DMCI plans 'quick CHP turnaround'

DMCI [DMC 11.08, down 0.2%; 51% avgVol] [link] revealed a “strategic plan” to “revitalize” Cemex PH [CHP 1.38, up 0.7%; 32% avgVol], its newest and largest acquisition. The first leg of this plan is the completion of the 1.5-million-ton “integrated cement production line” that was already under construction before DMC purchased CHP. Completion of this facility is projected by September of this year and would boost CHP’s annual production by 26%. The second leg is to reduce costs by “transitioning” CHP to a “more affordable energy supplier” like Semirara Mining and Power [SCC 32.95, up 0.5%; 37% avgVol]. DMC also expects to cut down on overhead costs by “onshoring” CHP’s business processes that were handled by CHP’s previous foreign owner. The last leg of the plan is “group synergies”, where SCC expects to increase its coal sales to CHP by 227%, increase its electricity sales to CHP, and increase its “fly ash” sales to CHP. DMC also said that “based on historical consumption patterns”, DMCI and DMCI Homes would be estimated to source 400,000 metric tons of cement from CHP.

MB bottom-line: There are a lot of synergies here for the Consunji Family, but this press release was kind of funny. I loved how they framed the completion of the ongoing construction of CHP’s existing expansion plan as part of their “strategic plan”, and how the “reduce costs” and “group synergies” parts of the plan are really the same thing: make CHP buy more from SCC. I also loved how DMCI didn’t exactly commit to increasing its demand for CHP cement, but instead just pointed to its “historical consumption patterns” to say what it might do if things go well. The part about onshoring CHP’s back office functions is valid, though, and I’m interested to see how much of that overhead cost they can trim from CHP’s expenses. So far the biggest winner in this acquisition seems to be SCC.

---

Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.