DMCI Holdings: Construction and power

THE COMPANY: DMCI Holdings (DMC) was incorporated in 1995 as a holding company to consolidate the businesses of the Consunji family.

The company operates in a number of sectors including construction, real estate, water services, mining (primarily coal and nickel) and power generation. In just the first few years after incorporation, the company has expanded its business organisation to include four major subsidiaries. These include: D.M. Consunji, Inc. (DMCI); DMCI Project Developers; Atlantic Gulf and Pacific Company of Manila; and Semirara Mining.

DIVERSE PORTFOLIO: DMC’s earnings from its real estate, construction and power businesses posted strong growth of 9%, 12% and 176%, respectively. The main driver for the hefty increase in the power business was the strong performance of the newly-rehabilitated Calaca power units.

This was not, however, enough to counter the significant decline in earnings from the mining business. This was largely brought about by the state of international commodity prices. As such, core net income, excluding revenues from the sale of an asset, declined by 11% to P5.1bn ($122.9m). Including the gain from the partial sale of the water business, total net income amounted to P13.5bn ($325.4m) during first-half 2013, up by 134% from the previous year.

GROWTH DRIVERS: Conglomerates have been reinventing themselves and have evolved to adapt to the changing market environment, as well as consumer preferences. Indeed, more and more conglomerates are now venturing into power and infrastructure, as these industries are expected to enjoy robust growth in the mid-term, given the country’s recent strong economic performance. Furthermore, investing in infrastructure has been one of the current administration’s top priority projects.

For its part, DMC is planning to expand its construction and power business, and diversify into infrastructure by participating in the government’s public-private partnership programme, either as a proponent or sub-contractor.

DMC is considering bidding for the LRT-1 light rail expansion programme, and will likewise bid for construction contracts that will be offered by whoever undertakes the Cavite-Laguna expressway and the South-North Luzon connector roads. Aside from these, DMC has recently entered into a joint venture with Japanese trading giant Marubeni, in constructing the $1.2bn Manila Mass Rapid Transit Line 7 (MRT-7), a 23-km line with 14 stations.

POWERING UP: DMC, through Semirara Mining’s wholly-owned subsidiary Southwest Luzon Power Generation, is also set to build a 300 MW power facility (second phase expansion) in Calaca, Batangas, which has an estimated cost of P20bn ($482m).

In addition, DMC, via its wholly-owned DMCI Power subsidiary, will build a 15-MW coal-fired power plant in Palawan this year, with a target completion date of September 2014. Furthermore, just recently, DMCI Power was declared as the lone qualified bidder for the construction, operation and maintenance of a 15-MW bunker-fired diesel power plant in Calapan, Oriental Mindoro.

In its construction business, DMC’s order book (balance of work) as of June 30, 2013 was at P16.3bn ($392.8m), having been awarded the contract for the construction of a 135 MW power plant for South Luzon Thermal Energy Corporation. The power plant construction contracts in Batangas account for 67% of the order book. However, this does not include the newly-awarded NAIA Expressway Project, worth P10.5bn ($253.1m); nor does it include the MRT-7 project, which is awaiting financial closing.

Indeed, construction – particularly high-rise and commercial building – is DMC’s stronghold, where it has the broadest portfolio. These include, amongst others, the Ayala Triangle Tower I at the Philippine Stock Exchange Plaza, the Citibank Tower, the SM Megamall and the Fareast Bank Headquarters.