Good evening, everyone. I am Anil Mulani from Al Rajhi Capital, and we welcome you all to 2Q 2025 earnings call for MCDC. From the management, we have Mr. Ahmad Jaber, the CFO. We will be having a short presentation followed by a Q&A session at the end. Without any further delay, I will hand over mic to Mr. Ahmed Aljiffry to start the proceeding. Ahmed, over to you.
Hello, everyone. I am Ahmed Aljiffry, the Investor Relations Director at MCDC. I would like to welcome you all to our H1 2025 earnings call. Today, it is my pleasure to be joined by our CFO, Mr. Ahmad Jaber. The webcast will consist of a presentation highlighting our performance for the first six months of 2025, followed by a Q&A session. I would like to remind everyone that this webcast is being recorded. Before we dive into the presentation, I would like to draw your attention to our cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates, plans, expectations. Actual results and outcomes may differ due to factors stated in this slide. With that out of the way, I will hand over now to Mr. Ahmad Jaber.
Thank you, Ahmed. Welcome, everyone, to MCDC's H1 2025 earnings call. I am here to walk you through our financial performance for the first six months and highlight the strategic progress that drove our results. In the first half of 2025, we have made progress in our asset enhancement strategy, which is clearly visible in the performance of our commercial mall. We have achieved a remarkable 99% occupancy rate, coupled with a 15% higher average lease rates. These operational success have directly translated into a strong financial performance. As you can see, we have delivered a 16% growth in revenue and a 15% increase in net income. Our financial position remains exceptionally strong, with a cash position of SAR 828 million and a gearing ratio of negative 22%. This robust balance sheet provides a solid foundation, positioning us perfectly to support our future growth plans.
Moving to the operational metrics that drove our results. Our hospitality segment saw an 11% increase in ADR, which has compensated for a slight occupancy decline to 82%. This occupancy was specifically impacted by a regulatory restriction in the period before Hajj and after Ramadan. This result was a 7% increase in revenue per available room, or RevPAR, reaching SAR 945, which directly contributed to a higher revenue and income before depreciation for the hotel segment. Our commercial mall also had a very strong six months as we continued to optimize common spaces. Our total leasable area has grown to 17,316 sq m, with 1,318 sq m currently under development. Our occupancy rose from 98% to an impressive 99%, and we achieved a 16% higher average lease rate of SAR 17,000. These strong operational numbers translated into a 19% higher revenue and income before depreciation from the commercial mall.
Turning to our Hajj performance in Q2, the results of our market penetration strategy were exceptional. We delivered growth in the number of pilgrims of more than 760%, successfully establishing a foothold in a mature market while maintaining a positive profit margin. While some revenues will be recognized in Q3, we have already achieved healthy year-on-year growth in revenue, and our income before depreciation is similar to last year's. Looking ahead to 2026, our execution will shift its focus toward enhancing margins and pursuing a more targeted level of growth rather than repeating this year's high percentage increase. Now, let's review the key financial numbers for the first half of the year. Our revenue saw a strong 16% increase, reaching SAR 624 million, while net income grew by 15% to SAR 294 million, which translated to a healthy SAR 1.47 in earnings per share.
Our operational cash flow grew by 6%, which is a solid result given the working capital commitments required for the Hajj season. Due to our lower CapEx, our free cash flow saw an impressive 10% growth. This is all supported by a very resilient financial position, as shown by our - 22% gearing ratio. As we look at the bridge from H1 2024 to H1 2025, you can see the key contributors to our 15% net income growth. The largest positive impacts came from our strategic efforts in asset enhancement, resulting in improved performance from our commercial mall. This was further supported by the financial contribution from our 28% stake in First Avenue, which is now reflected in our net income. Moving to our cash position, you can see on this slide that we have grown our cash by SAR 605 million.
This was a strategic move as we reduced our stake in Jabal Omar to position ourselves with the necessary financial strength to begin executing our growth strategy. Our strategy for further growth is multifaceted. First, we are committed to maximizing value from our existing portfolio. Our commercial malls enhancement is on schedule for a mid-2026 completion, which we project will generate an additional SAR 60 million in annual income. Meanwhile, our hotel renovation will be phased in execution to avoid disrupting our high season business during Ramadan and Hajj, with completion no later than 2029. We are currently looking for ways to create new value. We are actively exploring vertical integration to improve margins in our Hajj services, and we are evaluating potential acquisitions of income-generating assets and development projects to expand our portfolio. We are committed to updating the market as these opportunities materialize.
Turning to our guidance for the remainder of the year. For our hotel and Makkah Towers, we expect RevPAR to follow similar historical trends, but with a continued focus on maintaining a similar level of percentage improvement. In the commercial mall, we project our total leasable space to increase to between 16,000 and 16,200 sq m by year-end, while lease rates are expected to maintain current levels. For our Hajj business, we anticipate income levels to be similar to those achieved in 2024. In summary, we are confident that our strategic execution has positioned the company for sustained success. We remain focused on enhancing shareholder value by leveraging our strong financial position and pursuing new growth opportunities. Thank you for your time. Now, I will hand over to Ahmed to start off our Q&A session.
Thank you, Ahmad. Now we'll start the Q&A session. If you have dialed in, you would have to press star two to ask a question and raise your hand. Otherwise, if you're in via online, you could raise your hand or type any question as you prefer. We will start off with Abdulaziz from NBK. Kindly proceed to ask your question.
Salam alaikum, management. Am I audible?
Yes, you are audible.
Okay. Congrats on your results. I just have two questions from my end. The first is regarding your midterm CapEx program. Could you provide us, please, with the size of the program and a breakdown of the amount spent between expansion and renovation?
Thank you, Abdulaziz. With regards to our CapEx program or strategy, currently, we have a few improvements in the hotel and the retail or the mall. We are doing some replacement in some items, but it is not major contracts. We have spent approximately SAR 12 million in the first half. The major plan, which is under study currently, is to perform a complete or major renovation for our hotel rooms, which is under assessment and under study by our technical team. We have hired an external consultant in terms of coming with the proposed plan and proposed drawings for the new renovation, and we are expecting that this will take place in the second half or start in the second half 2026. There we anticipate that we need to spend approximately SAR 400 million-SAR 500 million.
This would cover the hotel. What about the mall?
With regards to the mall, we have some short-term plan within one year to one and a half year to utilize more common area in the mall and convert some areas to be able to utilize them and lease them. With the light CapEx, injection could be around SAR 30 million -SAR 40 million.
Other than this, nothing major in terms of expansion CapEx or-
Nothing to be announced yet. We are, as highlighted by the CFO, evaluating multiple opportunities. Once they pass through all of the governance checks that we have in-house, and then they materialize, then we'll have to make a market announcement. But essentially, right now we only have a single asset, which is the Makkah Towers, and we're planning to grow that portfolio as highlighted in the slide deck.
Clear. Thanks. I have one more question. It's related to the Hajj and Umrah segment. We noticed that their margins are very low compared to the total business. I would like to know the reason for these lower margins and, in your opinion, what is the healthy margin that you target in this segment?
Yeah. With regards to Hajj business, actually, we are relatively a newcomer to this business, and we are focusing now on market penetration. We have succeeded in securing a good share in the market by increasing the capacity of this segment. In terms of the low margin, keep in mind that we don't have a CapEx investment in this segment. It's purely a working capital investment for about 4 to 6 months. So relatively, comparing to the invested capital, this margin is, we can say that it's still reasonable. Our plans in the future, in the coming years, to focus on the margin enhancement, and that will be reflected from the next year, Inshallah.
Is there a specific target for the margin?
I think it is too early for us to say. This is only our third year in Hajj. One of the things we observed is that we reutilize a lot of services to deliver the service. This is where the idea of vertical integration has come in. It requires a lot of assessment to make sure that when we go in, we get a good return for potential vertical integration. That is why it is too early for us to give you a good figure for now. However, the way we evaluate it is that we look at what is the capital commitment, what is the return, and what is the liability. This is how the assessment is being made as highlighted by the CFO.
Thank you.
Also it is quite synergistic for us when we have an asset in Makkah to benefit from the Hajj activities. To move on to the next question, from Abdulrahman Alshaikh from SNB Capital. Kindly proceed to ask your question.
Assalamualaikum. Am I audible?
Yes, you are.
Thank you, gentlemen, for the presentation. I have a question regarding the financial performance and the core assets. Looking at the EBIT income, first half of 2025 compared to last year, it grew by only 3%. However, if we look at the performance for the commercial center, it has improved significantly. Also, the hospitality, it has improved as well. If we can please comment on why the improvement in the EBIT is only 2% while the core operation has improved more than that. Is there an increase in the OpEx or the operating expenses?
In terms of hospitality, we have grown slightly in the first half of this year due to some pressure in the occupancy, especially in Q2 before Hajj due to the restriction of the authorities about accessing or entering Makkah. In terms of the commercial mall-
Sorry for interrupting you, but for the hospitality, I am comparing the first half compared to first half last year. As per the RevPAR, it has increased by 7%.
As per the RevPAR, it was
The RevPAR increased by 7%.
Yeah.
The hotel overall net income did not match that increase.
Okay. There is a decrease in the
This is the question, yeah?
Yes.
So yeah, there has been some increase in some OpEx items in addition to some drop in our F&B business, which usually generate a higher margin. That's why.
Okay. So the mix has changed toward the B2B, which has a lower ADR compared to B2C. Am I right?
No. What the statement by the CFO is that the food and beverages for the period are materially lower. This is what we mean.
Okay. Regarding the commercial center, we have seen improvement, mashallah, on the first half, especially in the leasable area. You have increased the leasable area, and you have guided that you will increase it also to 16K by the end of this year. Moving forward, should we expect to be increased furthermore?
Abdulrahman, can you repeat the follow-up question and statement because you slightly cut off from our end?
Sure. I am asking about the leasable area for the commercial center.
Yeah.
We have seen continuous increase, and you have guided by the end of the year to reach 16K. Okay? My question, moving forward, should we expect the leasable area to increase furthermore?
Okay. If you look at the slide where we have the total area for lease, the total available area after the optimization is coming at 17,316 sq m. You have about 1,300, which was stated by the CFO, which is currently under development. We are hoping that all of this should come online by mid-2026.
Sorry, how much is the unutilized or the under development?
It is about 1,318 sq m. We closed the quarter with 15,998.
Okay.
We plan to have everything available by mid-2026, which is 17,316 sq m.
Perfect. I just have two quick follow-up. First, regarding Jabal Omar shares. Sorry, maybe I missed this part. If you can just please highlight how many shares did we sell during Q2. Also, I have a question related to the CapEx intensity for the renovation. You just mentioned the CapEx for the renovation, it will be between SAR 400 million and SAR 500 million. Is that correct?
Right.
Okay.
With regard, regarding Jabal Omar, the board of directors has decided to liquidate part of it in order to avail some cash for the greenfield or brownfield projects. We have liquidated approximately 34 million.
34 shares.
Our holding in this investment. Is it clear for you?
Sorry, can you just repeat the last part, because I couldn't hear that.
Yeah, I just said that we liquidated about 34 million shares of our holding in Jabal Omar, represents approximately 30% of our portfolio.
Great. Thank you very much. Thank you, gentlemen.
Welcome.
Okay. Thank you, Abdulrahman. So, next person in line is Mr. Fahad Al-Dakhil from SAB Invest. Okay. Please proceed to ask your question, Mr. Fahad. Mr. Fahad, can you hear us? Okay.
Am I audible?
Yes, you are now.
Yes. Yes. Thank you, Makkah Management. I have a question regarding Hajj revenue. Please allow me to understand this segment. If we can see that the revenue per pilgrim is around SAR 3,000 per pilgrim, as you served around 64,000 pilgrims during Hajj season. Am I correct? If yes, we saw a significant decline for the revenue per pilgrim. Can you elaborate why this significant decline?
Yeah. Thank you, Fahad. In terms of Hajj, the revenue has increased significantly this year. But maybe you meant about the profit margin that has declined. That's your question?
No. As mentioned, in 2024, you served 8,400 pilgrims. During 2025, you served 64,000 pilgrims. Total revenue from Hajj grew by around 24%. If we'll divide this income by total number of pilgrims that you served, it is around SAR 3,000. Can you
Yes
specify why it is a significant decline?
Yeah, it's clear. Last year, we have focused on a segment in Hajj called B2C, which is providing our services directly to individuals. Usually, this business gives you more per cap, per hajji. While during this year, we focused on another segment, which is B2B, and this is to contract with the hajji groups. This new segment, B2B, is contributing a lower income per cap or per hajji. Therefore, you can see the difference, or there's no matching between the increase in pilgrims and the increase in revenue. In addition to that, the profit margin for B2B is lower than B2C. As I said, the company is trying to do a market penetration. It's a new business, and we are trying to facilitate and be integrating with new Hajj segments during the last two, three years.
Hopefully, we are expecting, and we anticipate to have more growth in the coming year in both segmentation.
Okay. Thank you. Regarding the medium-term CapEx forward, it is around SAR 400 million to SAR 500 million. Out of this number, how much do you expect to spend in 2025 and 2026?
Still, there is no final plan yet, but in 2025, we don't expect to spend on this project. We anticipate to start this project in second half of 2026. The beginning of this expenditure will start in second half 2026 as per the plan. What we are planning to do scheduling, it will be executed in phases, maybe three to four years, so we don't harm our occupancy during the high seasons. Therefore, it will be distributed, we can say, between 2026 and till 2029, approximately.
Great. My last question is regarding the commercial center. As we can see that as of H1 2025, you reached an average lease rate of SAR 17,000 per sq m, an increase of 16%. Going forward in the upcoming in 2025 and till 2027, how much do you expect to increase prices?
As you mentioned in the call, we expect to land this year on almost same level what we have achieved in terms of rate per square meter, which is SAR 17,000. We are studying some options, different options in terms of the tenant mix for the following year. We anticipate and we expect that we can still grow with this number, but it's still under assessment because that depends on the final tenant mix that we will land on.
Thank you. If I can ask a last question regarding the RevPAR or average daily rate. After the full renovation of the hotel in mid-2028, 2029, you expect pricing to increase significantly in that segment around 20% of the current levels? Or do you have a strategy to increase prices over the mid-term?
That is correct, and that is our main target to do the renovation, is to enhance the average daily rate for our hotel rooms, and there will be a major shifting in this figure.
Great. Thank you. Wishing you all the best.
Okay. Thank you.
Now we have three written questions. We will go over those. The first one is from Sadeem and Basim from Alpha Capital. The question is, what is your average selling price for Jabal Omar and current holding in percentage? You mentioned that the final hotel's revenue in Q2 was due to government restricting Umrah performance, but it was around only two weeks. Had it really had such a strong effect? Also, Hajj segment, there was a strong growth in terms of number of pilgrims. But the revenue lagged massively. Can we assume the remaining will come in Q3, or only a small amount is expected in Q3? It is a multilayered question.
Okay.
Let us take it one by one. What is your average selling price for Jabal Omar and current percentage holding?
It was approximately 22 SAR per share.
Yep.
The current holding is approximately 65 million shares.
Okay. Decline in hotel revenue in Q2 was due to government restrictions and Umrah performance, but we had no decline in revenue, so there is probably misinterpretation.
Yeah.
There is a decline in occupancy.
That is right, and that was compensated by a higher average daily rate. Therefore, in general, we have achieved a slightly higher revenue in terms of the hotel.
Mr. Ahmad, if we can just add a little bit of nuance. Previous years, we have never had such restrictions, or do they have similar to experience?
That is right. Last year was not as much as restricted with the same manner as per this year. Therefore, last year, we had a higher revenue in Q3. In addition, I think the last question about Hajj?
Yes. For the Hajj segment, there was a strong growth in terms of number of pilgrims, but revenue lagged massively. Can we assume the remaining revenue will come in Q3, or is only a small amount expected to be recognized in Q3 in terms of revenue?
Yeah. We have touched base about why the revenue didn't increase in the same level as number of pilgrims because the revenue per pilgrim has, as I mentioned, there is different segments, and we targeted a segment that has a lower revenue this year than last year. We anticipate that there is also more Hajj revenue will be recognized in Q3, which will be below Q2. But I think we have about more than 50% or 55% of the Hajj revenue that was recognized in Q2 already.
Now we will go to another written question from Mr. Saroot from Alinma Investment. Can we have your thoughts on the recent regulation regarding foreigners owning real estate properties in Makkah and Medina, and would this impact the company?
First of all, I think the final regulation hasn't been published yet. But in case there is some good or more facilitation of the foreigner investments in the two holy city, of course, that will impact the revenue in general in this segment. But specifically for Makkah, we don't have currently any units for sale, so we don't have a direct impact on it. But that could impact any future development or future projects if we have such kind of segmentation or units in our developments.
Okay. The last written question from Rawan. B2B revenues are included under hotel revenue, and that's what drives the decline in margins and profitability. I think maybe she's mixing the hotel and the Hajj segment.
Yeah. When we talked about B2B, we meant Hajj segment, not hotel business. We were explaining the margin in Hajj and the segmentation in Hajj. But that doesn't have effect on our hotel business. Hotel business is driven by the occupancy and the ADR, and we have touched base on it in our call.
For this quarter, the issue was mostly due to a drop in food and beverages.
That's right.
Okay. Now we go to Maan from NBK Wealth. Kindly proceed to ask your question.
Hi, am I audible? Alaikum.
Yes, you are. Go ahead.
Thank you, first of all, for the presentation. I just have a small question. Regarding the sale of Jabal Omar shares, from my understanding, you said it's either for a greenfield or brownfield project. Is that correct?
Yes, right.
Okay. I'm just wondering, is the possibility of having a project within Masar or a greenfield project within Masar project itself, is it considered lucrative for you or not?
Actually, as we speak, the company is evaluating different opportunities, either with Masar or in other areas around Haram in Makkah. It's in a possibility, and we could maybe learn something if we find it feasible for us, but it's under assessment currently.
Okay. Thank you.
Welcome.
Okay. A reminder, if you want to ask a question and you are dialed in, you would have to press star two. Otherwise, if you are joining online via web, you can either raise your hand or type in your question. Okay, we will give it a minute for any additional questions. Okay. I see no additional questions. As all of you might know, we are enhancing our disclosures in MCDC, hence why we are holding the call. We are going to have a new website launched, Inshallah, by 15th of August, where you will find this call uploaded, as well as the slide deck. If you would like to have a copy of the slide deck, you can send a request email from the email which you received the invitation, ir@mcdc.com.sa, and we will make sure to share that with you.
With that, I would conclude my side and hand over to Mr. Anil for closing.
All right.
Thank you, MCDC management. Thank you, MCDC management, for the call today. It was really insightful. Thank you, participants, for joining. Thanks for your time, and have a good day ahead. We conclude the call here.