The Market Monitor Minding the Nation's Business
By Riza Lozada
Ayala Corp. seeks to become the first homegrown vehicle manufacturer initially through the production of electric vehicles targeting the Southeast Asian market.
The conglomerate, whose core businesses include real estate, banking, telecommunications and water services, said diversifying into vehicle manufacturing dovetails with its regional expansion and the government’s thrust to revitalize the local car-manufacturing sector.
Through its water and real-estate units, Ayala Corp. expanded to Malaysia, Myanmar and Vietnam in recent years.
The company said it is currently negotiating with four auto manufacturers about potential manufacturing partnerships to strengthen its business portfolio and sustain growth.
“We are actively in discussions with other car manufacturers. And not just the car itself, because we want to include car parts (components manufacturing)… What we are picking are those that see the Philippines within the Association of Southeast Asian Nations (Asean) as a potential (manufacturing site),” Arthur Tan, president and chief executive officer at AC Industrial Technology Holdings Inc., said.
Tan also heads the Ayala-controlled Integrated Micro-Electronics (IMI), which makes car components in the Philippines, China, Bulgaria, Czech Republic, US and Mexico.
Tan said some of these potential partners in the automotive industry prefer a joint-venture agreement to allow them lower trade barriers.
He believes the Philippines is in a “good spot” right now. “The fact is that the fastest emerging market in terms of automotive is Asean (Association of Southeast Asian Nations) and the Philippines is playing a major role,” Tan noted.
Ayala Corp. currently owns shares in the Philippine dealerships of Honda Motors, Isuzu Motors and Volkswagen.
He did not identify the companies it is in talks with and their timetable. “A lot depends on the government,” he told reporters.
Last year, the Philippines unveiled a $600-million package of incentives for three car manufacturers that could produce 200,000 units of a car model over a six-year period under the Comprehensive Automotive Resurgence Strategy (CARS). The incentive program has already attracted Japanese groups Mitsubishi Motors and Toyota Motors, which dominate car production in the Philippines.
Tan said the program, which is advantageous to those with existing production units in the Philippines, must be enhanced.
Tan said Ayala wants to partner with a company that sees the Philippines as potential regional hub.
Tan hinted that AC’s possible partner would not be a Japanese company, saying there was no reason to “bang our heads with the Japanese, as they have already invested full-scale in Thailand.”
“Two years ago, we were ready; Volkswagen was ready but the government was not,” Tan said.
Southeast Asia is relatively behind compared with other markets when it comes to the production and sale of electric vehicles, opening up an opportunity for Ayala and its partner.
As prelude to its car-manufacturing venture, IMI early this year partnered with Austria’s KTM to build motorcycles in the Philippines. They plan to start manufacturing next year, and the target production is 250,000 units annually by 2020; some 70 percent of it would be for exported to China.
“This partnership is the first of many planned investments as we ramp up our manufacturing portfolio,” Chairman Jaime Augusto Zobel de Ayala said of the KTM tie-up in April.
The conglomerate’s net income climbed 32 percent in the first half of the year to P13.8 billion as its banking, real estate, power and automotive businesses delivered robust results.
Equity earnings from Ayala’s business units reached P16.4 billion in the first semester, 24 percent higher from a year ago, boosted by strong contributions from the Bank of the Philippine Islands and Ayala Land Inc.
In addition, Ayala’s unlisted businesses registered solid performance in the first semester, led by AC Energy and Ayala Automotive, which both expanded threefold.
Ayala President and Chief Operating Officer Fernando Zobel de Ayala said most of its business units recorded an overall strong performance in the first half of the year, with its new power unit starting to contribute significantly to its bottomline.
“We continue to strengthen our portfolio by entering new industries or reinventing our existing businesses. For instance, we are developing an automotive and manufacturing portfolio in order to maximize synergies in the Ayala Group and take advantage of the exciting opportunities in this space,” Zobel added.
The Board of Ayala Automotive Holdings Inc. (Ayala Automotive), a wholly owned subsidiary of Ayala Corp., recently approved the change in name to AC Industrial Technology Holdings Inc. The Ayala group’s wholly owned dealership businesses across the Honda, Isuzu, and Volkswagen brands will be retained under AC Industrials.
The subsidiary will also hold the Ayala group’s automotive distributorship interests, which include stakes in Honda Cars Philippines, Inc. and Isuzu Philippines Corp., and the wholly owned interests in Automobile Central Enterprise Inc. (ACEI), the official Philippine importer and distributor of Volkswagen, and in Adventure Cycle Philippines Inc. (ACPI), the official motorcycle distributor of KTM in the Philippines.
Manufacturing operations for KTM AG, its new motorcycle partnership under KTM Asia Motorcycle Manufacturing Inc. (KAMMI), will also be housed under AC Industrials.
The conglomerate believes the restructuring supports the group’s development of an industrial portfolio to house its existing and future assets in automotive and manufacturing.
“Moreover, these developments will strengthen Ayala’s position in maximizing opportunities found across platforms in the global industrial space, in the revival of the Philippine manufacturing industry, and in domestic and worldwide demand in the automotive sector,” the company reported to the bourse.