we do landscape. It's mostly driven by MEP and fit-out.

As a value, it's an MEP. You cannot -- because MEP is 60% of any construction project budget. So as MEP is majorly the biggest revenue, but actually it's not the highest profitability because the highest profitability is the fit-out. But from a revenue perspective, it is MEP for sure.

Okay. Great. We have a follow-up question from [ Anastasios ]. How do you plan to mitigate receivable accumulation from Saudi contracting?

Saudi contractor doesn't have any problem actually in the Saudi contractors because we are contracting with PIF companies. PIF companies, in general, actually, they are complying 100% with your payment terms. The AR accumulation that you saw actually in the balance sheet is due to some contracts with QFA here in Qatar. And however, actually, it is solved in January 2025. So actually, in Q1 2025, you will not find it at all the same because actually, they pay for us actually approximately QAR 580 million plus QAR 110 million, QAR 690 million in January 2025. However, actually, PIF companies doesn't have any problem with the AR accumulation. They are 100% complying with the payment terms, especially that we are only dealing with PIF companies. We don't deal actually as a subcontractor.

Okay. [ Adrian ] typed his question through the chat box. Could you please clarify why the net profit for healthcare declined in the second quarter of 2024 in the quarter 2 -- actually 4.

Because of KMC. KMC has started and KMC actually is a loss-making investment because it's not yet matured. Any investment in healthcare is logically to have a loss at the beginning -- benefit to be actually -- an investment in the world supposed to be actually in the first 1 year to 2 years to have a loss, then it breakevens then actually hike. So KMC is [indiscernible]

We have 2 follow-up questions from him [ Zoheb ] The first is, will global maximum tax apply to you in 2025? And can you please provide revenue -- please go ahead.

So the first question is yes, the answer.

Okay. And the second question is, can you please provide revenue and net profit guidance for 2025?

We are expecting net profit to be approximately QAR 800 million, so doubling our profit. And actually, from a revenue point of view, we are expecting growth of 90% because of healthcare in general. This is the budget approved by the Board, by the way. By the way, to answer [ Zoheb ] about something. Basically, the QAR 800 million is including global minimum tax of QAR 31 million [indiscernible]

Okay. It seems that we have no further questions so far. So I'll hand it back over to management for any closing remarks.

We don't have anything. We just want to tell you that thank you for your belief in Estithmar. Frankly speaking, from -- as a CFO, I'm telling you the best is yet to come. We are expecting more and more growth. All of our investment that we did and all of the, let's call it, P&L difficulties that we have actually in the 2022 and 2023 start actually now pays off. And I'm telling you in 2025, the growth will be really significant. And I think actually, we promise you by end of 2025 to have the biggest net profit growth in the market. And 2026, actually, it will be actually continuing of the success because all of our contracts are long term. Thank you for your belief in Estithmar, and we promise you the best in the future 2, 3 years.

Thank you for the presentation, and thank you to all the attendees for joining today Estithmar Holding's fourth quarter conference call. This concludes the call. You may now disconnect.