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

Hi, good afternoon, everyone. Welcome to our third quarter briefing for 2023. My name is Hannah Chan, Investor Relations Officer of DMCI Holdings. Joining us today are members of our top management team as flashed on your screen. 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 management's beliefs. 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. Consolidated earnings for the third quarter moderated to PHP 4 billion following the previous year's record high of PHP 7.3 billion. This was due to lower contributions from Semirara and DMCI Mining, which were affected by stabilizing commodity prices. However, robust performances from our other portfolio companies served as a buffer mitigating the impact on overall profitability. Over the 9-month stretch, Maynilad and DMCI Power emerged as bright spot with both delivering double-digit growth. DMCI Homes held steady while the rest showed marked declines. In all, the DMCI group reported PHP 20 billion in consolidated profit. A 28% drop from the previous year's record performance, buoyed by the historic commodity prices. This translated to a robust 18.4% return on equity over the same period. While we observed declines in our third quarter earnings, both year-on-year and quarter-over-quarter, it is worth noting that our net income for 2023 showed a substantial growth of 44% versus our pre-pandemic Q3. Turning to our consolidated income statement. Third quarter revenues fell due to stabilized commodity and power prices alongside an increase in the real estate cancellations and a dip in revenue from ongoing projects affected by previous calculations. Despite this, net income margin was respectable 25% in the third quarter and 32% over 9 months. These margins were attributable to lower royalty expenses and higher earnings from Maynilad along with an increase in finance income. Net finance income expanded by 18x from PHP 20 million to PHP 378 million due to a rise in cash balance. Moreover, SMPC recognized additional income from EV Fund or export to wharfage fees by the Philippine Port Authority. To provide context, SMPC is stately paid expert to wharfage fees from September 2008 through December 2014, and it was actually extend from its true to its registration with the board of investment. DMCI's financial health continues to strengthen with a 36% increase in liquidity due to solid operating performance and efficient receivable collection. Currently, total debt levels decreased due to consistent repayments. The company's book value per share saw a 10% upturn as a result of robust earnings. Capitalizing our sturdy balance sheet, the board of directors on October 10 declared special dividend of PHP 9.56 billion or PHP 0.72 per share set for distribution to be November 9. This will bring our total payout to PHP 19.12 (sic) [ 19.21 ] billion, the highest in our corporate history. Moving on to the individual performance of our business units. D.M. Consunji Inc., or DMCI, recorded an uptick in its third quarter revenues primarily due to low base effect. As a reminder, revenue recognition was more conservative in the previous year during the period of escalated price claims. For the 9-month span, its topline decreased due to a reduction in ongoing projects and some construction delays. Despite these headwinds, core net income margin remains unchanged at 5% for both 9-month periods. During the period, DMCI also collected significant receivables from key infrastructure projects. This allowed the company to substantially reduce its debt to PHP 55 million and increase its cash balance to over PHP 2.9 billion. DMCI is on track to eliminate its debt by the year-end. Restructuring revenues from July to September came mostly from buildings and joint venture projects. This shift was mainly due to the absence of new infrastructure projects undertaken solely by DMCI and near completion of ongoing project by the infrastructure unit. The infra unit order book was dominated by [indiscernible] for the North South commuter railway contract package 02, which stretches from Bocaue to Tutuban. The package comprises of 22% of DMCI's order book. During the period, the company bagged 3 water infrastructure projects, pushing its order book as the PHP 40 billion mark. These projects include an 88 million liters per day Water Reclamation Facility, various pipe laying initiatives and the design and construction of a pump station and reservoir. DMCI Homes reported a 20% increase in stand-alone net income for the third quarter, reaching PHP 1.4 billion. However, the 9-month bottom line held steady at PHP 3.9 billion bolstered by a rise in other income and finance income. 9-month revenue declined double digits, largely due to reduced revenue recognition from ongoing projects and uptick in sales cancellations and fewer renewing new accounts that met the revenue recognition qualification. To provide some context, last year's cancellation rates for the units falling below the 14.5% collection threshold surpassed 17% amid rising interest rates. This surge in cancellations led to a decrease in both ongoing and new qualified accounts. This year, cancellation rate lowered to 12.7%. DMCI Homes also showed an improvement in its financial leverage with its net debt-to-equity ratio now at 0.9x. The August launch of Solmera Coast provided a significant boost to residential unit sales, ASP per square meter and total sales value. This, despite the launch of prime unit -- despite the launch of projects in prime locations last year. As of September, Solmera Coast has sold 926 residential units. However, that project lacked of parking inventory contributed to a decrease in the sales of parking slots and consequently, the total sales figures. SMPC reported its highest 9-month results -- second highest 9-month results after its outstanding performance in 2022. The company's third quarter and 9-month bottom lines were impacted by stabilizing coal market and a reduction in the net foreign exchange gains. However, the power segment, particularly SCPC delivered exceptional results that helped mitigate these effects. The Power segment achieved its highest net income for a 9-month period largely due to the commercial operations of SCPC Unit 2 in October 2022. Despite the subdued topline and lower ForEx gains, net income margins remain strong standing at 29% for the third quarter and 40% for the 9-month stretch. Building on the momentum from its record-breaking results in the previous year, SEC distributed a total dividend of PHP 29.8 million or PHP 7 per share for the year the largest in the company's history. This follows the substantial dividend of PHP 3.5 per share amounting to PHP 14.9 billion, which was declared on October 9 and disbursed yesterday. Intense rainfall during July and August, along with the commencement of stripping activities and new block at Molave led to a substantial rise in strip ratio and the 20% reduction in production. Nonetheless, SMPC remains on track to meet its annual production target of 16 million metric bonds. While external domestic demand softened, this was countered after by an increase in sales to own facilities, which pick up following the start of commercial operations at SCPC Unit 2. Next, operating outcomes marked the third quarter of the power segment. SCPC maintained steady operations in both Unit 1 and 2 after the latter resumes commercial operations Q4 last year. Conversely, SLPGC faced a series of headwinds, including coal cooking and silo blockage incident in September of both units, increasing its number of outage lease. These despite operational hurdles, power sales saw a 13% increase. However, average selling price fell by 23% influenced by a 38% drop in spot sales. This decrease was attributed to high base effect and a broader supply margin in the grid. Stepping to our -- shifting focus to our off-grid power business, the DMCI Power recorded profit growth for the tenth consecutive quarter. Its third quarter and 9-month earnings at an all-time high of PHP 267 million and PHP 632 million, respectively. The company's stellar performance was primarily due to a 17% increase in installed capacity. Its financial standing also improved substantially with its cash reserves doubling and debt liabilities declining by 13%, owing to a consistent amortization and better collection of outstanding receivables. The synchronization of a 15-megawatt thermal plant in August led to substantial increase in gross generation and energy sales of Palawan, making it DMCI's largest market. With higher installed capacity and robust demand, the company share in Palawan expanded by 13% to over half of the market. Management expects continued growth in the area, given the island rising global structure as a premier tourist destination. DMCI Power is already working on expanding its Palawan capacity to address uncertain and future demand. DMCI Mining faced a challenging third quarter, marked by decrease in average selling prices and reduced foreign exchange gains, cost of sales search to increase shipments ship loading activities, fuel and labor cost and excise taxes. Operational expense has also escalated on wharfage fees and ESG spending. These, together with higher depreciation translated to a net loss of PHP 171 million versus a net income of PHP 80 million over the 9-month period, because profit was cost by more than half to PHP 537 million. Amidst the heavy rains that often slowed down operations during the third quarter, ZDMC reported double-digit growth in production and shipments. The uptrend was primarily due to the environmental compliance certificate granted in January authorizing the company to ramp up production to 2 million metric tons per year. However, the combined effect of lower nickel indices and quality sold dampened third quarter revenues as all shipments for the period was below 1.3%. ASP also launched by 52% to $20 per wet metric ton. Maynilad recorded a substantial increase in third quarter and 9-month revenues on higher build volume, commercial consumption and average effective tariffs. Year-to-date, total cash costs rose primarily due to increased cross-border water purchases, spending on outside services and chemical expenses. In contrast, noncash costs saw a significant 37% reduction following adjustments of compression assets to match the term of its legislative franchise, which extends to 2047. To recall, Maynilad adjusted its concession asset in Q4 2022 to cover for the full year of 2022. These adjustments alongside enhanced operating conditions contributed to an expansion of 9-month profit margin to 53%. Total production significantly improved, boosted by an increase in raw water availability of the Angat Dam, higher cross-border water purchases and the commissioning of a new water treatment facility in Paranaque. Increased supply, coupled with stronger demand pushed build volume to rise 3% to 137.8 million cubic meters, easily surpassing the pre-pandemic mark of 134.6 mcm. Our water and fewer service levels indicators also improved on continued infrastructure investments. In summary, the DMCI Group achieved its second highest net income for a 9-month period buoyed by power and water businesses that rallied to mitigate the impact of moderating coal and nickel prices. Breaking it down, a leaner construction order book and increased real estate cancellations have subdued revenues for DMCI and DMCI Homes. However, the impact on DMCI Homes was mitigated by income from procedures and in-house financing. Stable coal prices have resulted in SMPC recording its second-best performance with a robust power segment bolstering its earnings. DMCI Power continues its record-breaking split achieving its highest ever earnings for both the third quarter and 9-month period, driven by a 23-megawatt expansion in installed capacity. DMCI Mining profitability took ahead due to lower selling prices and the shipment of lower grade nickel in the third quarter. For the 9-month period, the decline in the nickel market was offset by better production and shipment volumes. Improved operations and average effective barriers propelled Maynilad financial upwards. Despite higher cash costs, adjustments in noncash operating expenses expanded the company's net income margins for both the third quarter and 9 months stretch. To conclude my presentation, let me share with you our guidance and outlook. We expect subdued construction and real estate demand to persist in 2024 amid elevated inflation and interest rates. Commodity prices should remain steady barring geopolitical tension escalation. But electricity prices on the other hand, could raise. DMCI is rebuilding its order book with a cautious approach, targeting projects with reliable funding, particularly those backed by overseas development at this time. It is also on the lookout for infrastructure projects where it has served as both an equity investor and contractor. DMCI Homes is proactively adjusting to the changing marketing and mix focusing on its leisure development in Baguio and Laguna. It is also -- it is also launched at lunch Anissa Heights in Pasay City to provide students and young professionals with suitable living space that cater to modern urban needs. SMPC expects coal prices to stabilize even as power prices remain elevated in 2024. With this, the company is focusing on improving its operational efficiency and water seepage management and contracted capacity to sustain its bottom line and cash balance. DMCI Power is expanding its capacity by an additional 45 megawatts with plans for 35% of this expansion to be in renewable energy sources like wind and solar. This move will diversify the company's energy portfolio and support the growing demand in the off-grid. DMCI Mining is poised to open a new mine in Zambales by this year's end and another in Palawan next year with permitting processes for other sites in progress. Opening these mines could increase its nickel resource to over 200 million wet metric tons, which should allow the company to explore downstream processing. Maynilad is investing heavily in its water and sewer infrastructure to fulfill its service obligation for 2023. With supply augmentation initiatives and growing commercial demand, the company is positioned for a potentially stronger performance in 2024. With that, I end my presentation and now open the floor to your questions. To open the floor to questions, let's start off with some questions sent via e-mail.

We start off with questions addressed to DMCI. We have Mr. Jorge Consunji; and Ms. Rebecca Civil. Sir J.A.C President for DMCI and Ma'am R.E.C, Director for Joint Venture. Hi Sir, J.A.C. Good afternoon. Sir, the first question goes, are you seeing more project awarding that for the year? Expectations for 2024? And are you more keen to pursue public or private-led projects?

I have Rebecca here, who is in charge of the business development. So maybe, Becca, can you...

So good afternoon. As far as the projects are concerned, we expect awards from the bids that we have submitted last month. It's a couple of projects ranging around about PHP 5 billion. It's more or less what we are expecting. And then we're also submitting tenders in this fourth quarter. And hopefully, by first quarter of next year or second quarter next year, we would be able to get information or response to those bids that we submitted. On public- and private-led projects, yes, we are keen on participating on this. And we are in touch with some proponents for this public- and private-led projects.

That's very exciting to hear. The next question goes. Can you share with us your target gross and net margins for the construction business? Currently at only 9% and 2% in the third quarter, respectively. And when do you expect to get back on this? So to get back this.

Okay. Thank you, Hannah. For full year of 2024, we are looking at or projecting 10% and 4% for EBITDA and [indiscernible] respectively. Though from the records also for the last 5 years, we have -- we're doing slightly lower at 9% and 2%, respectively. Of course, entire due to various headwinds that we have experienced like previously the pandemic. And currently, we all know that we have a very tepid market and inflation and price increases are affecting the costs of doing construction. But we continue to remain positive because we have -- we're looking forward to these projects in 2024.

And next question, which segment of the order book does the company intend to grow or expect growth from?

Okay. We will continue to work on this -- on those projects that are definitely within the competence of the construction group. And we're looking at areas where the growth is expected like the utilities market. Water, sewer, the corresponding pipelines, the reservoir continue to be a need in the market now as well as transmission lines, of course, due to the growing -- still growing population of the country. On infrastructure, we continue to look into the Build, Better, More projects of the government. The subway is still -- we're still bidding on the subway, the remaining 3 packages. There are also bridges that are for tender by the government and we're also looking into fuel depot for cost way projects. For the building, although there's a significant adoption, there are still opportunities for logistics centers for data centers and hospitals. So those are the growth areas that we will continue to pursue.

Next question, what government infrastructure projects is the group seriously considering and what are the sizes of these projects? And what kind of new business models is the group exploring into?

Okay, for the government infrastructure as mentioned earlier, we still have -- or we're still bidding for the 3 remaining subway projects, subway packages of the government. That's supposed to be bidded early this month, it was postponed for the 21st of the month. So those are the 3 remaining. And then we're looking forward and hopefully, this big jobs would push through. This is the Laguna Lake Road Network Project and the Bataan-Cavite interchange or -- Bataan-Cavite bridges. These are expected next year, maybe next year or the year after. These have been -- these are 2 big projects worth each about -- or more than PHP 100 billion each, these 2 jobs. And we will be bidding this with foreign partners. For the new business model, because this was the direction also that we -- our holdings and our chairman has asked from the group for -- we will continue to tender -- to submit tenders to be involved in tenders, but we also would like to look into opportunities by being a solutions provider to our clients. Also PPP investments, we're also looking into that and our asset-based business, which is the concrete equipment group. So we're looking at them being able to provide services or to supply this not only within our group but also to other contractors, to other projects. So those are the areas that we're looking into or we're exploring also.

In relation to the PPP projects mentioned, are you bidding for the NAIA upgrade as a contractor on equity investor? I think as also mentioned earlier, maybe the -- maybe more -- we have more colors on this cost?

Okay. Anyway, we have been approached for the NAIA. We have been approached by -- we have indications for both contractor and investor role. So we're looking into those. We're reviewing the conditions, but we cannot disclose much at this time. You asked -- did you include the question about the CapEx, Hannah, no. Okay.

I haven't. The question on the CapEx. Do you plan to bid alone for NAIA or will you have partners? If so, who and what attracts you for this project. Does the proponents really need to spend PHP 170 billion for CapEx? And how do you plan to fund this if you win?

You have many questions, Hannah. Anyway, as mentioned earlier, so we've been approached, now the PHP 170 billion is a number that was floated already. It's in the newspapers also. It really depends on how the investor will address the requirements or to respond to the requirements that are being given in the TOR of the government. There are mandatory works that are required; there are KPIs that are required. So it really depends on how the investors who will look into that. So we will see with the current discussions that we're having with them. To bid alone will depend. As a contractor, it depends on what the requirements are of the investors. Then as investors, that's still something that the group has to look in.

The next question for -- is one of those important questions. Will dividends be affected if you win NAIA?

That's still a very futuristic question, but definitely projects like this, you have to get -- to go for a project financing. It should affect.

That's all we have on DMCI for now. Thank you very much Ma'am R.E.C for the insight on the possible future of D.M. Consunji, Inc. Now we now proceed to questions addressed to the DMCI Homes. We are here this afternoon, we have Ms. Vangie Atchioco, Chief Financial Officer of DMCI Homes. The first question was noting that lower percentage of completion was cautioned by better selling prices and higher income from sales cancellations. What is cancellation rate for the third quarter and the 9-months for 2023 and what efforts have been done to manage sales cancellations. There's actually a similar question on that, I'll read it. Any change on how -- in relation to the efforts on managing sales cancellations, any change in how you arrange payment terms, customer screening, so as to limit future cancellation? Can you give more context on how it has fared quarter-over-quarter and year-on-year?

Okay. So for our cancellation rate, Q3 2023 well on pertaining to the revenue reversals. Q3 2023 is at 18% versus last year same period of 14%. So our cancellation rate for this quarter is higher. 9 months 2023 is at 19% versus 12% last year. So what efforts have been done to manage sales cancellations. For accounts that originally the preferred terms of payment is a bank financing, and they were not able to get loan approval from the bank or well, we allow them to convert to in-house financing. We offer other financing options, so in-house financing. And some of our buyers would also convert temporarily to in-house and say, after a year, they would again look for other banks to apply for again, for another loan. And most of the cases, they will get approval, so they would pay off their balances. And other options that we allow them to assign the unit to another buyer if in case they can find an interested buyers willing to assume the purchase. Though a significant portion of our cancellations this year are coming from the Chinese buyers who bought from us way back 2018 and 2019, so prior pandemic. Around 20% to 25% of our cancellations are from the Chinese buyers. So for the payment schemes, right now, we are offering extended down payment period especially for our reopen RFO units. And also we offer rent-to-own scheme to move our RFO inventory. And we also have arrangements with some of our partner banks for a low equity as low as 5%. So they would finance the 95% and -- for our RFO projects. So in terms of our customer screening, well, our parameters are still the same, though we've required additional KYC requirements -- additional KYC documents in compliance with the AMLA requirements.

Next question for how were the third quarter 2020 revenue reversal and the reservation sales cancellations compared to the -- to second quarter 2023 and 2019 level? Are you still elevated?

Okay. So more questions are more on the cancellation. Okay. Third quarter 2023 revenue reversals versus second quarter 2023 lower by 9% and 9-months 2023 versus 2019. The question is 2019 or prior pandemic. Definitely, our cancellation revenue reversal is higher because way back 2019, our reversal -- revenue reversal rate is only around 2%. So now we are at 19%. For the reservation sales cancellation, our third quarter 2023 is 3% lower compared to Q2 this year, while for our reservation cancellation, cancellation rate is at 14%, the same for 2023 and 2019, though in terms of number of accounts, our 2023 reservation cancellation is lower by 40% compared to 2019. So in terms of amount, it's higher because of the increased selling price, but in terms of number of accounts. We have higher cancellation accounts in 2019 compared this year.

For the next question. Please provide both revenue and EBITDA margin guidance for 2024.

Okay. So for 2024, our projection for the revenue is lower but we are expecting a slightly higher EBITDA margin because of the increased selling prices. So since we normally recognize revenue within 3 years from the launch, so but then started 2020. So our sales were affected. So that's why our revenue for 2024 is also low -- projecting on lower revenue.

Our last question on finance for now. How income from procedures and how much were income from procedures in the third quarter 2023 and 9 months 2023? And do you anticipate this line item to drop in 2024? What's the normalized level for this?

Our income for Q3 2023 from procedures is PHP 154 million. And for the 9 months, it's PHP 534 million. For 2024, we still assume the same cancellation rate under our most conservative scenario -- forecast scenario, considering that interest rate is still high. And the forecast according to the bonds that will continue at this level, this rate or might increase and it's less likely to decrease until next year. Normal level, well, we can't declare a normal level. But if you compare our income from procedures prior pandemic, I think 50% lower way back 2019. But one factor also to consider for the increase for future income from cancellations also on the -- because of the increase in selling prices. So we collect higher. So when they cancel the account, we also forfeit higher amount based on the collection.

Our next questions are addressed to sir Dennis Yap, Head of Business of Project Development and OIC for sales of DMCI Homes. Our question -- the first question goes, are you launching more projects in the fourth quarter and what would be reservation sales guidance for 2023 and which market are you focused on?

For the first one in launches, we just launched an Anissa Heights in Pasay about a week ago, and that will be our last launch for this year bringing the total launch of the DMCI Homes new projects to 4. In terms of the sales guidance for 2023, we set a sales target of PHP 35 billion this 2023 and we are in pace to hit that set target and may be exceed it by a bit thanks to a very good sales performance of our first leisure residences development in San Juan, Batangas, the Solmera Coast. And then while for the market focus, we remain focused on our core market, which are the middle and upper middle market segment. But this year, we also entered into the leisure or investor market with Solmera Coast and also, just recently, we launched Anissa Heights, that's for the more lower price points market.

Next question. How many projects do you plan to launch in 2024?

Okay. For 2024, we are currently preparing 10 projects to be ready for launch for next year. However, ready for launch now, actual launch will still depend on market conditions. We at the DMCI Homes will remain agile in terms of launches as we monitor closely the country's market and economic conditions.

Thank you very much, Sir, for the very insightful answers. Thank you also as well to Eha. We now proceed to questions addressed to SMTC. For the first question, we -- first question is addressed to Ma'am CCG, President and COO of SEC. Good afternoon. The first question -- the question goes. It was mentioned during the recent SEC briefing, so that was last week that the company is looking at opportunities in mining, like gold, copper or nickel? And will this be solely under SEC and when can we expect this to push through?

Good afternoon, everybody. Yes, we are looking at opportunities in the metal mining. However, there are some headwinds here because of the acceptance of the LGU and also the permitting by the regulatory body. So we're not at liberty to disclose right now. So that's another thing. So it's very difficult to say the timeline for these projects. But yes, we are interested and looking actively into the metal mining.

And our next question is addressed to Mr. Christopher [indiscernible] Head of Business Development of SEC. Sir, CTCG, the question goes on NGCP connection to SRTGC. Has management ever thought about putting up own connection to the grid than having it bought by NGCP later on?

So actually, the transmission line, we are -- we have planned to develop the transmission, the connection, you call it a connection asset from the plant to the substation. What is taking a long time is the transmission asset that is a 47-kilometer stretch from the NGC substation to the new substation that they are planning to build in [indiscernible] and that is the sole responsibility of NGCP, which we are the only ones who can develop that.

So our third question for SEC to address to Mr. Andy Estrellado Head of Power Marketing. The question, any outlook on [indiscernible] prices? And are we looking to participate in the 1,800-megawatt CSP of Meralco? Conversely, when do you see the group starting -- group start entering long-term bilateral contracts for its [indiscernible]?

For the market outlook, our projection is that the price -- the [ WESM ] prices will still be elevated for the third quarter of this year and even up to the whole year of next year. This is due mainly on the -- of course, it's the supply-demand issue where in one of the factor now is the possible effect of El Nino. So that may affect the supply of hydropower plants but at the same time, increase the temperature and thus increasing the demand of the consumers. So that would happen this fourth quarter and also for the whole of next year. Although there will be coming -- incoming plans next year, but the projected demand growth and the average without considering yet on the effect of El Nino, which is about 5% to 6% increase. So if you include the possible effect of El Nino, then that may equalize the impact. So what we're seeing is that it will also be elevated next year. Possibly an equal rate -- equal price about more than PHP 6 for next year on the average. On the participation of the Meralco bidding as much as we wanted to participate but, unfortunately, there are limitations imposed by Meralco on their terms of reference for the bidding, particularly on the commercial operations brief of the power plants. What they require is that the power plant. So we'll be participating in the bids should be in operation -- commercial operation starting not earlier than January 2020 but not later than mid-2022. So our power plants cannot be qualified. For the plan to, let's say, enter into a long-term contract, there are several factors really. It's not a matter of when, if there are really several factors now. One is no [ WESM ] prices. If we look -- if we find that not it would be stable enough, not too high in a -- then we might consider of a longer-term contract. And number 2 is the terms of reference. The terms of reference if we found it attractive. Like for example, the pass-through costs, the fuel pass-through costs and then also the outage allowance then we might consider participate in a long-term contract. Like for example, in this Meralco bidding, we are very much interested. But unfortunately, they put some limitations.

We now proceed to questions addressed to DMCI Power. We have Mr. Antonino Gatdula, President of DMCI Power with us this afternoon. Sir AEG. The first question, update on renewable energy projects.

Good afternoon to everyone. We have 2 renewable energy projects as mentioned before, 4-megawatt solar in Masbate and 12-megawatts wind in Semirara. For the solar, we are done with more all of the permits except for the ARC approval. And hopefully, we can file our PSA with MASELCO within the month of December. For the wind, we have secured the EPC from the [ DENR ], and we're about to file the DOE, the in energy operating contract. For the EPC of solar, we still have to wait for the approval of the ARC before we signed up with [indiscernible] while for the wind, we received 2 offers. We're currently evaluating and hopefully, within the month of December or this month, we can award and sign the EPC.

Next question. The presentation mentions about 45 megawatts in pipeline projects. Can you give us more colors on this? I think because we earlier mentioned about the renewable capacity but for the others, how will the pipeline projects also be planned to be funded?

Okay. For the 45 megawatts, it's both conventional and renewable as explained a while ago, it's 16 megawatts renewable. So there would be another 29 megawatts for conventional. 16 megawatts will be installed in Aborlan, Palawan. This is part of our obligation under our power supply agreement with PALECO that we have to provide a research plan. This is equivalent to our biggest unit. Since we have commercially operated our thermal plant in Narra, last July, that is 15 megawatt. So we need to increase our N-1 requirement. So we have to put up 16 megawatts additional capacity. While the other 8 or 9 megawatts, we will install it in Masbate. So given that we are the sole power provider in Masbate, we have to ensure that power is always available. So that we will avoid load shedding, and we can capture the growth in the demand in the island. For the funding, well, of course, this will be funded by both our long-term loan and internal cost generation.

Next question about the 15 megawatts coal plant. When did the 15 megawatts coal plant in Palawan went online, and do you expect to add more plants. If so, please provide timing and capacity?

The thermal plant, our second thermal plant which is in Palawan, it went online last July, mid-July this year. We have successfully -- all the permits, including the COC, we have obtained. So we commercially operated last -- July 2023. And therefore, the timeline of the 45 megawatts for the renewable, the solar most probably -- if the ARC will give the approval by first quarter of next year, we can see the operation of the solar by third quarter of next year. However, if not, there will be a delay in the approval of the ARC then the COD will also be delayed. For the wind, we are looking at third quarter of next year for its commercial operations. And then for the conventional, we are planning to -- we're targeting the third quarter of next year also for the commercial operations.

Why are your energy sales in Masbate up by 3% year-on-year, but -- in the 9-month period, but up 9% in the third quarter?

Yes. For the third quarter, we posted a 9% growth because the weather in Masbate in the third quarter is a lot better than the first half of this year. In the first half, we -- the growth is so -- it's too minimal, it's too small. So roughly less than 1% and the 9% increase in the third quarter resulted to a 3% -- 5% -- sorry, a 3% growth year-on-year.

Next. How are energy sales for the entire market in Palawan in the third quarter and the 9-month period?

Okay. Based on our efforts, the market growth of PALECO as of third quarter is 12%. And our total sales, our growth is -- for as of third quarter is 17%. So our performance is better than the total market growth. And for the third quarter alone, the growth in Palawan is 10%, it's slower than the growth for this year.

Why are energy sales in Mindoro soft?

I think it's because of the presence, the high dispatch of the hydro. We experienced more rain this year compared to last year. And at the same time, [indiscernible] signed up with other power providers on emergency power supply agreement of which 10 megawatts was awarded to DMCI Power.

So last question for now. How much El Nino impacted the third quarter performance of DMCI Power?

The impact varies per site. In Masbate, we experienced a dry season. In Palawan, since we are the only power providers who have additional capacity to dispatch, so even if it was a rainy because we have the capacity, we were able to supply the drought. For Mindoro, slightly because of the rain, the higher dispatch for the hydro plants.

Thank you very much, Sir AEG, for the very insightful answers. We now proceed to questions addressed to DMCI Mining. We have Mr. Tulsi Das Reyes, President of DMCI Mining with us. For the first question, please remind us on the seasonality of shipments. Is the third quarter, normally the leanest quarter? And how much do you plan to ship this year and in 2024?

Hi, everyone, good afternoon. So usually, the seasonality for both mine sites are between October to about July. Palawan normally start a much later about November. Third quarter is usually the leanest for both mine sites. But this year, we did something differences for Zambales. We decided to test the waters, create a baseline. Let's see how far we can go. And historically, we did one a month. So as we're expanding in Zambales, we want to push the threshold to see what we can do. It will be quite lean for us, but we're trying to push it forward. This year, we'll do about 1.7 million tons, our historical high for Zambales and consolidated next year with hopefully Palawan online operational by midyear. We hope to ship out about 2.5 million tons if everything goes well.

Sir, next question, how are ASPs trending so far in the fourth quarter? Is it already improving?

Just to give you -- just to remind everyone of our strategy, we had a lot of low grades in Zambales so we took advantage of the higher prices to get rid of our lower grades. So Q1 for us was about 42, this quarter or up to actual for this year is about 35. But please bear in mind, we have a lot of medium and high grades that we're going to start letting go for the balance of this year and hopefully carry over to next year, we really took the opportunity to clean up the mine site, take advantage of high prices, especially for the lower grades. So I feel you should be seeing a pickup in the next few seasons coming along.

Next question. Can you please provide brief down of your cost structure? How much are fuel royalties, et cetera.

Royalties are about 5%. Taxes are about 15% operations are about 40%. Labor is about 10%, fuel is about 20% and admin is about 10% [indiscernible]

Next question, do you anticipate your cost to change materially once you open up more mines in the next few years? And can you provide more guidance on cash cost per metric ton for shipments for 2023 and 2024?

Okay. This is the exciting part. Yes, 100%. Both mine sites will drastically go down. Once our immature mining areas. Just bear in mind it -- when we open our assets in Zambales and Palawan, the start-up costs, development costs, road cost, port costs and all these things. So if we are asking about 2023 versus 2024, they will be somewhat the same. But if you move forward beyond 3-, 5-year horizon, those should be drastically lower. Why? Shorter hauling distances, we'll have more volumes going out, higher grades, especially in Palawan, less maintenance and operational costs. So drastically, yes, but we're going to ask per ton for the -- for this year and next year. Zambales is currently at 18, we do a 35-kilometer run there. Our ZDMC asset does a 21-kilometer run, but development costs might offset that $1, $2 or so. Palawan the same thing and Long Point new port, new roadways so historically in Barron. I think we're doing about 14 there. So we should be about the same, but higher grades, right? But the interesting one is done right after Long Point that will use the same port as Barron, that will use similar roadways. Our buyers are up. So development costs will be lower. So I'm very excited for 2025 onwards. Allow us to get these assets in, get the mine started up, then you should see the efficiency moving forward.

Next question. At your current form, how will House Bill 8937 affect your bottom line?

As of right now, we're looking at the mineral reservation tax about 4% right now with our current form. Now things might change with the windfall, et cetera, but we've got to study it a bit further. We were still teasing it out. So allow us to get back to you. But right now, with that particular question as of right now, probably 3% to 4% lower due to that mineral resolution part.

Last question for now, how has El Nino impacted the third quarter performance of DMCI Mining??

It goes back to my previous comment. We never performed this best in the third quarter because normally, we really took the time to stop operating, get our production higher, stockpile, rebuild. So there was a learning curve for us in Zambales and are we going to continue to test the waters and see for opportunities definitely. So normally, third quarter, we stand by, care maintenance, but we're trying to find efficiencies wherever we can. So it didn't affect us. Honestly, gave us some cash flow income. So it was quite good. But normally, we take this time to slow down. So we'll see.

Thank you very much for, [ TDCR ], for the very impactful responses. We now proceed to Maynilad. We have Ricardo De los Reyes, Chief Financial Officer of Maynilad with us and Emmanuel Marmol, AVP for Corporate Planning. The first question goes, why did those volume growth accelerated to 2.6% year-on-year in third quarter versus 1.5% year-on-year in the second quarter, which segments will be recovery?

Actually, if you recall, in Q3 of last year, we had severe supply -- water supply issues. And in fact, there were occasions there where our water availability at 24-hour 7 PSI fell to almost 50%, right? So that has greatly improved this year. As a result of, again, improved water supply but also some of our mitigation efforts coming online. So that kind of explains how why Q3 is much better than Q2.

Next question, is demand from residential, commercial and industrial segment already back to pre-COVID levels in the third quarter? And can you please provide data for each segment?

Yes. So actually, we segment our customers between residential, semi business, commercial and industrial. As far as residential and industrial, that has more than recovered relative to the pre-pandemic year of 2019. For semi business, it's virtually equal or flat. But for commercial, we're still about 6% below pre-pandemic levels.

Next question, please provide CapEx guidance for 2023 and 2024.

All right. So we will probably end up with having spent around PHP 24 billion to PHP 26 billion this year. To provide context, the largest annual spending on CapEx projects was back in 2019, and that was only PHP 13.9 billion. So we're almost double of that, right? And that's quite an accomplishment. For next year, we are targeting PHP 31 billion in spending for CapEx and remember that CapEx spending is an indicator of implementation and execution of projects.

How has El Nino impacted the third quarter performance of Maynilad?

It has not, actually. We've been fortunate enough to have experienced rainfall for the third quarter. Right? So Angat levels are relatively high at the moment. But I think we're beginning to experience the effects of El Nino now. You can see that the rain has tapered off. So although Angat levels are still quite good. It's really kind of being conservative about our use of the existing water supply in anticipation of more severe months next year.

Last question for now, Sir Dicky. How much do you intend to spend to lower the NRW down to 25% and how much CapEx allocation expect to improve water facility?

Yes. So this repeating cycle between 2023 to 2027. We are embarking on an accelerated CapEx program. In fact, our budget for CapEx spending over this 5-year period is PHP 163 billion. So about PHP 28 billion of that -- or PHP 26 billion of that is in -- PHP 28 billion of that is intended for NRW projects, essentially pipe replacement projects. And then another PHP 73 billion of that is intended for water infrastructure projects.

Thank you so much, Sir Dicky, for the very comprehensive answers this afternoon. We now proceed to the corporate. The questions to HI, we have Ma'am Cristina Gotianun to answer our queries. The first question was based on the January to September 2023 net income in comparison with 2022, only Maynilad and DMCI Power contribute positive growth in earnings considering HI this earnings last year. With this, what are the plans and actions to improve earnings for the rest of subsidiaries?

Good afternoon, everybody. Yes, for the other subsidiaries of HI, like for DMCI Homes, you've heard we heard Vangie a while ago say that they're looking at different financing schemes in terms of those clients that wanted to get the bank financing. As you know, there are also higher document requirements with AMLA and the higher interest rates at this environment do not help in increasing the sales. However, there are operational efficiencies that Homes, DMCI and all the other subsidiaries have been working on and also through that CapEx expenditure. So with this, we cannot -- we're also involved in highly regulated industries. So the things that we can do are also limited in terms of permitting and also the commodity prices. So the only thing that we can do is really operational efficiencies and prudent cash management.

In terms of the medium-term plan and outlook for the DMCI Group, what would be the plan to double or even triple its current revenue base where the company can utilize its engineering know-how and investments savvy in the next 5 years?

Okay. there are the synergies that we're looking at about the group and there are like Homes looking at targeting different market segments with a resort and then lower-priced condos for the lower income group outside of this core business. So slowly, the trials into new product lines. And so that's one. Number two, we are also looking at different businesses, we just have NDAs right now. We cannot disclose at this time. But the NDA, so we're looking at allied industries that group -- where that group's core competence lies. And of course well, we cannot -- the other -- like the other things that we are already doing, we're looking at efficiently managing our costs of operations. So with those, I hope that we can go through this medium and long-term plans now.

Will the company consider a long-term Japanese, Korean, European or American JV partner to expand its offerings into other markets to achieve the necessary growth?

We've been having joint venture project, especially in construction. We will see if there's a fit to be able to have a long-term JV partner of some foreigners, like for the DMCI Mining, if we have everything, we can consider the processing. So that's something that is on the table. So if there is a fit because it's very difficult to have a joint venture being met when there is no synergy for the partnership. So for us on the fit, we are open to a joint venture partnership with a foreign entity.

And then next last question. Can we get guidance or indication from management as through the expected dividend contribution from the other subsidiaries outside of Semirara for this year and next?

The guidance really is for the -- all of the subsidiaries of HI who continue giving dividends to HI upward is the same amount if not higher. So we are always pushing the subsidiaries to give a higher dividend each year.

I think that's one of the most important questions for our shareholders. The Dividend.

I think we will have a slightly higher dividend for next year.

Everyone will be excited for that one. We came to the end of our list. May we ask our Director and Assistant Treasurer Ms. Cristina Gotianun for her closing remarks.

Good afternoon. On behalf of our Chairman and President, Mr. Isidro Consunji, thank you for participating in today's analyst briefing. 2022 was a standout for us, and we knew that 2023, we would have our headwinds and challenges, given the market shift and the events that we've seen. For the most part, our receiving portfolio, operational efficiency, prudent cash management helped us deal with our headwinds and keeping us steady on our financial course. While we cannot replicate the 2022 result, we are cautiously optimistic that we can end the year strong and uphold the commitment to solid dividends. As laid out by our chairman and president, we will focus on the capacity expansion, cost control and cash flow management to carry us forward. So I guess thank you, [Foreign Language] for joining us this afternoon and see I'd like to take this opportunity since this is the last final briefing for the year, allow me to extend our early Christmas greetings and best wishes for you all and for a prosperous 2024. I hope to see you all in our next year analyst briefing. [Foreign Language]