DMCI Holdings, Inc. (DMC) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to our 2023 Second Quarter Briefing. My name is Hannah Chan, Investor Relations Officer of DMCI Holdings. Joining us today are members of our top management team headed by our Chairman and President, Mr. Isidro A. Consunji; and Chief Finance Officer, Mr. Herbert M. Consunji. Before I proceed with the presentation, let me remind you of the following. This meeting is being recorded. [Operator Instructions] This briefing is meant to provide our covering analysts and investors with key information about DMCI's financial results and future plans. As such, management may make forward-looking statements regarding the company's plans, expectations and growth prospects. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on the management's beliefs and because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. The DMCI Group delivered robust Q2 earnings despite notable shifts in commodity prices and market demand. Even as coal and vehicle prices launched double digits during the period, our consolidated bottom line only contracted by 9%, mostly due to higher contribution from power and water businesses. Our modest decline underscores the resilience of our business portfolio and the soundness of our management strategy. For the first half, DMCI Holdings posted a 22% drop in consolidated earnings because of high base effect. At PHP 15.9 billion, our H1 earnings represents 59% of the consensus full year estimate of PHP 26.9 billion. Our results for the semester is also our second best ever. Quarter-over-quarter, our bottom line grew by 8%, driven by better results from SMPC, DMCI Homes and DMCI Power. Compared to pre-pandemic, our consolidated net income more than doubled following triple-digit growth of our commodity businesses. Moving on to our consolidated income statement. Our Q2 and H1 top lines contracted on lower commodity prices and construction accomplishments coupled with revenue reversals from real estate cancellations. Despite the weaker top line, EBITDA margin stayed above 40% as lower royalty expense due to the impact of higher cost of sales. Cash reserves hit PHP 38 million, even after paying out PHP 9.6 billion in cash dividends in second quarter. DMCI's consolidated balance sheet remains very healthy as liquidity improved and debt declined on regular repayment. Book value per share increased by 6%, mainly due to significant earnings tempered by the cash dividend paid out last April. We now proceed to the stand-alone results of our businesses. D.M. Consunji, Inc. reported PHP 129 million (sic) [ PHP 139 million ] in Q2 net income on persisting industry headwinds. Its construction accomplishment has been slowing down, mostly due to declining backlog, which resulted from fewer projects being awarded during the pandemic. Margins likewise shrunk on weaker top lines and higher material costs, specifically the cement costs. Revenue recognition from infrastructure and joint venture projects declined following the completion of the Cebu-Cordova Link Expressway and Solaire North coupled with lower take-up on new projects. Order book also declined by 9% to PHP 38.4 billion due to the slowdown in demand and project awarding. DMCI Homes recorded a 6% improvement in its bottom line as higher finance and other income offset the impact of lower revenues. Its top line receded largely due to revenue reversals from sales cancellations and fewer new accounts that qualified for recognition. As a background, it takes around 3 years for an account to qualify for revenue recognition. In effect, the company is now recognizing sales made in 2020, which was 50% lower than its 2019 sales volume. Bearish market conditions continue to stop demand as reflected in the sales inventory and launches of the company. Land banking efforts were concentrated in the Mindanao region where values were more updating. SMPC's Q2 revenues grew amidst normalizing coal prices because of higher shipments and electricity sales at elevated prices. The Power segment recorded its best-ever Q2 and H1 net income with the continued operations of SCPC Unit 2. Strong tax inflows from its power businesses allowed SPC to end the first semester with PHP 27.5 billion in cash, 7% higher than June last year when the company declared record-high special dividend in October. Coal sales rose 22% on the back of substantial commercial-grade coal inventory levels, a rebound in exports and robust power plant demand. Management maintains its annual sales target of 15 million to 16 million metric tonnes, which would go mostly to the domestic market. [ SCC ] is negotiating new coal contracts with a major power producer and expects stronger second half demand from local cement and industrial buyers. The commercial operation of SCPC Unit 2 in Q4 last year led to a double-digit increase in all key operating metrics for the Power segment, mainly availability, capacity and generation. With higher and more reliable output, the segment was able to sell more to the spot market at better prices. DMCI Power maintained its growth rate and set new records for the reporting period. Revenues and earnings for the second quarter and first half all reached all-time highs on the back of robust energy sales and lower fuel costs. The 17% increase in installed capacity translated to double-digit increases in gross generation and sales. Most of the growth came from Palawan, which has overtaken Masbate as DMCI Power's biggest market. Management sees tremendous growth potential in Palawan and expects dispatch to rise with the commercial operation of its 15-megawatt thermal plant in the area this month. DMCI Mining saw a sharp drop in its Q2 and H1 bottom lines owing to lower selling prices, subdued foreign gains -- ForEx gains and thinner margins. Margins fell to higher -- due to higher depreciation, ship loading, fuel, labor and amortization on account of increased shipments. ZDMC production hit all-time high of 523,000 wet metric tonnes following the approval of its ECC last January. With its amended permit, the company's now authorized to produce up to 2 million wet metric tonnes annually, effectively compensating for BNC's halted operations. However, the impact of production and shipments were muted by lower selling prices of nickel grade. Average selling prices during the period fell by 22% to $49 per wet metric tonne as market indices corrected. ZDMC ASP fared better than the LME nickel and Philippine FOB prices, which declined by 23% and 41%, respectively. Maynilad's top line recovery in Q2 and first half was mostly the result of improved water supply, commercial consumption and average effective buyers. Meanwhile, its bottom line improved as noncash costs fell by 38% on the adjustment of its concession assets to align with the legislative franchise up to 2047. Despite a 4% reduction in Putatan water supply, Maynilad's production and built volume showed improvements because of its supply augmentation initiatives. These include cross-border purchases, activation of a 10 MLD water treatment plant and reactivation of multiple deep wells. To summarize our results, Q2 and H1 consolidated earnings declined much slower than sharp corrections in global commodity prices. Historically, both periods are also our top -- our second highest. We attribute our better-than-expected performance to the record-breaking results of the power businesses, coupled with a strong rebound of Maynilad. As disclosed in previous briefings, post-pandemic recovery has been uneven across our portfolio. DMCI and DMCI Homes are now feeling the financial impact of lower construction backlog and anemic demand. SMPC is effectively navigating the headwinds of a normalizing coal market because of its defensive marketing strategy and forward integration into power generation. DMCI Power has been on a bullish path, setting new profit record because of its continued expansion in underserved markets. Despite market fluctuations and operating a single mine, DMCI Mining continues to post strong results, driven by operational efficiency, a robust balance sheet and targeted permitting. Maynilad is benefiting from the full pandemic reopening of the economy, modifying the impact of higher volume and commercial consumption or its adjusted target and decrease in noncash costs. Before I end my presentation, let me share with you our guidance and outlook for each of the businesses. Management expects challenging macroeconomic factors and normalizing commodity prices to persist in the second half of 2023. The group is banking on its strong value engineering DNA to protect its margins and deliver shareholder returns. DMCI will be focusing on its collection and cost-reduction initiatives to sustain operations amid slowdowns in both private- and public sector-led construction. This month, DMCI Homes is launching its first beachfront project, Solmera Coast, and is adapting to market shift via new product offerings. SMPC forecast a slower H2 due to the rainy season and plant outages. The reintegration of a 1,200-megawatt plant is also likely to impact spot prices. DMCI Power 15-megawatt thermal plant is set to serve Palawan's growing energy needs starting this month. The group also has a 24-megawatt project in the pipeline, including wind and solar ventures. DMCI Mining is on track to becoming one of the country's largest nickel player, targeting operations in BCMC and Long Point by the first half of 2024. Maynilad expects improved earnings from rising industrial and tourism demand and is working to secure a tariff adjustment for 2024, dependent on meeting its water and sewerage target. So this ends my presentation to open the floor for questions. Let's start off with some questions sent via email.

The first few questions is addressed to our construction business. It's addressed to President of D.M. Consunji, Inc., Mr. Jorge A. Consunji.

Are you on mute?

I'm sorry. Hi, sir. Hi, sir, J.A.C. Sir, our first question goes, is there any involvement by DMCI with regards to Build, Better, More, projects by the government?

Good afternoon to all now. Yes, DMCI is involved in the BBM government projects. Right now, we are doing the North Rail, okay. And we just got awarded on the 1 segment of the subway, and we also got the award on the segment of the South. And we're also bidding for 3 more sections of the subway.

The next question goes, do you expect revenues to recover sequentially from here on? If yes, will it recover in the third quarter or fourth quarter? Or will revenues be even lower than PHP 4 billion per quarter in the next period?

In the first semester of the year, we did suffer some project delay. And we have to do a lot of catching up for the Q3 and the Q4. We're expecting that by year-end, we should be within our target revenue for the year 2023. That is the plan, and we expect to be able to make it. Thank you.

Sir, next question. Are you facing collection issues? Or is the issue just project delays or lack of new projects?

Yes, we are expecting -- we are experiencing a collection delay, especially the government side. And there's a slowdown in some private entities. But by and large, we are able to collect.

Are input costs such as steel, cement -- steel or cement still high? Or are these trending lower already? Do you expect margins to improve further in the succeeding periods? And do you expect to be compensated for previous claims related to higher input costs?

Well, right now, the prices for rebar and cement are somehow stabilized. No spikes. But of course, this is still subject to geopolitical tensions in the future and of course, the productivity of supply -- for the [indiscernible] of the supply chain. So we hope it will remain stable as inflation is going down and hopefully the rebound that's what we're currently expecting. On the claims, we have contracts that allow adjustment, price material increases. So we are hoping that we'll be able to recover some of these additional expenses.

Sir, next question. May we request for updates on rollout of latest infrastructure joint ventures and bidding for new construction projects?

Well, right now, we are bidding for 3 segments of the subway with foreign partners. And we're also looking at some of the incoming PPP projects of the government. But still, too early to say because I believe there's a new law that will be passed on. So probably that will be next year already. So we are right now preparing some bids on the subway, right now.

Sir, next question. Can you provide order book guidance for this year and next year?

For this year, on the order book, we expect to be within the range of 2022. And hopefully, the bids that are being invited, so hopefully, we will be successful for the end years -- before the year ends and by next year as well. So for now, we are hoping that we should be able to be within the 2022 order book as of now.

Sir, last question for now. What is the reason for the quarter-over-quarter, so referring to the first quarter this year, quarter-over-quarter decline in Construction segment's gross margin in the second quarter? Is it due to more infrastructure project revenue booking?

Well, as you know, we suffered also the depletion of our margin. That has also brought about the fuel volatility last year, the Ukraine war. But there's a spillover for this year. Prices have gone up. Inflation has gone up. The marginal prices have also gone up. So that ate up also our margin and our contingency. But we still remain positive in our project, although not to what we are looking at now. So to a certain degree, our margin had depleted, but it's still okay as of now.

Thank you very much, sir J.A.C. and Ms. Rebecca Civil for the guidance on DMCI. And now, we now proceed to DMCI Homes. With us today is Mr. Freddie Austria, President of DMCI Homes. Let me just add a spotlight. The first question goes, how many years' worth of pre-sales is your current land bank good for? Because as discussed earlier, we mentioned that we have around 221 hectares in land bank.

Well, right now, we have an inventory of around -- for sales, sales inventory of around PHP 59 billion, good for around 24 months of selling. But as far as our land bank is concerned, well, a lot of them are still in the planning process. So I think there's no worry about land banking. We have a lot to develop because, as you know, prior to the pandemic, we've acquired a lot of land.

Next question. Does DMCI Homes conduct pre-selling activities and how soon do you start construction after the project launch?

Well, it depends on what you mean by pre-selling. If you mean design, development and construction of sales office model units and preparation of marketing collaterals, that really takes a lot of time. Sometimes, from the time that we start preparation for a project until we acquire the license to sell, sometimes it takes 2 years, 2.5 years. It's taking longer nowadays. But as soon as we -- normally, as soon as we launch a project, we start construction within a couple of weeks or a month from the launch, yes.

Sir, next question. The next question is addressed to DMCI Homes' Chief Finance Officer. We have Ms. Vangie Atchioco with us this afternoon. The next question goes what are the typical payment terms today and how does this compare with the pre-pandemic levels or pre-pandemic practices?

Well, our standard payment terms today are generally the same as pre-pandemic. So we offer cash, deferred cash during the construction period, in-house financing, maximum of 10 years and also bank financing, so which 70% or bulk of our buyers would get bank financing for as their financing option. However, today, we -- aside from the standard payment terms, we are also offering promo terms, specifically for our RFO projects. Like we are offering downpayment for 1 to 2 years and minimal dp of 10% compared to 20% minimum dp during pandemic. So this is also to compete with other developers who are also offering the same payment terms of a low monthly dp for their RFO units also. And aside from that, we also have a rent-to-own program to cater those who are yet to decide if they would like to buy a condo unit. So under this program, we offer a lease for a period of 2 years and then they have the option to convert after the lease period. And if they will convert, then a portion of their payment will be considered as equity, credited as equity, otherwise, it will all be considered as a lease or rental payment. So that's it. Those are the…

And, let me know on Solmera Coast. What's the payment terms for Solmera Coast?

Solmera? Standard payment term, cash, deferred cash and in-house and also bank financing.

So for anyone attending here, if you're interested in Solmera Coast [Foreign Language] on payment terms.

Yes, you can accept reservations starting next week, August 14.

So it's the first beachfront property for DMCI Homes. Our next -- sorry, next question. Next question is addressed to Sir ARA again. Sir, what is your target reservation sales for this year? Do you plan to launch more projects in the second half? Or do you intend to push these back to next year, given the elevated inventory levels?

Our target for the year is PHP 35 billion. And it looks like we still have a very good chance of hitting PHP 35 billion. And what's the next -- what's the other question?

Sir, do you plan to launch more projects in the second half? Or do you intend to push these back to next year, given the elevated inventory levels? Like after the Solmera Coast, does DMCI Homes still plan on launching more projects this year after Solmera Coast?

We still plan to launch 2 more projects after Solmera Coast. But as you know, we've lined up several projects, but the others will be pushed back maybe to next year, yes.

The next question is addressed to EHA again. Ma'am, what is the normalized level of cancellations as a percentage of revenues or percentage unit reservations? And are cancellations still moderating quarter-over-quarter so far in the third quarter?

Well, as of June 2023, our cancellation rate as a percentage of revenue is at 19%. This is sign versus last year of 13% for the full year of 2022. We expect an average of 10% revenue reversal rate until end of the year for this year. But we still don't consider this as a normal level. So for the month of -- so there are factors like the Chinese buyers who are canceling, the POGOs. They bought from way back, 2018 and 2019. The bulk of our cancellations was coming from the Chinese buyers. And for the month of July 2023, we've noticed a decrease in backouts and cancellations of around 12% compared to our average monthly cancellations for the first 6 months or as of June. So hopefully, it will continue to -- on the decreasing trend until end of the year.

Next 2 questions are addressed to Sir ARA. Sir, are input costs such as steel, also in relation to -- also similar to the question asked to J.A.C earlier? Are input costs such as steel and cement still high for DMCI Homes or are these trending lower already? And do you expect margins to improve further in succeeding periods?

Yes. As Jorge said, the prices of construction materials have sort of stabilized, although a lot of them are still high compared to previous years. So we don't see any problem with that because we have projected these prices of construction materials. So we think we'll still be able to maintain our margins at around 32%.

Next question, sir. How many months in inventory does DMCI Homes have on hand? And what sales take-up trend in -- so far from July to August?

Yes. We -- as I said earlier, we have around 24 months' worth of inventory. We're selling an average of PHP 2.5 billion a month for the past several months. So we project that's good for another 24 months. What else?

The sales take-up so far in -- from July to August?

From July to August, is, I think -- we think it will be quite good because -- well, for example, this August, we've -- we're launching Solmera Coast and we're really expecting good sales from that. Initial indications is that we have several clients who have signed up for it. Also, our July sales is also good. So July and August are looking good.

So our last question for now is addressed to EHA. Ma'am, what is the reason for the quarter-over-quarter decline in Real Estate segment's gross margin in the second quarter? So is it the product mix?

Well, for Q2, we booked a cost accrual around PHP 600 million. So this is higher than the cost accrual in Q1. So to record the difference, well, accounting policy, the difference on the POC estimate, based on the physical estimate versus the actual cost booked in our -- recorded in our books based on the billings that we received as of first half of 2023. So that's why our GP rate for Q2 declined compared to Q1. So we have adjusted first half cost computation.

Thank you very much, Ms. Vangie and Sir Freddie, for the insightful responses to the question. Now we -- And also to everyone who is interested in Solmera Coast, let us know. Our next question is addressed -- we now move on to Semirara Mining and Power Corporation. For the question, we have Ma'am CCG, President and COO of SMPC with us. Ma'am CCG, the first question goes, was the DOE -- because this is in relation to the question answered last Monday in the SEC briefing regarding the COC renewal. So there's a question. The question goes, was the DOE's referral to the DOJ also done during the previous COC renewal?

At that time, when the COC period was to be extended, it was not required because of the 50-year term limit that the constitution has provided. So -- but this time around, because we will be reaching the 50-year in the year 2027, so there was some -- I believe the DOE wanted to clear something on the legal side of it, of the term adjustment that you are asking for. And I believe that is the reason why DOE has consulted DOJ.

The next few questions are regarding coal marketing. So we have Head of Coal Marketing, Mr. JAT Villanueva with us this afternoon. First question goes, because last time, last Monday, we mentioned about the pricing guidance. So it was mentioned that on the 33% coal sold through fixed pricing, are all volumes through the first quarter of 2023 to the fourth quarter of 2023 secured already and locking in a certain price determined last or this year? Or -- And in this case, is the ASP in the second quarter sustainable for the rest of the year, assuming the indices flattened out?

Yes. All the volumes were under fixed price from the first quarter to fourth quarter has been secured based on last year's price. The average selling price for the second quarter is expected to be sustained through the rest of the year. However, coal sales and deliveries during third quarter expected to be lower, maybe because our production is affected by [ higher ] emissions.

Next question. What's the historical percentage of coal sales and/or volume that SEC is able to deliver in the first half of the percentage of the full year?

For the past 12 years, our average historical sales in terms of volume, it's about 53% for the first half.

And last question for now. Considering the uncertain growth outlook in China for coal, what will be the rebalancing strategy to diversify to other markets in the near future?

We are further developing the domestic market and started discussions with Aboitiz Group for deliveries in 2024. And we are targeting increased deliveries to power plants in Visayas and Mindanao areas as well. In addition, the trial shipment to Japan was successful, and we're now in discussion with J-POWER for delivery of coal shipments to Japan starting November this year. We are also expecting increased sales to South Korea and Brunei Darussalam.

Sorry, sir, just for clarification on that. So we're saying that we are focusing -- as part of the rebalancing strategy, SMPC is focusing on the local and -- local market and diversifying to Japan and Korea.

That's correct.

And we now proceed to DMCI Power. With us this afternoon is -- we have Mr. Antonino E. Gatdula, President of DMCI Power. First question goes, how is the renewable energy investment plan of DMCI aside from Semirara Wind Power?

Currently, we're working on the installation of the 4-megawatts solar plant in Cataingan. As mentioned in the past, we have secured the solar energy operating contract from the DoE. However, we're still in the process of securing the approval of the Energy Regulatory Commission for our power supply agreement. And we will commence the construction once we get the approval. In addition, the thermal plants that we have in Masbate and Palawan basically can burn biomass up to 20% of its capacity. However, we still need to coordinate with the DoE on the necessary permits that we have to secure before we can operate. So basically, that's going to be 3 megawatts biomass for Palawan and 3 megawatts biomass for Masbate.

Sir, next question. Do you expect the new plants like -- because we mentioned earlier during the presentation about the 15-megawatt Palawan thermal plant. Do you expect the new plant to drag earnings in the next 3 to 6 months?

We expect otherwise. Our nonfuel rate now for Palawan, because it's diesel and bunker, it's basically lower compared to the nonfuel peak that we will charge once the thermal plant operates. So we're done. We're successful with the testing and commissioning of our 15-megawatt CFB for Palawan. However, we still have to get the COC from the ERC before we can commence the COD. But once you commence COD, our -- we expect our margins will be a lot better in the next coming 6 months. And at the same time, last week, we signed a 10-megawatts emergency power supply agreement with OMECO, so this will increase our margins in the next -- the remaining months of 2023.

Next question, on power. What are the ASP trends and effective fuel cost trends?

Because fuel is fast-paced and there is a significant decrease in the prices of coal and oil, the trend for our average selling price and cost of fuel is downward. And with the operation of the coal in Palawan, it will displace the more expensive -- the most expensive rather, fuel, which is diesel. So in the next months, the -- we expect a further decline in our average selling price and the cost of fuel.

Sir, last question for now. Can you provide an update on the collection issues of the off-grid plants and especially with your plants?

Yes. We experienced a significant improvement in terms of our collection efforts from NPC because, first, the PHP 5 billion loan was extended to NPC, and at the same time, the Energy Regulatory Commission has approved, practically, a total of PHP 0.06 per kilowatt hour increase for the [ UCMA ] rate. So that translates to more money for NPC. So NPC has improved significantly. I explained that to all parties, provide this in the update.

That's very exciting to hear, sir. So we now proceed to DMCI Mining. We have President of DMCI Mining with us, Mr. Tulsi Das Reyes. Sir, the first question goes, given the booming demand for EVs globally, what explains the 40% decline in nickel spot price for 1.5%.

Due to the voluminous supply of NPI coming in from Indonesia, China has been accepting all of that refined product already. On top of that, we feel that lower economic activity in China has also slowed down. So the price of our product has gone down. But what is confident or what we feel more confident now this year is Surigao will be entering its wet season in October. And China still has to replenish its existing stockpile for the year. So we feel that prices should rise towards year-end as Q4 enters.

Sir, in terms of -- what is the management's outlook for future supply-demand for low-grade nickel and the plan to process raw nickel for EV?

Actually, we're quite excited because once we can enter our areas, both in Zambales and Palawan, but more focused on Palawan, once we identify the grade needed for EV batteries, which is normally around 1.2% nickel and below with a high higher end. But on top of that, you have to find the specifications or which is more ideal for this battery grade is low magnesium and silica dioxide. So once we identify these areas within our properties, we're very much positive, we are very much a positive outlook in participating in this EV battery stage.

Next question. Do you think you can still at least match 2022 shipments this year given the heavy rains?

Actually, I'm confident we'll beat last year's production and shipments. Actually, just so you know, ZDMC had historically high for the first half, both in production and shipments. I think last year, we did about 28 shipments actual performance for our group using only 1 mine and ZDMC is about 24. So I feel very strongly and very confident that we will beat last year while operating only 1 mine.

1 mine instead of 2.

Instead of 2. Our ROM last year, only gave us 350,000 tonnes or 7 shipments. So just to give you some scale.

Next question, sir. Update on the mining expansion and claims. Any progress in permitting in the last quarter? And is there some sort of a completion rate for the permitting?

We've had progress. Now let's bring you to Zambales first. In terms of percentage rate, we're quite confident. We have 2 assets there in Zambales, Lot 4 and ZCMC, respectively. We're quite confident that Lot 4, we have a good chance to open this area before year-end. With ZCMC, we have a shot of opening it by year-end. And if ever it does delay -- we get delayed a little bit, by Q1, we are very confident we can open both.

Palawan.

Yes. So I'll take both at about 95%, 90%, respectively. In Palawan, let's start with our Long Point asset. I would take that about 75%, our current status and we will do everything we can to deliver this asset to you by Q1, but latest will be possibly in Q2. Now [ Dangla ] is our other asset, which peg about 50% because most of our group now is focused on Long Point. But we should deliver maybe Q3, Q4 for [ Dangla ]. It's slightly behind, so we're confident we can catch that up as well.

Last question for now, target shipment volumes for mining in the short to medium term.

Short term, you want to peg at 1 to 3 years, easily 5 million to 7 million tonnes, depending on if we open all 4 -- 3 to 4 assets. Medium term, maybe 7 million to 8 million tonnes in the next 4 to 6 years. We've got 5 years more or less. Obviously, we're strongly, pushing for the latter, always, always.

[Foreign Language] A question we just received now. On mining, what's your view on the proposed margin-based royalties on the mining [indiscernible]?

You know, we're together with the government, making sure that we can help promote the industry, enter these areas like processing and trading, more sustainable futures for these communities. So if that's what it takes to get these things done and open up great things for the country like opening H -- furthermore H power plants and other employee generation things, we're very much for that. So we're hoping we can continue working with the government on many levels of making sure that we continue growing this industry.

Now we proceed to Maynilad. We have Mr. Dicky De los Reyes, Chief Finance Officer of Maynilad. First question goes, was the water shortage in the second quarter also the reason for the soft build volumes?

Not really. Water production volume was relatively the same as last year. What accounts for the relative soft volume is that we haven't been pursuing expansion over the previous months in light of our desire to control and conserve the water levels in Angat.

Next question. What is the reason for the jump in the NRW or nonrevenue water to 29% versus only 25% in the pre-pandemic time?

During the pandemic period, as you might recall, there were severe quarantine months that prevented us from doing both diagnostic and preventive work to reduce our NRW. So naturally, there was some deterioration during that period of time.

All right. We get this question quite frequently. When does Maynilad plan to IPO?

We are targeting the year 2025 for the IPO, although we really have until January 2027 to live this.

So somehow with the planned IPO in 2025, you're still ahead from the 2027 deadline?

Yes.

Sir, next question. What are you doing to alleviate the risk of El Niño this year until probably next year? Are there new water sources coming in the next 12 months? If there's none, how fast can you bring down NRW? And can you provide build volume growth guide that's in light of El Niño?

Okay. So for the short term, we are focusing on the reactivation of deep wells, basically, and then lowering our NRW as quickly as we can through various initiatives. Now for the future, we are working on introducing new water sources or enhancing our existing water sources. In fact, I have here our AVP for Corporate Planning, I'd like to invite him to just describe some of the water supply or water source-enhancing initiatives we have for this year and next.

So we have Mr. Emmanuel Marmol, AVP for Corporate and Finance Planning for Maynilad with us.

So to answer the question, there are a couple of projects that are in the pipeline for 2023. So one would be for -- in September 2023, the expansion of Anabu water treatment plant. So from 5 mld, its capacity will increase to 16 mld. And another is for November 2023, the Poblacion Water Treatment Plant. Its capacity is designed at about 150 mld -- 50 mld, it will start at 50 mld and it will increase in 150 mld to 2024. So for 2024, we're looking at 2 more capacity building treatment plants. These are the Molino Modular Treatment Plant and the Pasay New Water Treatment Plant. So the Molino Plant is 5.5 mld and the Pasay New Water Treatment Plant is 12 mld. So that would address if ever there would be supply -- water supply shortages from now until next year.

Our last question for now for Sir Dicky and Sir [ Noel ], can you provide the volume growth guidance for this year and next year?

Yes, we're expecting to deliver build volume of 533.84 mcm or 1 million cubic meters by the end of this year. That will represent a growth of 1.3% in build volume versus last year. And then for 2024, assuming the constraint, even assuming the constrained supply that we expect for at least the first quarter of next year, we are targeting 545.05 million cubic meters or a growth of 2.1% over the end of this year.

Now we move on to our Holdings question. With us this afternoon is Mr. Joseph Legasto, our Deputy Chief Finance Officer. Sir JVL, the first question goes, Maynilad's stand alone in the second quarter core net income is PHP 2.2 billion, but the core net income contribution was only PHP 474 million, significantly less than the 25% effective ownership proportion. Why is this so?

Yes, that's right. We picked up PHP 474 million for Q2 2023 and this represents 25% for effective interest in between the water the service inc. But because of accounting elimination items, between Manila Water Holdings Company Inc. and Maynilad Water Services Inc., the effective income that goes to DMCI Holdings is slightly lower.

Next question, what is driving the lower OpEx -- operating expenses of the group -- I'm sorry, on the consolidated OpEx quarter-over-quarter?

Okay. For the first quarter, we had a lot of expenses that were loaded upfront and the major drivers of this would be the business permits and taxes, which decreased quarter-on-quarter by 33% or PHP 164. Another item would be the repairs and maintenance, particularly for the on-grid power plants. It decreased by PHP 164 million or 44% quarter-on-quarter. The last items that's driving the lower OpEx is the lower professional fees, which is particularly the legal and -- the legal fees and auditor fees. So basically, quarter-on-quarter decreased by 44% or PHP 142 million.

We received follow-up questions on Maynilad. So we go back to Sir Dicky and Sir [ Noel ]. We received a query on the CapEx. Any CapEx guidance for Maynilad for 2023?

Yes. During the rate rebasing last year, you might recall, Hannah, that we committed to a 5-year program that involves PHP 163 billion in CapEx spending over that 5-year period through 2027. For this year, we committed a spending of PHP 26 billion. This would be substantially greater than the highest level of CapEx spending in previous years, which would have been around PHP 15 billion. So this year, we are targeting PHP 26 billion, and we're confident that we will reach that target by the end of the year.

We also received questions addressed to Sir Das. The question goes, how much are your research today? And how much do you see this rising to given that you expect shipments to rise substantially in the short to medium term?

In Zambales, it is quite fluid. We're always continuously opening areas, getting tree-cutting permits and continuous drilling. So if you look on paper, I think we're very small to maybe 3 million or less. But the ongoing permitting, when it comes to outside of our main assets, keep on rising. So I would say today, maybe PHP 3 million, but that -- we're currently -- in the pipeline, we're exploring another 7,000 hectares for ZDMC. On top of that, we have ZCMC at about 16 million to 20 million tonnes. So in Zambales alone, today, you might it call it effective rate of about 20 or less. But in the future, these might jump quite significantly. So let us do some work, continue exploring, verifying what's in the area. And I think we can get a more accurate number for you in the near future. But as we continue to do our strategy, things keep on rising in a very good way, on top of our mandate to keep on pushing historical performance and operating 2 mines there. In terms of Palawan [ demand ], obviously, we're at 0. But our current drilling and exploration has given us a lot of confidence, especially in Long Point. We're approximately 77 million tonnes or so, and we have to continue going to 50 by 50 in our expo continue looking at the cutoff grade, so that may continue to rise. [ Dangla ], we are currently doing the same strategy. And right now, we're looking at 22 million tonnes. But I'm very confident that, that number will also continue to rise. So allow us to do a bit more work and we can get more and accurate information for you.

That's very, very exciting. Now we proceed to questions addressed to our -- to our Chairman and CEO, Mr. Isidro A. Consunji. AIC, the first question goes, any plans to acquire renewable energy companies?

Thank you for participating. We looked at investing in existing renewable companies, but we find the valuation very high, and we compared it with developing our own renewable energy portfolio. We feel we're getting greater value if we develop it ourselves. So now we are actively developing, although small, 4-megawatts in Masbate, 12 megawatts in Semirara. And if we get the permits for both of them, I think we can replicate that again and again. But we will concentrate on the upgrade [ spun ] areas rather than the grid because the tariff is more than double and the CapEx is about the same. So we don't see any reason why we should put the -- our investment in the grid areas. Thank you.

Sir, the next question goes -- Actually, this is a addressed to you and Sir ARA. So the question goes, any plans for DMCI Homes to list for REIT?

For REIT, DMCI's business model does not have any rental incomes of any significance. The REIT is essentially for recurring income, like malls or office buildings and so forth. So ours is purely sales. We have essentially no rental income, sales of residential unit. So our company doesn't have any portfolio that is suitable for REIT.

And next question, since DMCI Holdings partly own Maynilad, what will be the impact of Maynilad's upcoming IPO?

Hard to say because that's going to happen 2 years from today. So I guess the element that we're going to valuation on is the approval of its extension, the approval of the tariff, the way management handles the nonrevenue water, the way the performance of the CapEx expenditures. Because there are so many elements that enter the picture, that I don't think we can say that the valuation can be fixed today. But all indications are all of these elements can be managed properly and the valuation should be on the positive side rather than on the negative side. So I think it will be accretive of value to the existing stockholders.

Sir, last question. In view of a more challenging second half, will the management still consider a dividend at the end of October?

Of course, if we have excess cash, we always give dividends. We've already been doing that. So I don't see any reason why we will change our practice. But I think that's normally done after the Board of Directors' meeting, after the start of the third quarter. [Foreign Language]

[Foreign Language]

It should be somewhere around the middle of October, the announcement. But the cash balance is okay demand, so it should be okay.

Actually, we've come to the end of our list of questions. So before we end, let us ask sir IAC for his closing remarks.

Good afternoon again. Actually, we're quite -- quite interesting year this year, 2023. Like Semirara experienced negative 23% reduction in average coal selling price, but we have been offset significantly by the improved performance of the power sector both in volume and in price. [ Also demand ], although the sales is not -- is still below pre-pandemic level, it's significantly higher than last year's sales. We were able to improve prices to over more than our cost differential. So we are seeing an increase in margin even in a more difficult time. And also our homes is also operated new formats up and down the price level of residential and we have ventured into the leisure market. I think we one launching, Solmera, in Batangas and that should happen when? Monday?

Friday -- Tomorrow.

Tomorrow. Tomorrow. So we feel that's a very strong demand for that project. Maynilad, as Dicky has been mentioning, we have a significantly good tariff this year. So we expect to have positive growth in income. Nonrevenues water has been going down, although not as fast as we wanted to do -- to go. And in our Power business, this month, we finally able to run our thermal plant in Narra 2 months late, but that's really good considering the 2 years of pandemic. So it's only been 2 months late. That's been pretty good. And as Tony has said, that will improve our margins considerably because we get rid of diesel. We improve our margins with coal and the balance will be with bunker, we'll also have a higher margin. For us, despite the fact that we can sell it to the customer a lot cheaper because bunker -- power from banker is significantly cheaper than coming from diesel, so it's a win-win for everybody, so. And of course, mining, although we only have 1 mine this year, we will produce bigger, bigger volume that will mitigate a lot of the reduction in the price of nickel which our buyers expect to be depressed in the next 2 or 3 years, given the huge capacity that's happening in Indonesia where nickel's been [indiscernible] and also for [ h-pulp ] products. We went to Indonesia a couple of months ago. In just 1 area, we saw a $6 billion expansion that's happened in the last 4.5 years.

Phase 1.

And there is another one that's coming up even bigger -- running -- going at the same time, even bigger than what we saw. So there's going to be in nickel a huge increase in supply which possibly cannot be covered by the increase in demand by EVs and others. So the expectation in the next 2 years will be significantly depressed prices until demand catches up with supply. Okay? Other than that, I think the mining also, I think the government is very good in giving this positive goal for mining access. As Das has said, the amount of areas, resources that are being permitted today, which effectively permitted in the next 12 months or so, with that what we have previously, that will allow us to expand our production 100%, 200%, up to 500% over the next 5 years. So essentially, we're quite excited about almost all our businesses. Although construction remains quite challenging, low margin, high volumes, very competitive, so we have to develop a new business model in order to survive this particular business environment. Again, [Foreign Language]. Thank you very much, and good afternoon to all.