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<Ownership structure should be used as a criteria for gauging the impact of disruption and
assess effects of the trends in the macroeconomic environment to the bottom figures of the
conglomerate. Therefore, must highlight industries with big investments.>
For decades, DMCI has been a key player in its flagship operations in construction industry
through Consunji Inc. The construction giant boasts its building expertise as the foundation of
its integrated business ventures in real estate, power, water, mining, and its newly-penetrated
industry, cement. With there ...changes...ripe for disruption...
<Must identify key drivers that determine the overall operating landscape of DMCI at current
and what will be in the next 5 years. Afterwards, indicate rationale for picking the driver,
forecast in the next 5 years, and impact on the business segment. Lastly, consider
conglomerate’s investment in the industry.>
Overall economy:
In 2017, the Philippines was among the top three growth performers in the region. The
Philippine economy grew from 6.9 percent year-on-year in 2016 to 6.7 percent
year-on-year in 2017. Growth was anchored in strong exports, while investment growth
significantly slowed and consumption growth moderated. The Philippines’ annual exports
rose sharply in 2017 and became the main engine of economic growth, while imports
continued to grow by double-digits. Investment growth slowed in 2017, following two
consecutive years of rapid expansion, and climbing inflation slowed real wage growth
and contributed to a moderation in private consumption growth.
The Philippine interest rate and inflation rate also play as key macroeconomic indicators.
With construction and real estate as DMCI’s core business, such would directly impact
the business because loans and other fundings would be tougher to acquire. Forecasted
increase in such a rate truly bodes unfavorable outcomes for the company resulting to
lessen borrowing capability, to which DMCI should take precautionary actions.
Another key indicator is government spending in the country. With the “Build, Build,
Build” project of the current administration, large capital outlays are given for the
infrastructure revolution for the Philippines. As this trend continues, new and new
government opportunities are given for private companies, of which DMCI can fully take
advantage of.
● Due to increase in economic activity, utilities industry are set to have an increase
in usage so revenues will pour in, a strong driver for GDP.
● Along with construction, being blessed with strong population growth will be
beneficial for real estate companies. More people will need a space to live and
land and property valuation can increase as demand for housing increases.
● Population growth in the Philippines will bode well for construction and cement
industry’s supply and demand. Dominated by male gender, the increase in
population can fill up the needed construction manpower. Aside from individual’s
need for housing, this increase in population gives pressure on the rolling out of
infrastructure plans of the government. Public-private partnerships are expected
to open opportunities for the construction industry and its raw material, cement.
Projections:
Interest rates, as a reactor of inflation, are forecasted to rise up to 6% within 2022.
Although at current, National Economic Development Authority (NEDA) said that the
surge in inflation was triggered by initial implementation of TRAIN and is expected to
slow down in the next few months. Considering TRAIN implementation is not the only
factor for inflation, interest rates will still soar in anticipation of various movements of
variables such as worldwide price of oil, the trend in the depreciation of the peso, strong
domestic consumption, growing trade deficit down to the increase in jeepney fares and
water rate hikes.
IMPACT ON COMPANIES
● Rise on interest rates will surely cut the margins of all businesses of DMCI
especially its construction arm. Increase in interest rates could lead to sluggish
growth of the company because of the tendency to defer investment and
expansion plans. If the company [specifically cement, real estate and
construction] heavily relies on loans/borrowing, once interest rate increases, loans
will be more expensive. This implies that a leveraged company’s cash flow
flexibility can dwindle; despite it is a construction company amidst a construction
boom in the Philippines. On the expense side, with cost of materials rising, and a
falling peso value, further worsened by the global trade war, property related
industries are challenged to price their projects to build in the increased costs
from higher interest rates.
● Mining operations’ will also be limited in their borrowing efforts as cost of loans
increases.
● Utility companies [i.e. water and power] usually require major debt financing
because of high maintenance infrastructure requirement and construction of
power plants. Thus, interest rate hike will trim the margins of the conservative
and heavy regulated utility companies. The burden or increased cost, if not
countervailed or passed on to the customers, will be born by the investors -
thereby, bearing a negative impact on the enticement for potential investors and
retainment of the current stakeholders.
Forecast:
Fueled by capital outlay, estimated 15 trillion peso government expenditures, as laid out by Build
Build Build (BBB), will surely be the catalyst for further growth of the economy, if executed
well. In terms of share on the pie of GDP, infrastructure spending will rise from 5.4% of GDP in
2017 to as high as 7.3% of GDP by 2022, claimed by DBM. Now that the borrowing capacity of
Philippines has been utilized, government’s 75 flagship projects are set to benefit all industries in
their productivity and attractiveness to foreign investors. However, risks come along with
excessive borrowing; as trade deficit grows, Philippines can embark in an unfavorable position
once construction contracts are weaved with corruption and interest payments start to pile up due
to shortage of investment returns.
Source: DBM
Impact
With the government’s heightened demand for public-private partnerships, consunji-led
construction company, being a longtime infrastructure builder, can win multitude of construction
contracts apart from their current contracts with the government. Being integrated with its
cement, utilities, and real estate businesses, DMCI is poised to beef up its earnings. However,
private firms should be prepared to share implementation risks when they take part of the BBB
rollout.
On the troublesome side, despite recent humors of mining joint ventures with China, government
initiatives unfavor mining business on the point that it is still under regulation hot seats. As a
result, DMCI’s coal mining may experience more unscheduled power plant shutdowns in the
future regardless of our country’s need for mining exports.
INITIAL DECISION STATEMENT: +TECHNOLOGY OVERVIEW
Changes in the macro environment led to a robust construction demand but with a backlog
for manpower. This unprecedented gap ripen construction industry to take a leapfrog and seek
aid from tech. Furthermore, with DMCI’s capabilities, it can contribute
For longtime player in the construction industry, like DMCI, puzzle-fit innovations can
champion. Being a business that has been able to generate construction-related projects
delivering superior gross profit margins and more predictable revenue streams, it is an imperative
to
Since DMCI contributed much sa government infrastructure. It can and it should aim the country to
propel to the golden age of infrastructure we all aspire of
SECTION III: Evaluation of which industry and subsidiary, associate or joint venture
under the assigned conglomerate will benefit the most from start-up businesses with new
technologies.
A. VALUE CHAIN
For DMCI, their cement business along with a state-of-the-art steel and plate fabrication plant,
forwardly integrated for their construction operations, lessens supplier’s control of price over
them. But still, quality of supplied plant equipments bring in some leverage on the part of
suppliers.
3. THREAT OF SUBSTITUTION
4. THREAT OF NEW ENTRANTS
5. COMPETITIVE RIVALRY
POWER
Economic growth and the growth in electricity services are mutually supportive. Economic
growth creates demand for more electricity, while higher electricity use propels more economic
growth. DoE data showed the Philippines had an installed generating capacity of 22,728
megawatts as of end 2017, with the bulk, or 8,049 MW, coming from coal-fired power plants.
Renewable energy followed at 7,079 MW and oil at 4,153 MW and natural gas at 3,447 MW,
respectively.
Power consumption reached nearly 95 million gigawatt-hours in 2017, up four percent from
90.798 million gWh in 2016. Such consumption is due to the different sectors in the Philippines:
residential, industrial and commercial. Residential customers had the highest consumption at
26.792 million gWh last year, followed by industrial customers at 25.573 million gWh and
commercial at 22.767 million gWh.