BMI View: The recent announcement by Alliance Global Group Inc (AGI) that it may spend over US$1.5bn on hotel rooms over the coming seven years bolsters the outlook for leisure construction in the Philippines, and provides further support to our bullish outlook for the residential and non-residential sector. We believe that the sub-sector will grow by 7.4% in real terms over 2013, and continue upon this robust trajectory by expanding 7.5% per annum for the duration of our five year forecast to 2017. The plans, which would make AGI the largest hotel operator in the country, follow on from a stream of announcements by firms looking to benefit from a government-backed tourism infrastructure investment drive.
AGI 's president, Kingson Sian, recently told Bloomberg that the firm are planning to spend as much as US$1.5bn on new hotel capacity over the coming years, and are aiming to have 5,000 rooms by 2017. The group currently operate five hotels containing 1,570 rooms. In addition, a unit of GCI , Global-Estate Resorts , is looking to spend US$489mn on resort projects in Boracay and Tagaytay.
|Strong Growth Story|
|Philippines - BMI's Residential And Non-Residential Building Industry Forecast|
The promising sentiment supports our bullish view on the Philippine residential and non-residential building sector. Last quarter we highlighted that, with a booming tourism industry (experiencing particularly robust growth from the East Asian market) and an increase in domestic consumer spending power, the Philippines is looking to reinvigorate its gaming and leisure industry with a number of multi-billion dollar projects underway ( see our online service, July 9, 'Manila Casinos Bid To Rival Las Vegas'). Following on from this, we are now buoyed by the large number of investments slated for hotel construction.
|Huge 2012 Gains|
|Philippines - Major Developers - Alliance Global Group Inc., Yearly Share Price Performance (LHS)/Ayala Land, Vista Land, Empire East Land, Yearly Share Price Performance (RHS) (Rebased November 2011)|
Alongside the four casino-led builds slated for Manila's 'Entertainment City' (including AGI's US$1.2bn Resorts World Bayshore venture with Genting Hong Kong), the real estate development arm of AGI - Megaworld Corporation - has recently announced that it is to construct two hotels and a mall to complement the PHP450mn Iloilo Convention Centre.
Following our positive appraisal of Philippine developers over Q412 ( see our online service, October 19, 'Good Year Ahead For Developers'), property major Ayala Land has announced that it will construct an additional five hotels, spending between PHP650mn to PHP850mn on each. CHMI hotels and residences is aiming to be the first domestic developer to crack the five-star market, and is aiming to expand into areas such as Cebu over 2013. In addition, local budget developer Tune Hotels have announced plans to outlay US$25mn on budget hotels with 5 scheduled for construction over 2013. The fact that the majority of new hotel infrastructure is being invested in by local developers (although, as with Indonesia, we expect strong investment from US-based hotelier Accor who have realigned their investment strategy) supports our view that improving monetary conditions will reignite private sector interest in construction over 2013.
|Chinese Upping The Ante|
|Philippines - Visitor Arrivals (LHS)/Visitor Arrivals By Place Of Origin, 2011 (RHS)|
Government Must Capitalise On Growth Potential
According to the Philippines's National Statistical Coordination Board, as measured by the share of tourism direct gross value added (TDGVA) to total gross domestic product (GDP), the contribution of the tourism industry to the economy grew to 5.9% y-o-y over 2011, having averaged 5.8% since 2000. The number of visitors entering the country increased by 11.5% y-o-y, with new East Asian demand, especially that of Chinese tourists, continuing to swell growth in the sector. Inbound tourism expenditure increased by a slightly higher amount, 13.9% y-o-y over 2013, from PHP109.2 to PHP124.5bn.
As we have previously remarked, the positive outlook for the Philippine consumer will be the core driver of demand. Over 2011, domestic tourism expenditure increased 27.1%, from PhP783.4bn to PhP995.7bn, and we expect this trend to continue in-line with improvements in macro conditions and in national infrastructure links. The Tourism Department have announced that they expect demand from retirees to double over the coming five years.
Although tourist numbers are on the rise, it is our view that the extent and success of new hotel builds will hinge upon the level of government support for the broader infrastructure space - in terms of investment, marketing and monetary policy. In this respect, we have seen a significant commitment made to improve the country's underdeveloped transport network. The government announced in July 2012 that it has budgeted PHP404.6bn (US$9.7bn) worth of infrastructure spending for 2013, with about a third of the funds - PHP152.9bn - allocated to the Department of Public Works and Highways to build roads, bridges, ports and airports. The Philippine Economic Zone Authority (PEZA) gives significant tax breaks to developers looking to build in the country's special tourism zones, yet recently restricted this ruling in the booming areas of Metro Manila, Cebu City, Mactan Island and Boracay Island to those developers already signed up to the scheme.
One downside to our forecast evident from the developments is the continuing dearth of FDI into the sector. We believe that this trend may continue in the medium term, as the country's risk environment continues to dissuade foreign capital. However, on the back of our outlook for an improving domestic consumer story high growth potential in the tourism market, we currently believe that this is one avenue which international players will look to tap sooner rather than later.