Industry Report:

Construction
Group 1

I. MACROECONOMIC
ANALYSIS

ECONOMY AND GDP

Strengths
- Favorable
macroeconomic
environment
- Competitive wage
levels
- Relatively large
domestic market
Weaknesses
- Relatively high
corporation tax
- High level of red tape
- Poor infrastructure
Opportunities
- Improve business and
consumer confidence
will boost investment
and consumption
Threats
- Weak governance
and corruption pose a
threat to political
stability

Philippines: Emerging Economy

GDP as of 2013: Php 11,554.89 Billion
Agriculture; 11%

Industry; 32%

Services; 57%

GDP Composition
Infrastructure Level: Poor/Undeveloped
Ease of Doing Business: 95th

ECONOMY AND GDP

Service
Sector
57.2%

Service Sector

Grew by 6.0% in the fourth quarter.

Growth in services improved relative to the 2014 third quarter growth with a
recovery in public administration, transport and communications, and stronger
growth in real estate, renting, and business activities, which include BPOs

Construction 8.9%

Industry
Sector
31.6%
Agricultu
re
11.2%

Manufacturing,
Mining and
Quarrying, and
Utilities
22.7%

Industry Sector

Grew by 9.2% in the fourth quarterhighest I the last 6 quarters.

Construction pulled up a doubledigit growth

both
public
and
private
sectors
sped
up
implementation of projects,
with
public
construction
reversing its negative growth
Private construction, major
developers remained bullish
due
to
continued
strong
demand for office, retail, and
residential space.

But manufacturing remained as its

biggest growth driver.

ECONOMY AND GDP

Source: Euromonitor International from national

statistics/OECD/IMF

The GDP of the

Philippines has been
growing with an average
rate of above 6% from
2010 to 2014
It is the 2nd fastest
growing economy in the
Asia
The growing economy
has been fostering the
boom of the
construction industry

20072008

A strong rebound took place in 2010 but the pace of growth eased somewhat
in 2011

20102011

Growth in the Philippine economy slowed markedly during the Great Recession

2012

Real GDP grew by 6.8% as buoyant investment, particularly in construction,

and robust consumption propelled the economy.
Remittances also soared.

2013

2014

Real GDP growth was 7.2% despite a major earthquake and the effects of
Super Typhoon Yolanda.
The economy was driven by strong gains in consumption and services, and
supported by investment in manufacturing.
In 2014, the pace of growth dipped to 6.1%.

MONETARY POLICY,
INFLATION, AND INTEREST RATE

Interest rates was at

its lowest during
2013 and early 2014,
giving a boost in
housing loans that
drives the demand
for housing
construction

Bangko
Sentral
ng
Pilipinas (BSP) has been
focusing
on
the
reduction
and
stabilizing
a
low
inflation in the economy
There
has
been
a
downward trend on the
inflation
rate
from
2010-2014

FISCAL POLICY

DepE
d
DPW
H
DILG
DND
DA
DOH
DAR
DOTC
DSW
D
DENR

DepEd, with its K-12

implementation, has been focusing
on the construction of new school
facilities throughout the country.
DPWH, together with the MMDA,
plans to develop Metro Manilas
traffic system by paving new roads
and providing more transportation
infrastructures throughout the

One of the main focus of

the governments policy
is Infrastructural
Development
The top 3 government
agencies that received
the highest budget are
committed into
developing public
facilities. These agencies
are: DepEd, DPWH, and
DILG

INDUSTRY ANALYSIS:
CONSTRUCTION

SCOPE OF THE ANALYSIS

The Construction sector, as defined by the 2009 Philippine Standard Industrial Classification,
includes general construction and specialized construction activities for buildings and civil
engineering works. It includes new work, repair, additions and alterations, the erection of
prefabricated buildings or structures on the site and also construction of a temporary nature.

General
Constructio
n
Civil
Engineerin
g Works

Houses,
Condominiums,
Buildings,
Warehouses,
Offices, etc.
Roadway, Bridges,
Airport, Seaport,
Railways, etc.

Specialized
Constructio
n

Site Preparation,
Demolition,
Irrigations, etc.

The
2009
PSIC
excludes
manufacturers and retailers of
construction materials as well
as those businesses that are
engaged in buying, selling, or
renting of real properties (Real
Estate).
However,
because
of
the
relatedness of Real Estate and
Construction, the analysis will
consider the performance of
Real
Estate
sector
as
supplementary information in
the evaluation of Construction
sectors
prospects
and
projections.
Therefore, in the analysis of
this Sector, all businesses that
are
engaged
in
any

INDUSTRY OVERVIEW

The Industry exhibited a momentum in

growth during 2012, boosting by 23% in
value
The Industry remains robust due to the
favorable
economic
conditions,
contributing Php 293.1 Billion to the
economy during 2013
Although Industry growth slowed in first
half of 2014 due to halted Government
Projects, it bounced back later on as
Public Spending continued
ADB CURRENT
described INDUSTRY
the Industry as
Bright

CYCLE: BOOM TO
GROWTH

Distribution of PCAB Licensed Contractors Construction Output and GDP Growth

for CFY 2014-2015 By Category
This is according to Construction Industry Authority of the Philippines

The number of licensed contractors as of

December 2014 was 6,614
398 (6%) are large-sized contractors(AAA & AA)
34 % are medium-sized (A & B) contractors
The rest (C, D, Trade/E) composes the 60% of
the contractors

350,000,000,000
300,000,000,000
250,000,000,000
200,000,000,000
150,000,000,000
100,000,000,000
50,000,000,000
0

8.00%
6.00%
4.00%
2.00%
0.00%

Construction Output (in Php Billions)

GDP Growth

INDUSTRY DEMAND AND SUPPLY

Political

The government has given focus on capital goods and

infrastructural development to sustain economic growth
The economy is in preparation for the upcoming ASEAN
Integration, making the Construction Industry a crucial sector
for the government

Economic

Philippines has become a hotspot for investments among foreign

investors, driving the demand for stocks and properties, which in
turn fuels the Industry
Philippines has attracted international companies into outsourcing
business processes in the country, thus making a huge demand for
office space supply

Social

OFWs, expatriates, and young professionals have been driving the

demand for new houses and condominiums
Filipinos
are
embracing
vertical
living

Euromonitor
International

Technological

Rehabilitation
plans
for
near-obsolete
transportation
infrastructures are being carried out by DOTC throughout Metro Manila
Increasing demand for internet connection and electricity in rural areas
continues to provide construction projects for the Industry

Environmental

Rising calamity occurrence are expected to ensure the Industrys

importance in the long term
Reconstruction efforts in places affected by typhoon Yolanda has
boosted economic growth despite the destructive effects of the calamity

Legal

Corporate foreign ownership limit (40%) has been protecting local

Construction businesses from external competition
Philippine Overseas Construction Board (POCB) was mandated to

1.) POLITICAL

Recently Awarded PPP Projects

Philippine Development Plan 2011-2016

aims
to
accelerate
infrastructure
development
Manila plans to double spending on
infrastructure to 5% of GDP by 2016.
Infrastructure has been an important
priority of the Aquino Administration
throughout the nation
The government will continue to plan
PPP projects beyond 2016 in order to
sustain the economic growth of the
country

Summary of Costs:
in Php
Transport Dream Plan (2030) Millions

Sub-total (Rail: Main and

secondary)
1,206,245

Southwest Terminal of the Integrated

Transport System

DOTC

Php 3.15
Billion

The LRT Line 1 Cavite Extension and

Operation & Maintainance Project

DOTC

44.64
Billion

Mactan-Cebu International AIrport

Passenger Terminal Building

DOTC

34.44
Billion

Automatic Fare Collection System (AFCS)

DOTC

2.24
Billion

The Modernization of Philippine

Orthopedic Center

DOH

5.62
Billion

The PPP for School Infrastructure Project

(PSIP)

DepE
d

16.42
Billion

Sub-total (Road)

391,107

The PPP for School Infrastructure Project

(PSIP) Phase II

DepE
d

3.86
Billion

Sub-total (Expressway)
Sub-total (Road-based Public
Transport)

399,325

Daanghari-SLEX Link Road

DPW
H

2.22
Billion

Sub-total (Traffic Management)

Sub-total (Airports)
Sub-total (Ports)

TOTAL

68,360
6,109
486,951
52,085

2,610,450

Most private partners in PPPs are in Construction

NAIA Expressway
DPW
23.90
and/or Real Estate sector.
H
Billion
The total proposed cost for Transport Dream Plan
2012 - 2030 is Php 2.6 Trillion. This would
result to a proposed annual cost of about Php
144 Billion.
This
billions
of
fund
for
infrastructural
development will be funneled to the Construction

2.) ECONOMIC
Foreign Investments

Philippines has received an investment grade level from different credit rating agencies

This resulted to foreign investments that has been driving the demand in real properties, and is likely to
continue in the future because of the favorable outlook

With ASEAN Integration coming near, property prices are expected to soar because of the additional influx
of demand coming from other members of the ASEAN.

Demands from BPO Industry

Growth

Continued strong demand for office spaces

by the BPO sector and the resurgence of
demand from the traditional corporate
offices are going to lead to a shortage in
supply by 2015 as demand exceeds supply

The growth of the BPO Industry has lead to

the boom in office space construction, not
just in Metro Manila but also in other major
cities like Cebu and Davao.

466,354 square meters (sqm) of office

space was built during 2014

About 1.85 million sqm of office space is

expected to be added between 2015 and
2017 in the Makati, Bonifacio Global City,
Ortigas and Quezon City business districts
in Metro Manila, according to Colliers.

Google, Accenture, Citigroup , JPMorgan and

HSBC are some of the global firms that drives
the office space demand to rise

3.) SOCIAL

OFWs, expatriates, and young professionals are driving the demand for real properties

As of 2012, there are more than 65,155 foreign nationals residing in the Philippines
Bureau of Immigrations

Expatriates choosing to stay in the country are most likely to buy/lease luxury
condominiums

Filipinos are embracing vertical living Euromonitor Passport

In response to the increasing consumerism lifestyle of Filipinos, there has been a steady
rise in URBANIZATION
the number of commercial/retail
space development
in cities
RAPID
IN THE PHILIPPINES
HAS RESULTED
TO A CHANGE
Trend in Urban Area Expansion in
IN HOUSING TREND
Metro Manila

NCR alone has an

estimated population
of 11.9 Million as of
2011. As a result of
the
rapid
urban
expansion
of
the
region towards the
surrounding
provinces,
Metro
Manila has become
informally
considered as Mega
Manila. Mega Manila
includes NCR and the
provinces of Bulacan,
Rizal, Cavite, and
Laguna. It has an
estimated
total

This huge population has resulted

to an increasing housing backlog.
Housing backlog, as of 2011, was at
3.6 Million throughout the country.
It is forecasted to reach 5.8 Million
in 2016. This would require more
affordable housing projects for the
part of the government to shelter
the poorest population.
On the other hand, those who are
earning enough to afford better
housing would in turn add up to the
demand for 2nd class market for
houses and condominiums.
This demand is supported by lower
interest rates and reduction of
minimum
down
payment
for

TECHNOLOGICAL
According to the
Department
of
Public Works and
Highways (DPWH),
the
Philippines
may adopt new
construction
trends in Japan,
particularly on the
latest technology
on
roads
and
bridge
construction.

The construction and engineering technologies from Japan through the Japan
International Cooperation Agency (JICA) will help the Philippines build disaster-resilient
infrastructures that would mitigate the effects of climate change.

ENVIRONMENTAL
In 2011, the Philippines witnessed the highest number of weather related natural
disasters globally (30 occurrences)
According to forecasts, the Philippines will experience more calamities from 2015-2020
compared to historical rate
Reconstruction efforts help sustain the growth of the Industry in the long-term

Top 5 Disaster in Terms of Frequency

160
140
120
100
80
60
40
20
0
Fire

Earthquake

Flood

Armed Conflict

Landslide

4 out of the top 5 most frequent disasters in the country

directly affects buildings, roads, and other structures
(except Armed Conflict). Regular maintenance and
continuous reconstruction efforts and improvements of
calamity-prone structures in the country will provide a
good opportunity for the Industry in the long run.

LEGAL
The Construction Industry is a strictly
regulated sector
There are 4 bodies that regulates every
aspect of the Industry, as mandated by
law

to assume the functions

of
the
abolished
Philippine
Licensing
Board
for
Contractors
under
RA
4566
(Contractors License Law)

to formulate an overall
construction
manpower
development plan and
strategies and develop
and implement manpower
training programs for the
construction
industry;
among others.

Philippine
Contracto
rs
Accreditat
ion Board
(PCAB)

Philippine
Overseas
Construct
ion Board
(POCB)

Construct
ion
Manpowe
r
Developm
ent
Foundatio
n (CMDF)

Philippine
Domestic
Construct
ion Board
(PDCB)

to formulate, policies,
plans,
programs
and
strategies for developing
the Philippine overseas
construction
industry;
regulate and control the
participation
of
construction contractors
in overseas construction
projects; and administer
the grant of incentives
for
Filipino
overseas
contractors
to formulate, recommend
and implement policies,
rules,
regulations and
guidelines and adjudicate
disputes
arising
from
public
construction
projects.

STRATEGIC ANALYSIS
New
Entrants

Substitu
tes

Industry

Supplier
s

Buyers

Strictly
Regulated
Industry

High
Product
Differentiati
on

Highly
Competitiv
e Peers

Low
Concentrati
on of
Building
Material
Suppliers

Medium
Concentrati
on of
Buyers and
Customers

Relatively
High Risk,
High Initial
Investment

Industry
has
Knowledge
and
Technology
Advantage

Intense
Technologic
al
Competitio
n

Huge
Amount of
Available
Work Force

High
Demand
From Public
and Private
Sector

LOW

NEUTRA
L

HIGH

STRATEGIC ANALYSIS
Threat of New Entrants: NEUTRAL
High number of aspiring
entrants are being filtered by
strict regulations
Industry is High-risk capitalintensive
Threat of Substitutes: LOW
Products have high
differentiation (i.e design,
technology, etc.)
Customers cannot duplicate the
Industrys expertise and
proprietary technology, should
customers chose to do so
themselves
Intense Competition: HIGH
Due to the relatively high initial
costs and payment-bycompletion nature of projects,

Bargaining Power of Suppliers:

LOW
There are a lot of available
building materials in the market
Construction companies are
practicing the economies of
scale and wholesale
purchasing/bulk buying
Bargaining Power of Buyers:
NEUTRAL
Government hold great
bargaining power
However, this is being
counterweighted by the huge
number of private customers
LOW

NEUTRA
L

HIGH

INDUSTRY PEERS
COMPANY NAME

TICKE
REVENUES
R
ALI

81,523
Million

DMCI

68,107

SM Prime Holdings Inc. SMPH

61,332

Ayala Land Corporation

DMCI Holdings, Inc.

Megaworld
Corporation
Vista Land &
Lifescapes, Inc

36,242

VLL

24,038

RLC

17,066

FLI

13,817

EEI Corporation

EEI

11,332

Asiabest Group
International Inc.

ABG

8,354

Robinsons Land
Corporation
Filinvest Land, Inc.

1. Ayala Land Corporation (ALI)

Ayala Land, Inc. (ALI) was organized in 1988
when Ayala Corporation decided to spin off
its real estate division into an independent
subsidiary to enhance management focus
on its real estate business. ALI has
organized its operations into several
business lines namely, property
development, commercial leasing, and
services. The Company has more than 50
subsidiaries across these businesses, of
which the notable ones include: Alveo Land
Corporation; Avida Land Corporation; Amaia
Land Corporation; Laguna Technopark, Inc;
and Ayala Property Management
Corporation. In 2013, the Company
commenced operations of Holiday Inn &
Suites Makati as well as its Seda Hotels in
Bonifacio Global City, Cagayan de Oro and
Davao. Seda Hotel Nuvali was opened in
March 2014.
Php 81,523 Million
325 Billion (for the year 2013)

INDUSTRY PEERS
2. DMCI Holdings, Inc. (DMCI)
DMCI Holdings, Inc. (DMC) was
incorporated on March 8, 1995 as a
holding company to consolidate all
construction business, construction
component companies, and related
interests of the Consunji family. The
Company was listed on the Philippine
Stock Exchange on December 18, 1995.
The Company's subsidiaries include D.M.
Consunji, Inc., which is engaged in
general construction services; DMCI
Project Developers, Inc., which is engaged
in construction business; Semirara Mining
Corporation, which is engaged in the
exploration, mining, development and
sales of coal resources on Semirara Island
in Caluya, Antique; DMCI Power
Corporation, which is engaged in the
business of power generation that
designs, constructs, invests in and
operates power plants; and DMCI Mining
Corporation, which is engaged in ore and
mineral mining and exploration.

3. SM Prime Holdings Inc. (SMPH)

SM Prime Holdings, Inc. (SMPH) was
incorporated on January 6, 1994.The
Company has now four business units,
namely, malls, residential, commercial,
and hotel and convention centers. The
Company's main sources of revenues
include rental income from leases in mall
and food court, cinema ticket sales and
amusement income from bowling and ice
skating; property development and sales
and sale of condominium units;
development and leasing of office
buildings and operations and
management of buildings and other land
holdings; and developing and managing
various hotels and convention properties
of the SM Group.
Php 61,332 Million
336 Billion (for the year 2013)

CONCLUSION