D&L on track to hit profit growth target

Food ingredient and specialty plastic additive manufacturer D&L Industries is on track to grow its recurring net income by 30 to 34 percent this year, the company’s chief finance officer said.

This will result from the company’s continued focus on higher-margin customized and specialty products, which include specialty fats and oil, as well as plastic and aerosol products, and reducing the share of low-margin refined vegetable oil to total business.

In a briefing held by BPI Securities on Saturday, D&L chief finance officer Alvin Lao said the company was “growing very fast” and has built three new plants to add capacity. By the time these plants are finished, he said utilization would be very low at 40 percent, which means that in the next few years, there would not be much capital spending required for the company.

Given recent results, he said the 30-34 percent goal of boosting recurring income this year was achievable, he said.

The goal was to increase margins by at least 1-percentage point each year, Lao said, noting this had been achieved in the last three years.

D&L, which has about 1,500 workers, is also heavy in research in development as the company has a 50-year heritage of innovation started by the first-generation founders, Lao said. “We’re coming out with more new products,” he said.

The company, which is being pitched as an indirect consumer play in the country, has 650 customers in the food business, including the biggest players in the industry. Doris C. Dumlao

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PLDT mulls Google-like office

BY RAPPLER.COM
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MANILA, Philippines – Philippine Long Distance Telephone Co. (PLDT) is currently considering moving its headquarters to a sprawling 2- to 5-hectare property where it could put up a new “campus type” location for its member companies.

Taking inspiration from complex-like offices in California, like “Googleplex” of search giant Google Inc., the PLDT group is currently finalizing project details, including costs and construction timetable, according to the telco president and CEO Napoleon Nazareno.

This option came up after the group decided not to push through with the acquisition of businessman Roberto Ongpin’s Alphaland Building along Ayala Avenue in Makati City.

READ: Alphaland in talks to sell Makati office building

The Googleplex-like proposal was among the options considered when the telco officials and its property group were assessing whether to rent or acquire new property to house the group’s revenue generating operations and save up to P90 million in rent.

READ: PLDT H1 profit grows 2% to P19.7-B

PLDT is currently headquartered at the company’s Ramon C. Cojuangco (RCB) Building and the Makati General Office (MGO) in Makati City but a migration plan is in the drawing board.

The new location may be financed by proceeds from its other properties.

READ: PLDT plans sale of idle properties

Among those considered for disposal are the 3-hectare property in Dansalan in Mandaluyong City, the old traffic office along España in Sampaloc in Manila, as well as a lot in Filinvest Corporate Center in Alabang in Muntinlupa City.

It may also sell the warehouse of defunct Pilipino Telephone Corp. (Piltel) in Sta. Rosa in Laguna, as well as the PLDT Garnet exchange building in Ortigas Center in Pasig City. – Rappler.com

 

China fire rattles world chip supply chain

BY AMANDA WANG, AGENCE FRANCE-PRESSE
RAPPLER

SKOREA-ELECTRONICS-HYNIX-COMPANY-EARNINGS

UP IN SMOKE. A fire hits a factory of S. Korean firm SK Hynix in China, potentially disrupting the global electronics supply chain. Photo by AFP

SHANGHAI, China – A fire at a giant Chinese factory making almost one-sixth of the world’s supply of a key high-tech component shows how vulnerable global manufacturing chains can be to an unexpected event, analysts say.

The vast SK Hynix facility in Wuxi city produces dynamic random access memory (DRAM) chips, used to store data in personal computers and mobile devices such as smartphones and tablets.

The South Korean firm is the world’s second-largest manufacturer of DRAM chips, and says it has a 30% market share, with the factory in eastern China accounting for half its output.

Foreign firms have flocked to China, the workshop of the world, to take advantage of cheap labor, good infrastructure and accommodative local governments.

Economies of scale gained through massive factory complexes help lower costs, but also bring with them risks should a company rely on a limited number of plants.

The scale of production now means that a fire or strike taking one factory out of action can reverberate around the world.

Hynix – whose customers include smartphone giants such as Samsung and Apple, which has just introduced two new iPhones – has only one other facility producing DRAM chips, in South Korea.

Partial production in Wuxi resumed three days after the September 4 blaze, which was reportedly caused by a gas leak, but a spokesman at the company’s headquarters told AFP: “It’s still too early to give the estimate of the damage and to predict when full operations may resume.”

Analysts say such supply chain shocks can push up prices and potentially delay shipments for finished products.

“As global smartphone shipments are at a high level…supplies (of memory chips) are sought-after,” said Wang Jun, of consultancy Analysys International.

“Hynix is in a relatively advanced position in the global memory chip market, so even a single incident at one plant will have a domino effect.”

Chip values spiked after the fire and are expected to remain buoyant, according to analysts.

“Memory chip prices surged mainly because of expectations” of short supply, said Kevin Wang, director of China services at market research firm IHS iSuppli. “Prices will likely remain on an upward trend towards year-end.”

A huge shortage of memory chips was unlikely in the next two months because of high inventories, he added, but the longer-term impact would depend on how soon Hynix could resume full production, which could take up to four to six months.

In July Hynix posted record second quarter profits on the back of robust chip demand and strong semiconductor prices.

Its operating profit for April-June jumped to 1.1 trillion won ($1.0 billion), a sharp increase from 5 billion won a year earlier.

No smartphone producers are known to have announced delays yet due to the fire, but analysts said it would inevitably have some impact.

“Mobile phone producers related to Hynix will surely be affected, but shipments will gradually stabilise as other suppliers in the global supply chain will come in and fill the gap,” said Wang Jun.

Global shipments of smartphones jumped 52.3% annually to 237.9 million units in the second quarter this year, the strongest growth in more than a year, according to market intelligence firm International Data Corporation (IDC).

IDC has forecast 40% annual growth in worldwide smartphone shipments to over one billion units this year.

But such explosive growth assumes other suppliers can meet demand for DRAM chips to fill the gap left by the Hynix fire, analysts said. – Rappler.com

 

 

Higher forecasts for PH after strong Q2

BY RAPPLER.COM
POSTED ON 08/30/2013 12:39 PM  | UPDATED 08/30/2013 12:57 PM

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MANILA, Philippines – Global banking giants Citi and HSBC upgraded their growth forecasts for the Philippines this year following “better-than-expected” growth in the 2nd quarter.

Citi raised its 2013 gross domestic product forecast for the Philippines to 7.3% from 7%, while HSBC hiked its projection to 7.1% from 6.4%.

Both said exports will improve in the 4th quarter, boosting growth, and added household and government consumption will remain strong.

“We expect net exports to improve, especially in Q4 when growth in the US, Japan, China and eurozone should accelerate,” said HSBC in a research note.

The Philippines grew 7.5% in the 2nd quarter – the same pace as China – making the two countries the fastest growing in Asia. This brought growth in the 1st half to 7.6%, above the government’s 2013 target of 6% to 7%.

Growth was largely driven by consumer and government spending, but investments also provided support.

Citi and HSBC said remittance inflows, a weaker peso and benign inflation will continue to drive household consumption.

Citi however warned that delays in the implementation of infrastructure projects under the Public-Private Partnership program “lead us to be more sober in our investment growth forecasts.”

It said financial volatility due to the anticipated winding down of the US Federal Reserve’s stimulus program can also impact investments.

HSBC nevertheless said that sound fiscal and monetary policy will “help the Philippines weather the recent volatility triggered by the withdrawal of US liquidity.”

New growth trajectory?

The 2nd quarter marked the 4th consecutive quarter that the Philippines grew above 7%.

Socioeconomic Planning secretary Arsenio Balisacan said the country is moving away from being largely consumer-driven to investment-led. He said it is now on a higher growth trajectory.

But Citi said the Philippines’ prospects in the 2nd half and next year “retain a slower growth trajectory” of “less than 7% growth.”

“Lacking strong export recovery also downplays a higher trajectory.”

It said a more important concern is the “rising potential of relying on consumer-driven growth” for GDP growth of 7% or more. It warned this growth will not necessarily lead to higher job creation.

Balisacan said sustained investments and industry gains, particularly in manufacturing, are the ones “with the ability to provide high-quality jobs for Filipinos.” – Rappler.com

PH matches China’s 7.5% growth in Q2

BY RAPPLER.COM
POSTED ON 08/29/2013 10:00 AM  | UPDATED 08/29/2013 2:40 PM

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MANILA, Philippines (4th UPDATE) – The Philippines remained the fastest-growing economy in Southeast Asia with a gross domestic product (GDP) growth of 7.5% in the 2nd quarter, the National Statistical Coordination Board (NSCB) announced Thursday, August 29.

Driven by the resilient services sector and improvements in manufacturing, Socioeconomic planning secretary Arsenio Balisacan said the Philippines’ April-to-June economic expansion was at par with thegrowth of regional powerhouse China.

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The Philippines’ 2nd-quarter growth was slower than the 7.7% revised growth recorded in the first.

But Balisacan said it was “significant” because it marked the 4th consecutive quarter that the country grew above 7%.

Economic growth in the first half stood at 7.6%, faster than the 6.4% achieved in the first half of 2012, NSCB secretary general Jose Ramon Albert announced.

A ‘rebalancing’ in process

The local economy was still dependent on the services sector, which accounted for 57.9% of GDP. Industry sector’s share was 32.7%, and agriculture, the top employer, contributed 9.4%.

Trade and real estate supported the services sector, which grew 7.4%.

Trade rose 7.3%, while real estate, renting and business activities posted a 9.5% growth, indicating continued expansion of business process outsourcing, said Albert.

Services have also been consistently fueled by consumption-led economic activities and, recently, investments by overseas Filipino workers (OFWs).

Remittances have remained strong despite fiscal issues faced by western countries that host most of the OFWs, but growth has slowed down.

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While the services sector lifted the economy the most by contributing 4.3 percentage points to the overall 7.5% growth, the spotlight was on the industry sector, which has been picking up.

The Philippines, dragged by high energy prices, restive labor and regulated wages in the past decades, is getting back in the radar of job-generating investors, noted Balisacan.

“The composition of our growth shows signs of an economy that is in the process of rebalancing, moving from being largely consumption-driven to becoming investment-led and industrialized, with the ability to provide high-quality jobs for Filipinos,” he said.

“For the past 3 quarters, capital formation has been growing more rapidly than household consumption and the growth of industry has so far outpaced that of the services sector. Notable are the double-digit growth rates in fixed capital and the manufacturing subsector in the last quarter,” he added.

Industry grew an impressive 10.3%, and contributed 3.3% percentage points to the GDP number. Construction, which stepped up again during the quarter, grew by a whopping 17.4%.

Balisacan said construction will remain key driver in coming years. “In all major forms of infrastructure, we have huge backlog.”

Manufacturing grew 10.3%, maintaining the industry’s recovery, which started a few quarters ago, when Japanese, Korean, and other foreigners decided to plow their job-generating investments back into the Philippines after heavy flooding in Thailand and the earthquake-tsunami disaster in Japan.

Balisacan said, “with the rebound of industry sector, stable and productive jobs will be generated. He added persistent unemployment will also be addressed.

“Within manufacturing, food processing, furniture and household appliances like radio and TV, basic metals, and machinery posted significant growth, indicating greater use of skilled labor,” he noted.

How the Philippines’ impressive GDP growth rate is translating into jobs is a major concern among analysts and economists watching the country.

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Agriculture, mining

Agriculture, which remains the main employer in the country, performed poorly. For the first time since the first quarter of 2012, the sector contracted. Its 0.3% decline pulled down the GDP by 0.03 percentage points.

The officials attributed this to the 25.9% contraction in corn output and 1.8% decline in palay. These “may be due to the intense heat experienced in Ilocos and Cagayan Valley regions and farmers harvesting their crops in advance in anticipation of the drought,” Balisacan explained.

About 624,000 jobs were lost in agriculture-related activities, compared to about 224,000 and 380,000 additional jobs generated in the industry and services sectors, respectively. Balisacan cited the April 2013 labor force survey for these indicators.

“The seasonality in the agriculture sector poses a challenge to growth and employment, and this is why we will need to diversify agricultural production and move towards further processing of agricultural products, particularly food,” he stressed.

Mining and quarrying remained laggards, declining by 2.7% during the quarter. This reflected investors decisions to cut on their investments as the Aquino government reviews and pursues legislative reform on the revenue-sharing scheme between government and the mining industry.

Recently, the global miners behind Tampakan gold-copper mine in South Cotabato in Mindanao decided to downsize pre-commercial operations. The investment in the mine, which is supposed to start operations after President Benigno Aquino III steps down in 2016, is potentially the country’s biggest foreign investment with operators planning to put in up to US$5.9 billion, which in turn is expected to boost the Philippines’ GDP by 1% every year.

Govt, household spending

On the demand side, household and government spending as well as construction were the key growth drivers.

Household consumption, which contributed 3.6 percentage points to growth, rose 5.2% in the second quarter.

Government spending (2 percentage points contribution to growth) surged 17%, while construction (1.3 percentage points) rose 15.6%.

Election, 2013 targets

The mid-term polls in May, which were expected to boost spending, did not materially contribute to economic growth.

Balisacan said election spending played a “minimal role” in the second quarter.

Albert said presidential elections are usually the ones that have big impact to the economy.

With the 2nd-quarter growth, Balisacan said the 6% to 7% target for 2013 will likely be surpassed.

Officials are aiming to hit a growth rate of 7% to 8% every year until 2016 to lift more out of poverty and provide more jobs. – with reports from Judith Balea, Rappler.com

PH rated ‘most improved’ Asean nation by US firms

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By 

MANILA, Philippines—The Philippines has emerged as the “most improved” nation among members of the Association of Southeast Asian Nations (Asean) with American firms expressing increased satisfaction over the stability of the country’s political system.

Based on the Asean Business Outlook Survey 2014, satisfaction with the Philippines increased across 14 of the 16 business factors over the last five years. Dissatisfaction of US companies with the perceived corruption in the Philippines fell to 59 percent in 2013 from a high of 91 percent in 2003, while negative sentiments on the country’s infrastructure fell to 55 percent from 69 percent during the same period.

These developments, however, were not enough to propel the Philippines to be one of the most attractive countries for business. The survey showed that Singapore remained one of the most attractive countries in Asean to do business, while Indonesia, Vietnam, Thailand and Myanmar were favored for business expansion.

The Asean Business Outlook Survey, the key barometer of US business sentiment in Southeast Asia, was conducted between May 10 and June 10. This is the 12th year the US Chamber of Commerce, together with the chambers of commerce in each of the 10 member states of the Asean, polled 475 business leaders of US companies on their investment plans, outlook for the region, and perceptions of some of the key challenges and opportunities in the region.

“[A] highlight in the region is the marked improvement of the Philippines. The country has experienced high levels of growth recently and our survey shows why, as business leaders there indicate higher levels of satisfaction across almost all surveyed factors as compared to five years ago,” noted Simon Kahn, chair of AmCham Singapore.

According to the survey, 87 percent of respondents were satisfied with the availability of trained personnel in the Philippines, reportedly the highest percentage in Asean.

Other areas of satisfaction in the country included sentiment toward the US with a satisfaction rate of 79 percent, also the highest in Asean; availability of low cost labor (74 percent); personal security (56 percent); housing costs (56 percent); office lease costs (51 percent); new business incentives offered by government (44 percent); free movement of goods within the region (41 percent) and availability of raw materials (38 percent).

Meanwhile, main concerns largely remained consistent over the past five years, according to Amcham Philippines. These include corruption, tax structure, infrastructure, laws and regulations, and ease of moving products through customs.

“Corruption, insufficient infrastructure and the tax structure remain challenges in the country, but it is clear that business leaders have seen significant progress in recent years,” Amcham Philippines explained.

Optimistic

In general, the Asean Business Outlook Survey showed that many US firms remained optimistic about business prospects in Asean, with 79 percent reporting that their company’s levels of trade and investment in the region increased over the past two years, while an overwhelming 91 percent of respondents expected it to increase over the next five years.

A large number of respondents also said they expected their businesses to expand and to increase their workforce within the year.

The survey, however, found substantial concerns and impediments to companies’ growth in the region.

Like in the Philippines, corruption was also the top issue across Asean, with the majority of respondents in all countries except Brunei and Singapore expressing dissatisfaction.

Business leaders also cited burdensome laws and regulations as obstacles to greater investment, as well as the poor quality of infrastructure, and the difficulty of moving products through customs in some countries.

The survey further revealed that regional economic integration efforts, such as Asean’s agreements on trade in goods and services, were important to US companies’ investment plans in the region, with 54 percent of the respondents saying their company had a strategy based on the goals of the Asean Economic Community (AEC).

Global economy integration

The AEC, which will be established by December 2015, envisions a single market and distribution base, a highly competitive economic region with equitable economic development, and a region fully integrated into the global economy. Simply put, the integration would allow Asean companies in the 10 Asean member-nations to enter each other’s markets, encouraged by zero tariffs and reduced bureaucratic clearances.

However, many of the survey participants were doubtful the AEC would achieve its stated goals by 2015, with most believing that such goals would not be realized until 2020 or later.

Many respondents were likewise unsure of the potential impact of the two major regional free trade agreements currently being negotiated—the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Of these two proposed agreements, the TPP was seen by more respondents as having more impact on their companies’ future investments in the region.

Oil prices dip but Egypt worries provide support

By 

SINGAPORE – Oil prices eased on profit-taking in Asia on Friday but remain supported by concerns about turmoil in Egypt after a crackdown on protesters killed nearly 600 people nationwide, analysts said.

Investors are closely watching whether the latest unrest in Egypt will escalate and affect stability in the oil-rich and politically volatile Middle East region.

New York’s main contract, West Texas Intermediate for delivery in September, was down 12 cents at $107.21 a barrel in mid-morning trade.

Brent North Sea crude for October delivery was down 12 cents at $109.48.

Brent crude for September expired at the close of trading on Thursday 91 cents higher at $111.11, its highest finishing point since March 5.

“Crude prices are down for the short-term as investors are taking profits off the table,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, told AFP.

“Investors have gotten used to the idea of the Middle East being a source for unrest and potential supply disruptions, and the risk premium on crude has been priced in,” he said.

Islamists in Egypt have called for a “Friday of anger” in Cairo after the nationwide death toll following a crackdown against supporters of ousted President Mohamed Morsi on Wednesday rose to 578, making it the country’s bloodiest day in decades.

The call raised fears of fresh violence amid renewed attacks on security forces on Thursday.

Traders are worried that the unrest could hit crude shipments through the Suez Canal and Sumed Pipeline, which provide a link between Europe and oil producers in the Gulf.

Although Egypt is not a major oil producer, the Suez canal carries about 2.5 million barrels daily, about 2.7 percent of global supply.