Aboitiz Equity Ventures: Holding and investment

The Company

Aboitiz Equity Ventures (AEV) is a Philippine conglomerate that is involved in power, banking, food manufacturing and real estate. It is one of the largest conglomerates in the country with total assets of P293.7bn ($6.5bn), placing it among the top-25 largest companies on the Philippine Stock Exchange. The Aboitiz Group was established in the late 1800s and has been meeting the country’s basic needs since. The Philippines has recently faced power shortages on its main islands. To meet this gap, AEV, through its subsidiary Aboitiz Power, has built several power plants and currently has total capacity of 2402 MW, growing from 164 MW in 2007.

Development Strategy

The conglomerate has grown both organically and via acquisitions. AEV took advantage of the privatisation of government-held power assets by acquiring power plants such as Pagbilao (700 MW), Tiwi Makban (390 MW) and Magat (360 MW). The company is on track to build an additional 1514 MW of power generation capacity by 2019, split between renewable (524 MW) and coal-powered (990 MW) plants.

Aboitiz Power accounted for 69% of AEV’s net income in 2014. To ensure the stability of its earnings, the conglomerate has been diversifying by expanding its food arm and tapping into the infrastructure sector. For example, subsidiary Pilmico Foods has been in expansion mode. The company currently has plans to export flour to Vietnam, Indonesia and Thailand. Pilmico’s feedmill business is also undergoing expansions in Iligan, Tarlac and Vietnam, resulting in an increase in total capacity of 134% to 983,000 tonnes per annum (tpa) by 2016. Meanwhile, farm expansion plans are slated to be completed by 2016 with an additional capacity of 8360 livestock heads for a total of 14,860 heads.

AEV has entered the infrastructure sector by bidding for public-private partnership (PPP) projects, including the Laguna Lakeshore Expressway project, regional bundled airports, and operations and maintenance of the LRT-2 and Masinag Extension systems. To achieve vertical integration, the conglomerate formed a 60:40 joint venture with Irish firm CRH and has successfully acquired the assets of Lafarge S.A. Philippines in 2015. Rebranded as Republic Cement and Building Materials (RCBM), the cement firm enables AEV to develop infrastructure as one of its core businesses and exploit synergies within the group. RCBM’s production capacity is 6.5m tpa, making it the largest cement producer in Luzon and second-biggest in the Philippines.

In 2012 AEV fully acquired AboitizLand, which is the only real estate developer in Cebu that provides property management, design and development of communities for residential, commercial and industrial use. It currently operates industrial sites such as the Mactan Economic Zone II, West Cebu Industrial Park and LiMA Land. The company budgeted P4.9bn ($108.8m) for capital expenditures in 2015, 65% of which was allocated for land acquisition.

UnionBank of the Philippines (UBP), the conglomerate’s banking arm, became the seventh-largest private domestic commercial bank in the country after its merger with International Exchange Bank in 2006. Due to its expanding customer base, UBP’s consumer loans saw a compound annual growth rate (CAGR) of 10% in 2010-14. Total resources expanded substantially with a 15% CAGR on the back of strong deposits growth, with a CAGR of 13% in 2010-14.

Looking Ahead

The conglomerate is positioned to benefit from its first-mover advantage in power generation. The synergy of RCBM and AEV will benefit the construction needs of its own power plants and its participation in PPPs. While UBP provides stable earnings contribution, the conglomerate’s next growth driver is Pilmico Foods. With the ASEAN Economic Community evolving, the food firm will be a direct beneficiary of greater regional integration.