PHINMA Corporation (PHN) Earnings Call Transcript & Summary

Hello to everyone joining us this afternoon. We appreciate you taking time out of your day to hear about some updates for the PHINMA Group. So I am Kara Albert, PHINMA Corp. Investor Relations Officer. And joining me today is Mr. EJ Qua Hiansen, CFO; and Mr. Andre Ramirez, EVP for Portfolio Management. So before we head straight into the matter, allow me to go through the standard reminders. [Operator Instructions]. Please also note that we will be recording this briefing. So with that, we can get started right away. I will now turn over the floor to EJ to give an overview of the PHINMA Group, to be followed by a discussion on the first half results and the Construction Materials segment.

Okay. Thank you very much, Kara, and good afternoon to everyone. Just as a reminder of the PHINMA Group, this is how we're currently positioned. Of course, PHINMA Education continues to be our primary mover in the education space. We also have under our group, Union Galvasteel, which has under it 2 wholly-owned subsidiaries, our Union Insulated Panels business as well PHINMA Solar. Our cement vehicle, Philcement. In Properties, PHINMA Properties, where we have Saludad or -- as our township project in Bacolod. Our latest business, PHINMA Community Housing that's aiming to tackle the socialized housing needs of the country and, of course, our Hospitality businesses. Next slide, please. I think the last time we met in May, the picture for the economy was a bit murkier with the Middle East war. And while a lot of those pressures have continued and created a very challenging and weak economic environment, I'm happy to note that the PHINMA Group has continued the position itself in line with our long-term objectives of making lives better. Now what did we do after the war? Of course, it's very hard to forecast how long this will happen. We have our base case view, but we've also decided to take a conservative stance where we prioritize capital allocation towards projects that return capital faster. On a business per business basis, we've really gone into the nitty gritty of the cash flow to see how we can strengthen cash generation, how we can reduce excess spending and really, how we can focus given this operating environment. And you'll see that reflected in the EBITDAs. While for some of our strategic business units, revenue is slightly lower, such as in construction materials, we do have slightly higher EBITDA. And of course, in PHINMA Education, you really see stronger EBITDA year-on-year. This was driven by sustained enrollment growth, specifically in the first quarter of this year, we benefited from higher retention rates year-on-year. In our Construction Materials Group, in addition to what I mentioned in terms of cash generation, we did separate our businesses and installed 3 CEOs and 3 CFOs to really grow those businesses because of the market potential that we see. They've been able to improve operational efficiency and strengthen margins. Now in the property sector, which is one of the more challenged ones, and we continue to see weakness in that sector. As I mentioned, we did halt the launching of new projects. We have locked in construction costs to the extent that we can. And we're starting to see more momentum in the Bacolod market as we're aiming. But admittedly, it still does continue to be a challenge. Next slide, please. So as I mentioned, we were able to work on our operational efficiencies. So while our gross -- while our total revenues were down by about PHP 1.3 billion year-on-year in the first half, we actually see gross profit going up by about PHP 100 million and the 55% improvement in EBITDA on a consolidated basis. This led us to a consolidated net income recovery from a PHP 227 million loss in the first half of last year to PHP 363 million profit for the year. Now in terms of net income attributable to equity holders of the parent, that's also positive at PHP 20 million. So we do have an EPS of PHP 0.06 per share. We understand that this is modest, but we're continuing to work on it for the second half of the year, again, continuing to focus on our cash generation, continuing to focus on the operational enhancements that we can do, making sure that our businesses are run well, run efficiently, and looking at where we might need to infuse additional capital so that the businesses are well capitalized. Next slide, please. So you see that in our balance sheet, it remains healthy. Our DE is largely flat quarter-to-quarter. Our DSCR is still healthy at 3.2, but we do have higher ending cash on a consolidated basis. Over the course of the year, we have managed to bring in additional equity investments into our cement entity with the entrance of Sumitomo Osaka Cement. They are a major strategic partner that we've worked with in the past, and we're looking forward to the strategic insights that they'll bring as well as other benefits from that partnership. Our businesses continue to invest, but they're investing, I guess, on a more focused manner, again, focusing on things that will bring sooner cash returns and not significant on the CapEx. Over the past few years, we've actually invested heavily in CapEx, over the last 2 years, in particular, that's been at about PHP 10 billion. Most of our CapEx for this year is the complete existing projects, mainly in Construction Materials, which will go over, as well as to increase the capacity in PHINMA Education, which continues to be a bright spot for the group. Next slide, please. With that, I'll go into our Construction Materials segment before my colleagues will go over our other strategic business units. Okay. So one of the strengths of the PHINMA Group, of course, has been PHINMA Education, where PHINMA Education remains to be the largest private tertiary education network in Southeast Asia. Now while I'm reporting about Construction Materials, the reason I mentioned PHINMA Education is it's given us the expertise into what we need for the classrooms. And this is an example of synergy across the group where Union Galvasteel and Union Insulated Panels have had to find more cost-effective ways to deliver classrooms, one, so that we can address the learning difficulty that's happening. And two, to help address the backlog in classrooms. So with the recent PPPs between the Department of Education and the private sector to construct classrooms, Union Galvasteel and Union Insulated Panels have been able to take a very significant share, almost 50% of the projects that are there. Again, utilizing this experience that they share with PHINMA Education. And these have continued to be profitable for the group, and we look forward to doing more as it really embodies our mission of making lives better. Next slide, please. So I mentioned earlier that we're working on a few different projects. Our largest would really be the Panabo terminal that we're building in Mindanao. This is a joint venture between Philcement and ANFLOCOR, the holding company of the Floirendo family. It's a mirror image or mirror terminal the facility we already have in Mariveles, Bataan, that's the first of its kind globally, and it will allow us to really expand our ability to manufacture and distribute cement in Mindanao, which is an area where we see significant growth. If you go to the Mindanao area, there's a big need for infrastructure as a lot of the supply there is really coming from outside of Mindanao. So this will bring us closer to the market. Again, it will increase the margins of sales that we're already doing in the Mindanao area. And we think it will be a major area for growth, especially since it's with a partner that shares similar values to us. Moving down to the lower left-hand side, PHINMA Solar was the first entity and the only entity that was awarded in the government's rooftop solar space. And we look forward to connecting to the grid within the year and starting to deliver on what we've committed to the government for this. I think this became especially timely, given the rising energy prices that persist nationwide, especially because of the crisis. And I think as the nation continues to move towards an energy mix that supports renewable energy, we're well positioned to do this, taking advantage of the synergy that PHINMA Solar has with Union Galvasteel Corporation, given that we're really in the rooftop space. In our insulated panels business, we will be opening our Porac, Pampanga facility this year. This will give us 1 million square meters of capacity. This is really a key input into energy efficiency, specifically in the cold chain space. A lot of players are really going big on cold chain because there's such a wastage in the Philippines looking at what we produce versus what's able to reach the market. A lot of it is spoiled in the middle. And we're thinking that while [indiscernible] is going into the space, we can continue to be a trusted partner of people that are investing there. So again, our facility here similar to the Panabo cement facility will improve margins in the insulated panels business. This should be at least a 10% margin uptick from what we're currently selling. But in addition to the margin uptake, we'll also be selling higher quality materials that are available locally. And I think that will really make us competitive. Next slide, please. So if you look at CMG, yes, we have projects that are coming on stream. Our margins -- our revenue did decrease significantly year-on-year by about PHP 1.5 billion, but we do see a slight improvement in net income attributable to PHINMA, where it's still a loss of PHP 19 million, but we expect this to turn around in the second half, led by those margin improvements when those projects come online. I think the other thing to note, though is that with the new leadership that we have in place across the 3 businesses, they've been able to identify new market opportunities. We're reviewing location by location if these are things that we should continue to operate and seeing how we can better address the needs of our customers. So that does give us confidence moving forward. Next slide. So with that, I think I'll turn it over to Andre to discuss PHINMA Education and Properties.

All right. Thank you very much, EJ, and good afternoon, everyone. So I guess, similarly to the story that we're seeing across the Construction Materials segment, there is a focus on expansion for PHINMA Education as it continues to scale its affordable outcome to that model. We continue to look at serving more students, helping them complete and graduate, and using disciplined execution to really convert that mission into stronger growth and profitability. So for the last school year, '25-'26, we served around 177,000 students and produced 25,000 graduates, reflecting the scale of the network and its focus on really helping our students finish their education and move then on into employment. So accessibility continues to remain our core target, which is why the team continues to manage its tuition fees carefully, especially as families face higher cost of living pressures brought about by the Iran war and succeeding events that saw the slowdown in the Philippine economy. Quality remains to be a key differentiator, though, with board exam passing rate really supporting employability outcomes for our students and reinforcing our value proposition in PHINMA Education. So we continue to expand access to new students via selective acquisitions. We did add a new school to our network last year. We also have ongoing facility enhancements and additional satellite campus locations, 2 of which are on screen, supporting our ability to reach more students in underserved markets over time. Going to the next slide. Pushing to improved student outcomes has really -- and retention and scale has really translated into stronger financial results, with first half 2026 revenues reaching PHP 3.1 billion, up 15% compared to last year's first half. We also saw net income attributable to PHINMA Corp. reached PHP 461 million. We've achieved this through really disciplined cost control that helps keep our model affordable while improving the business's ability to grow sustainably and really giving us the ability to serve the students that we want to serve. We also took a leap beyond the Philippines as PHINMA Education is looking to expand its mission further by continuing to grow in Indonesia and is exploring other opportunities in the region where it's affordable outcome-led model can serve more students. So I think the direction for PHINMA Education is clear. We continue to build a larger, more sustainable region education network that can reach more underserved students while providing sustainable returns. So after this, if you move to the next slide, I'll take up our Property Development segment. So moving to the next slide. I think in terms of Property Development, we are adapting to tougher market conditions, especially given the impact of the Metro Manila slowdown, which has seen a lot of effects across the real estate industry. To do this, we really are looking at regional developments that address the housing needs of the country, which despite all the oversupply in Metro Manila, has still a significant shortage. So we are still cautious, given that vacancy rates in Metro Manila expected to peak at around 26% in 2026. And there's elevated unsold inventories. But we do think that to address the 3.7 million in housing shortage, we need to look elsewhere, and that shortage isn't going to go away overnight. So for us, we continue to look at regional growth centers like Bacolod, which create opportunities for township developments, which leads actually into the next slide. So to discuss the challenges we're seeing, it's really around the near-term financial results being affected by the ongoing slowdown. How do we see ourselves moving forward is really around focusing on projects like Saludad, our PHINMA Properties' first township, and it's probably a key anchor in the direction that we want to go. We have seen land development there continue to progress, and construction is ongoing for our first Maayo Terraces tower. So we do expect activation to really support growth moving forward, and that should help us get us out of the doldrums that we're currently in. And despite the setbacks that we have seen, the team remains focused on the long-term picture, really looking to address the housing backlog that we see. We also see that PHINMA Properties will continue its transition in this direction, but it should be largely supported by the group synergies that we continue to see, especially with the Southwestern University Bacolod campus, which is being set up, and the TRYP Bacolod hotel, which we are also bringing into Saludad. So this reinforces our long-term vision for the Properties segment. I'll turn it over now to Kara to discuss our Community Housing side of the business.

So PHINMA Community Housing or PHINMA CoHo, as we call it, is the group's direct response to the significant socialized housing backlog we have in the country. While it addresses a different market from PHINMA Properties, we are taking the same strategic approach of targeting locations outside of Metro Manila. So for CoHo specifically, we are looking at Davao and Bacolod, where the number of socialized housing units needed is in the tens of thousands against our initial project size of just about 500 units in the initial project in Davao. So there's really quite the market gap to fill. To address that, CoHo is leveraging on the intersection between [ PPHC's ] property development experience and PHINMA Education's knowledge of the low-income market. And adding to that, we have GK Chairman, Mr. Luis Oquiñena at the helm, who will really bring in his expertise. Hence, community development within the project will really be a core aspect of the development. Now currently, CoHo is still at the pre-operating stage, but as mentioned in previous briefings, we did break ground in Tugbok, Davao in Q4 of 2025. And as you can see in the upper right, we already have some model units that are up. Currently, there are land developed works ongoing in the Davao project site. So that's where we are for now in terms of PHINMA's Community Housing venture. I'll now transition to PHINMA Hospitality. So this SBU also has quite a number of key ongoing projects, starting off with Metro Manila. We have the ongoing expansion of Microtel in Mall of Asia. This is to add 100 rooms to the existing 150. And if you can look at the picture shown on screen, those are the Building A and Building B works that are ongoing. Now Microtel Mall of Asia has really been one of the strongest performers in the chain that we have, especially given its prime location, really close proximity to the mall area. And we believe there's really a strong potential for demand to grow, given that there will be the Pasay 360 project in a few years. And there's a lot of optimism towards the demand stemming from MICE, so MICE meaning meetings, incentives, conventions and events, Especially considering that we will see in a couple of years' time, other projects coming up like the Philippine International Exhibition Center, SMX site in MOA and the World Trade Center expansion. Now also in the pipeline, we do have TRYP Bacolod, as mentioned by Andre earlier, and TRYP Samal, which are also in line with the group's direction of advancing regional development. So TRYP by Wyndham Bacolod will be the flagship hotel in Saludad. And then TRYP by Wyndham in Samal is a full franchise condotel, and it's in partnership with the Damosa Land, and that's their third franchise with us. Now in terms of financial performance, PHINMA Hospitalities did show quite some improvement compared to the same period last year, and this was mainly driven by higher online bookings and event-related demand in TRYP MOA, while Microtel MOA actually also managed to sustain a healthy level of occupancy despite the ongoing construction works in the building itself. Adding to that, chain wide, the overall occupancy rates and room rates did improve compared to last year. So this stronger performance across multiple properties translated as well into higher management fees and a higher share in net income of associates. Now with that, I'll be turning back the floor to EJ to tie everything to the other.

Okay. Thank you. Thank you, Kara. Thank you, Andre. So I guess what we're trying to show here is, yes, there are headwinds in place, but we do believe that we have the right portfolio of businesses, addressing fundamental needs of the country -- that the country needs to move ahead. We are still investing, but I guess, on a more selective basis, investing businesses that truly address those needs. In our Education business, in particular, we're increasing the capacity of classrooms and looking at new schools because this is really something where we can address a need while also creating value as a business. In our Construction Materials group, we're looking at areas that are not being served by other players, such as the Panabo facility. And then in the Properties business, we've pivoted towards the province. We've pivoted out at Metro Manila. These are things that we do think are underserved, and we will see returns, albeit a little bit delayed from what we're doing now. And in Hospitality, we're happy to see that there's been doing demand once again. So in terms of what we're doing, we're looking across the portfolio. We're seeing where our businesses need support. We're ensuring the cash generation is there. Cash generation not just in terms of, I guess, investments, but also how we can improve operations and strengthen cash collection. This has been a project across the group, for example, we're looking at how we can provide financing to our customers from third parties rather than for ourselves. And we think this will also benefit our customers. But really, it's finding areas where we think that PHINMA is uniquely situated to make a difference.

So with that, we will now open the floor for any questions. [Operator Instructions] So to kick things off, I think we have received one question. First, allow me to read that out. So will the entry of China's Huaxin Building Materials into Holcim Philippines, have an impact on the local industry and PHINMA cement? EJ, do you want to take that?

Sure, I'll take it. Let me -- well start. There is some message in the chat. We haven't declared our regular Board meetings and ASMs for next year yet. So I just want to clarify that. In terms of the question itself, I'll start first with the impact to PHINMA. One of the key elements of a cement business is really its ability to service its customers. And especially in a scenario where we see rising fuel prices, it's proximity to customers that's making a difference. And that's precisely why we're expanding in Mindanao, so that we become the players that are closest to our customers there. So in that regard, I think we're going to be able to maintain the margins that we have, in fact, we'll be able to improve them because of our own operations. Now in terms of the local industry, I think it remains to be seen the specific impact that Huaxin will have on the local industry. But what I think it reinforces to me, at least, is the imperative of government spending to not even be pump prime, but they go back to what was committed. Our economy is badly in need of government spending. Our GDP growth in the first half was very weak. And government spend in good projects, real projects, one, is good for GDP. It creates employment, which has a follow-on effect on through consumption. But of course, for our Construction Materials business, it will also be beneficial. It's the quickest way to ensure that money here in the Philippines goes towards the Philippine economy. And when we go around looking at different cities, looking at different municipalities, there's really a need for higher quality infrastructure, and that's precisely why we're in the construction material space. Of course, there's a need for real flood control projects. We saw it over the last week that the economy needs it. And again, that's why we're in this space.

Okay. Thanks, EJ. So Mr. Johnny Manahan, would you have a question? In case you're having technical issues, you can use the Q&A button. So let me check if there are any other questions that have been sent in. Okay. So perhaps, [ Mr. Lance Soledad ], you can go ahead.

So I have a couple of questions. I'll just ask them one by one. So first is on Union Galvasteel. I understand that revenues were supported by strategic pricing and better product mix. So I was just wondering if you can expand more on that? Can you talk about the price adjustments that were delivered this year? How does it compare to the rest of the industry? And how did it affect volumes? And I guess going forward, what's your pricing actions or pricing plan for the rest of the year?

Okay. Yes. Thanks, Lance. So as I mentioned, we did appoint a new CEO and CFO in UGC effective April 1. I think they've been very good at a couple -- they've been very good so far. But a couple of areas to note, one, they have, as you mentioned, been able to increase prices, I believe, twice, so far this year. And that's largely allowed them to pass on any cost increases related to the current crisis on the customers because they do need to continue investments that they've already made. This has also I guess, areas where we're looking at growing with the project space. These are the longer-term ones where I think government spending, again, will have a follow-on effect. But we are very close to a lot of other developers and a lot of other investors. And that's where I think the PHINMA name will allow us to participate in a manner where it's not simply a price war, but also one related to quality. In terms of pricing actions for the remainder of the year, I think we'll have to be careful as to how we price so that we don't, I guess, price too high when others are a little bit more hesitant. But it's really a push and pull between price and, of course, volume. So our volumes are a little bit lower than we were hoping, but it was offset by the price action. But more than that, if we look below the lines, they've really, really been doing a great job at managing our overhead and operating expenses, reducing debt where they can. That's been an area that's also been significant in Union Galvasteel, specifically, the cash generation has been up, I guess, more than 50% per UGC. So we're very happy to see that. The CFO of UGC is here. [ Sheila Barce ], if she wants to add into that. After I've been bragging about it already.

Yes. Thank you, EJ. But I just -- I guess, to add to what you've said already. For UGC, we did have a price increase, about 10%, between 8% to 10% this year compared to our competitors, they adjusted about 5%. So clearly, UGC is currently the price leader in the market in terms of our products. In terms of the volume, yes, we did see a softening because of general market conditions. So we're, I think, below 3% lower volume as -- based -- compared to our plan. But for the rest of the year, we are seeing -- the price to be stable for the reminder of the year and to target more volume. So that's the strategy we're looking at for the second half of 2026.

Yes, those are very clear. My next question is, can you expound more on the operational efficiencies that you achieved this year? And also, can you expound more on the industry challenges that you guys are facing? Did you see increased dumping this year? And on demand, can you give more color on which segments are showing resilient performance, I guess, is it infra, is it real estate? So yes, that's my second question.

Lance, is this related to the overall portfolio or specific business?

Specifically steel for Union Galvasteel?

Sure. Sheila, would you like to take it?