DMCI Holdings: Construction

THE COMPANY: DMCI is a diversified conglomerate with core businesses in construction (through DM Consunji) real estate and property development (through DMCI Homes), and in coal (through Semirara). DMCI has further diversified into other areas, such as water utilities (DMCI-MPIC Water Company), power (DMCI Power), nickel (DMCI Mining) and toll roads.

BUSINESS PERFORMANCE: Net income rose to P1.76bn ($39.95m) between July and September 2011, up from the previous year’s P1.59bn ($36.09m). Revenues expanded by nearly a quarter to P7.69bn ($174.56m) in third-quarter 2011, compared to the P6.33bn ($143.69m) registered in the same period in 2010. Revenue for the first nine months of 2011 increased by about 20% to P23.87bn ($541.85m).

In the first half of 2011, DMCI reported a 26% year-on-year (y-o-y) improvement in its bottom-line figure, jumping from P4.2bn ($95.34m) in the first half of 2010 to P5.3bn ($120.31m) in the first half of 2011. Remarkable growth in DMCI’s coal and nickel mining operations, as well as continued improvement in the real estate, water and power sectors, fuelled the firm’s performance. Mining was the main driver of expansion, due to higher coal prices and the elevated delivery volume in the company’s nickel ore business. The company’s coal and nickel mining operations were responsible for 41%, or P2.16bn ($49.03m), of the holding company’s net income. Coal sales volume increased 31.7% y-o-y to 2.52m tonnes, as the company continued to ramp up production and its exports to China. Average selling price also rose 35.8% to P3014 ($68) per tonne as it stayed in line with higher global coal prices.

DMCI’s venture into nickel mining has proved successful as first-half operations for 2011 led to P342m ($7.76m) net income, compared to P129m ($2.93m) in 2010. Nickel ore shipments reached 889,000 wet tonnes in 2011 compared to 594,000 wet tonnes in 2010. The selling price was also 43% higher in the first half of 2011.

The company’s investment in water utilities is carried out through its strategic equity partnership with Metro Pacific Investments Corporation, which owns Maynilad Water Services (Maynilad). Maynilad handles the water distribution and sewer services for the western zone of Metro Manila, as well as some areas of Cavite. Maynilad reported improved overall water operating efficiencies for the first half of 2011. Operating revenues jumped by 12.9%, from P5.9bn ($133.93m) to P6.6bn ($149.82m). Maynilad’s bottom-line figure reached P2.7bn ($61.29m) for the first six months of 2011, growing by approximately 12.7%, from the P2.4bn ($54.48m) it recorded in the first half of 2010.

DMCI has also recently ventured into the privatisation of off-grid power projects. The state-owned National Power Corporation, the country’s largest provider of electricity, granted DMCI Power licences to build and operate power-generating plants in the country. The company built a 12.4-MW bunker-fired fuel plant and a 12-MW diesel generator since their commercial operations have commenced. DMCI Power has contributed approximately P94m ($2.13m) to the overall revenues of the company. While its contributions and size are not substantial when compared with other branches of the company, the prospects available in the privatisation of government plants can provide future opportunities for DMCI Power.

OUTLOOK: DMCI has clear, specific and strong growth drivers in its portfolio of companies, with long-term aspirations that should see it remain highly profitable. In the power-generation segment, Semirara is doubling its capacity, which would bode well during the current period of high electricity rates and shortages in output supply. As for its water utility business, Maynilad will have plenty of opportunities for organic growth in its concession area. Moving forward, we see the launch of the Aquino administration’s highly touted public-private partnerships (PPP) programme as a key catalyst for the growth of the company. DM Consunji, DMCI’s construction arm, is expected to be a major participant, and has already submitted several winning bids in PPP projects, given its engineering expertise and experience.