ALLIANCE GLOBAL GROUP, INC.

Date: 11/4/20 Current Price: 8.18 PHP Ticker: AGI (PSE)

Business Description Source: WSJ

Alliance Global Group, Inc. (AGI) is a conglomerate in the Philippines, based in Eastwood Avenue, Quezon City.
It was founded by Andrew L. Tan, incorporated on October 12, 1993 and listed its shares on the Philippine Stock
Exchange in 1999. AGI is engages as a glass-container manufacturer and expanded its operations through the
following sectors: (1) food and beverage business, (2) real estate, (3) tourism-entertainment and gaming, and (4)
quick service restaurant business. Through its main subsidiaries, namely (1) EmperadorInc, (2) Megaworld
Corporation, (3) Travellers International Hotel Group, Inc, and (4) Golden Arches Development Corporation, AGI
provides products and services that furnish the needs of the middle-income sector.

Emperador Brandy (EMP) is the world’s best-selling brand, acquired by AGI in 2013. It is the first
brandy label launched in 1990. Also, it enjoys 47% share of national sales volume of total spirit products.
In 2014, Emperador has a good fortune to acquire 100 percent of Whyte and Mackay. Through its wholly
owned subsidiary, Emperador Distillers, Inc. (EDI), EMP has established its identity in alcoholic beverages
business with stable growth and paramount quality of its liquors.

Megaworld Corporation (MEG) is transforming the Metro Manila landscape through a series of large-
scale residential and office developments including urban centers integrating office, residential and
commercial components as well as hotel and leisure. The Company was incorporated under Philippine law
on August 24, 1989 to engage in the development, leasing and marketing of real estate. MEG is the number
one residential condominium developer in terms of number of units completed and units to be completed
based on all projects launched. This is the largest among other subsidiaries.

Travellers International Hotel Group, Inc. (RWM) is the developer and operator of Resorts World
Manila, the first and largest integrated tourism resort in the Philippines. The Company is a joint venture
partnership between AGI, and Genting Hong Kong Limited (“GHK”), a company with shares listed on The
Stock Exchange of Hong Kong Limited which commenced in July 2008 following the Company’s award
of a gaming license from PAGCOR on June 2, 2008. It engaged mainly in hotel, restaurant, leisure park,
and entertainment center projects, as well as other related businesses. The group turned in 20% of AGI’s
total revenues.

Golden Arches Development Corporation, the local master franchise holder and operator of McDonald’s
fast food chain in the Philippines that is incorporated in 1980, is a private, domestic, multibillion company
that engages in quick service restaurant sector. For more than 30 years of business in the country,
McDonald’s caters its great food and convenient service for families and friends to enjoy with.
Industry Overview
AGI engages in various sectors through the following flags:
 MEG – Real estate business; large-scale residential and office developments
 EMP – Food and beverage business; manufacturing, bottling and distributing alcoholic beverages
 RWM – Tourism-entertainment and gaming; hotel, dining and other leisure amenities
 GADC – Quick service restaurant

At present, the Philippines GDP contracted 15.2 percent quarter-on-quarter in the June quarter of 2020,
after a 5.1 percent decline in the prior period. This was the deepest quarterly contraction on record, as the
COVID-19 pandemic took a huge toll on the economy. Industry output collapsed (-21.7 percent vs -8.4 percent
in Q1), mainly due to manufacturing, construction, mining and quarrying, and electricity, steam, water, and
waste management. Also, services plunged 14.5 percent, following a 5.1 percent drop in the prior quarter,
driven by transportation and storage, and trade and other services. Meanwhile, agriculture, forestry, and fishing
rose by 1.2 percent, after a 1 percent fall in Q1. Top contributors to the growth were palay, sugarcane, and
agriculture support activities. On the demand side, household consumption tumbled 14.5 percent, driven by
transport, restaurants and hotels, and recreation and culture. 
Source: National Statistics Office of Philippines
Industry Growth Rates

Actual Previous Highest Lowest Dates Unit Frequency

-15.20 -5.10 3.40 -15.20 1998 - 2020 percent Quarterly

Calendar GMT Actual Previous Consensus TEForecast

2019-11-07 02:00 AM Q3 1.6% 1.4% 1.6%

2020-01-23 02:00 AM Q4 2.2% 1.9% 1.8%

2020-05-07 02:00 AM Q1 -5.1% 1.8% -2.3%

2020-08-06 02:00 AM Q2 -15.2% -5.1% -4.8%

2020-11-10 02:00 AM Q3 -15.2% 1%

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Macroeconomic Indicators

Markets Last Reference

Currency 48.34 Nov/20

Stock Market (points) 6464 Nov/20

Government Bond 10y (%) 3.04 Nov/20

Overview Last Reference

GDP Growth Rate (%) -15.2 Jun/20

GDP Annual Growth Rate (%) -16.5 Jun/20

Unemployment Rate (%) 10 Sep/20

Inflation Rate (%) 2.3 Sep/20

Inflation Rate Mom (%) 0.1 Sep/20

Interest Rate (%) 2.25 Oct/20

Balance of Trade (USD Thousand) -1707670 Sep/20

Current Account (USD Million) 1041 Jun/20

Curre Y77nt Account to 2.2 Dec/19

GDP (%)

Government Debt to GDP (%) 41.5 Dec/19

Government Budget (% of GDP) -3.5 Dec/19

Business Confidence (points)8 -5.3 Sep/20

Consumer Confidence (points) -54.5 Sep/20

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Markets Last Reference

Corporate Tax Rate (%) 30 Dec/20

Personal Income Tax Rate (%) 35 Dec/19

Coronavirus Cases (Persons) 387161 Nov/20

Coronavirus Deaths (Persons) 7318 Nov/20

Coronavirus Recovered (Persons) 348967 Nov/20

Economic Indicators for Philippines including actual values, historical data charts, an economic
calendar, time-series statistics, business news, long term forecasts and short-term predictions for Philippines
economy.

AGI’S FOCAL POINTS

Sales Rebound in the Alcohol Sector Despite Strict Regulations
The Sin Tax Law was first implemented in 2013. Its implementation marked a new taxation structure for alcoholic
drinks, based on their type, selling price and alcohol content. Despite of an incremental increase of 4% sin tax per
year starting on 2014, Total sales value of alcoholic beverage are still growing from 1.24% in 2014 to 1.26% in
2015.Sales increased at a compounded annual growth rate of 4.71% from 2012-2015 an despite of the strict
legislation in selling alcoholic drinks; (1) Anti-Underage Drinking Act (2) Anti-Drunk and Drugged Driving Act
(3) Regulated advertising of alcoholic drinks.

Escalating BPO industry Stimulates Rental Income

Asia Pacific belongs to the top 3 markets that have most potential for growth in real estate industry. Rental income
of Mega world contributed 19.40% to the consolidated revenues and amounted to Php8.73 billion compared to
Php7.07 billion reflected last year, a 23.46% increase. The main contributor to the growth is the increase in demand
for office space from BPO Companies. However, this has been decreased today due to coronovirus pandemic where
work has been adapted to into new normal with the concept of ‘work from home’. Most of the companies resort
,with this set-up just to follow safety protocols and help the government in containing the virus. Thus, instead of
working in an offices, some are now given computer set and internet at home to perform their workload.

Buoyant Economy Drives Growth in Property Sector

The industry is on an upturn with fairly stable growth among all subsectors. The escalating economic growth during
the year was magnified by the office property market, where high occupancy levels have been supported by the
BPO industry and offshoring and outsourcing sector. The recovery of the manufacturing sector has led to increased
demand for industrial space, with a further boost set to come from the implementation of infrastructure projects.
Though there are delays in completions due to the acute lack of skilled workers, approximately 3,800 residential
units were added to the metro manila stock in the 2 nd quarter of 2016. The hotel industry is gearing for more
development as local and international brands expand. Rental revenues accelerated to Php8.7bn, 23% growth year-
on year from 17% in 2014 on sustained climb of rental rate, 99% occupancy rate and leasable space expansion
which for this year is guided at 60,000 sqm. for office and 100,000 for mall space. However, a huge decline took
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place since first quarter of 2020 due to global pandemic. An economy freeze took place and work set up has shifted
from offce to home. A lot of estbalishment has been forced to close and utilize the use of internet and conduct
online work and business. AGI really experience great loss during this times due to store closing, decrease in
purchasing power of it buyer and such.

Real Estate Industry to Withstand External Headwinds

The impeding interest rate hike by the US Federal reserve and such called “Brexit” have no major impact to the
property sector as the country is considered to be one of the domestically driven economies in Asia. With the
central bank deciding to keep policy rates steady, which is also supported by excess reserves mainly for external
shocks, confidence among foreign investors is expected to remain strong, sustaining the robust investment market
in the Philippines despite the fact that there is an anticipated increase in vacancy rates due to the large incoming
supply completed in 2017 and 2018. But this has been affected too because of decline in purchasing power of the
people resulting to the decline in sales and rental income. However, AGI is still working out on it to bounce back
with the decrease they have experienced due to the crisis.
Leveraging on opportunities
The Tourism which is before considered a sunshine industry according to Department of Tourism is one of the
largest industry being shaken by the current crisis. The time that the virus has spread out, different countries has
banned flights going in and out of hthe countries to contain the virus. Thus, travel industry has been frozen as well
and its just months ago when some of the airlines has allowed flights but still, with restriction and requirements
align to safety protocol. However, since the last few years became an opportunity, Travellers International Hotel
Group took this as an opportunity for the expansion of Resorts World Manila Phase 2 and 3 with P8 billion budget
allotted. Thus, due to the stability it has created in the market, AGI is still looking for way out of the loss they have
incurred due to pandemic and has higher hope to adapt the new normal for the meantime.

High Population Growth Pushes Demand for Infrastructure

Before the global pandemic and for sure, regardless of the crisis, Philippine population has been growing at a stable
rate of 1.2% year on year since 2012. Its population is also very young, with approximately 53% below the age of
25. This trend is positive for consumer demand and could spur further infrastructure improvements that would
benefit real estate and hotel industry.  

Increasing Level of Unemployment Rate Affects the Demand for Consumer Goods
It is rational to think that people will purchase more if they are receiving a steady income and expecting to
continue receiving one. Total Household spending in the Philippines has a growth rate of 6.18% from 2012-2015
with 42% of the total expenditure coming from Food and Non-alcoholic beverages.
Median age population has a growth rate of 1.02% from 2012-2015, this shows rate of young employees who can
contribute to economic activity like in key sectors such as food service industry. It is expected that country’s
population will enter a demographic productivity “sweet spot” when the majority of median age enter the labor
force. However, due to the freeze in economy that happened, lots of Filipinos has loss their jobs resulting to decline
in purchasing power of the consumer. This affect the company negatively in a way that this decrease the inquiry
and transactions to the products and services they offer.

Competitive Positioning
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EMP Leads the Spirits Category
Being one of the top market makers in alcoholic beverages, EMP accounted
Top 5 Players in the
for more than 12% of the total market share next to San Miguel Corporation.
The majority of the EMP’s total sales comes from the Spirits category with Alcoholic Industry
43% market share, driven by its volume sales of brandy and was aided by the San Miguel Corp. 1
acquisition of Whyte and Mackay. In 2015, it was the frontrunner in the
overall spirits. The retail consumer expenditure on alcoholic drinks has Alliance Global Group 2
maintained its momentum since 2010, with a CAGR of 6.56%, mainly Tanduay Distillers Inc. 3
because of the new products being offered. Such new offerings shall have a
SABMiller Plc 4
long-term positive impact to the entity and shall maintain its competitiveness
as it expands globally. Although there has been a growth decline in the Asia Brewery Inc. 5
alcoholic beverage subsector, the wine category remained strong at 6.4% year
on year change and fastest growing category as it recovers rapidly from the
increased excise taxes imposed on alcohol products. Source: Euromonitor

MEGBeing the Top Residential Condominium Developer

The principal bases of competition in the real estate development business are location, product, price, financing,
execution, completion, quality of construction, brand and service. Megaworld is the number one residential
condominium developer in terms of number of units completed and units to be completed representing about 17%
of the market. The Company attributes its strong residential sales to two main factors – the popularity of its live-
work-play-learn communities and the Company’s proven track record of delivering more than 320 buildings to its
customers over the last two decades.

RWM Remains Competitive

Travellers International Hotel Group, Inc., being the first integrated resort with world-class gaming in the
Philippines, has a market leader position, a benchmark in a very high and unique manner and more superior
margins from cost efficiencies. It caters a diversified range of local and international visitors (1)Mass Market
players (2)Premium Mass Market players (3)VIP Players. The company remained competitive by further
undertaking extensive expansion with the development of several new hotels and other gaming and non-gaming
attractions (Phase 2 of RWM and Phase 3 of RWM). The company continuously attract both the domestic and
international guests through its vast offerings within an easily accessible location. Although the company faces
challenges in it gaming facilities, its non-gaming segment registers 26% growth in revenues with Marriott grand
ballroom contributing 16% in total, enabling the company to remain optimistic.

GADC Expanding Its Reach via the Launch of New Outlets

Golden Arches Development Corp ranks third in consumer foodservice in the Philippines and the second major
chained player after Jollibee Foods Corp. The continuous expansion of McDonald’s outlets in the country,
introduction of new offerings, and aggressive advertising/ promotional campaigns contributed to the growth of the
Company. McDonald’s international brand makes it more premium in terms of image compared to Jollibee. Also it
offers affordable menus that cater majority of Filipinos consumers as most of them belong to the mass-market
segment. The company aims to increase its network of outlets to 500 in 2016. it was achieved but the pandemic has
forced some of its branches to close due to the loss they incurred.

INDIVIDUAL ANALYSIS

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EMPERADOR (Alcohol Beverage Industry)

INDUSTRY OUTLOOK
The rapid urbanization and changing lifestyle where more women are joining the workforce had led to
increasing consumption of alcoholic beverages.According to Report linker (Canadean ltd) The Philippines’
alcoholic beverages market growth at a CAGR of 5.2% during 2014-2019 in value terms due to increase in
purchasing power because of growing disposable income. The Specialty Spirits category is forecasted to have
the fastest value growth at a CAGR of 7.6% during 2014-2019. The opening of more craft bars and restaurants
will help to propel the expected total volume CAGR.The demand for low-priced domestic Brandy has been
growing in the Philippines driven by rising population and expanding middle-income population.Asia Pacific
remains in third place after Europe and the Americas amongst the top wine consuming continents in the world.
Between 2013 and 2017, Asian consumption as expected, grows by 22.84% to reach 355.89 million 9-litre
cases. The introduction of more imported alcoholic beverages in the market, as well as the increasing number of
establishments (restaurants and bars) will help to sustain the growth of whiskies in the on-trade channel.The
brandy category is expected to increase since emperador acquired the leading imported brandy in the
Philippines (Fundador) it will have a wider distribution.
Despite the excise tax on wine, the rising number of middle-and higher-income consumer will be expected to
sustain the growth of wine, particularly in on-trade establishment.

INDUSTRY LIFE CYCLE

Since growth opportunities are few compared to existing business, many members of the industry endeavor to
diversify their offerings to better compete and gain share. The Filipino Spirits market is highly competitive with
the leading brands like Emperador, Ginebra and Jose Cuervo etc. Also, volatile commodity costs will challenge
managements to protect profitability. Thus, the alcohol industry is in the mature phase of its life cycle.

PORTER’S 5 FORCES
Buyer power
Buyer power will depend on the buyers’ reliance and preferences on alcoholic beverages. Buyers in this
segment are on-trade and off-trade businesses. A number of buyers diminish their power to some degree. Brand
loyalty is of paramount importance in this market. Due to this fact, top players in the industry invest
substantially in advertising and marketing campaigns as these may contribute to the degree of product
differentiation which will lessen buyer power further. However, some retailers do not offer alcoholic products
exclusively; hence, they do not rely primarily upon the sales of these alone. Furthermore, a wide array of brands
available may boost buyer power. Overall, buyer power is MODERATE in the alcoholic beverage industry.

Supplier power
Suppliers are relatively fragmented when market is considered as a whole. Each category entails various inputs
or ingredients to form a product. Key inputs in producing spirits requires fruits, hops and barley as an example.
An many of these suppliers of such raw materials run individually, their impact in the market has weakened.
Consequently, the alcoholic retailers have a little incentive to substitute raw materials if they want to maintain
their product characteristics making the industry MODERATE in terms of supplier power.

Threat of new entrants

Investment in production equipment is a deterrent to enter the market. Hence, exit cost is also high. Surviving
companies in the industry should have economies of scale of production and continuous advertisements in order
to uphold and maintain high margins and to recoup up front expenses in equipment. However, high profit
margins and increasing growth will attract new competitors to enter the market. This will make threat from new
entrants MODERATE.

Threat of substitutes
Non-alcoholic beverages can serve as substitutes for alcoholic drinks. There are health benefits linked to the
ingredients, such as fruit, which have vitamin content. This is a counter argument to the potential harmful
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effects of too much alcohol intake. These health considerations can influence the performance of the industry
which may lead to changes in market trends. However, due to high level of product differentiation among
products and a wide array of non-alcoholic beverages that are offered, threat from substitute is enhanced and is
assessed as MODERATE as well.

Threat of competitors
The alcoholic drinks market in the Philippines is concentrated. San Miguel Corp. accounted for more than 70%
of the total volume in terms of company shares of alcoholic drinks, while 12% is taken by Alliance (Emperador
Inc. in particular). High degree of differentiation among competitors reduces rivalry to some extent. Hence,
rivalry is assessed as MODERATE.

SWOT ANALYSIS
Strengths

 Embedded market leadership position and steady growth; EMP’s “Emperador” brand is already
established its identity in the Philippines associated with status attainable even by the mass market.
 Strong branding is a significant entry barrier in the spirits industry
 Has a product portfolio that consists of its own brands from value to super premium as well as licensed
productS
 Has extensive distribution network, capturing both off-trade and on-trade channels and fortifying its
business internationally (Spain and United Kingdom). EMP is also able to leverage on parent firm Alliance
Global (AGI) to have better access to its target Markets.
 Targeted marketing
 The following iconic brands (Fundador is a Brandy de Jerez, Terry Centenario, TresCepas, Harveys)
manufactured and distributed from Spain is under EMP Group beginning March 1, 2016

Weakness

 Price volatility of raw materials which are largely commodities because of changes in global supply and
demand may hurt its limits

Opportunities

 The Philippines is the third largest consumer of alcohol following South Korea and Russia (according to
the Manila Bulletin).
 Filipinos’ eating habit boosts food, beverage sector growth supported by the rising disposable income
 Opportunity to increase market share, establish consumer brand loyalty and build image through active
brand promotion and advertising
 Continues premiumization of its products portfolio
 The Government does not regulate the price of alcoholic beverages in the Philippines.

Threats
 Growing competition from several international companies as well as local andregional companies in
the countries in which it operates.

MAJOR COMPETITORS

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Emperador Brandy (EMP)ranked second ̶ next to San Miguel Brewery Inc. ̶ with a market share of 12% on
2015. Tanduay distillers, SABMIller plc and Asia Brewery Inc. are the other major competitors of EMP in the
beverage industry in the Philippines.

MEGAWORLD (Real Estate Industry)

INDUSTRY OUTLOOK
Real estate sales are expected to hit Php32.2bn, 4% higher than last year’s estimate or almost steady.Demand
for office spaces is anticipated to remain strong, driven by the O&O (outsourcing and offshoring industry)
sector. This is also supported by high take-up or pre commitments among upcoming office developments in
Metro Manila.The residential condominium market is projected to maintain its upward trend in the next few
quarters. The continued inflow of OFW remittances and increasing employment from the expansion of O&O
firms increased the purchasing power of Filipinos and supported entry and expansion of both local and foreign
retailers. Rising household incomes due to improving economic conditions in the country are likely to fuel
further demand for both luxury and affordable accommodation.Among the big players to ramp up constructions
of township projects in 2016 will be Megaworld, which has earmarked record capital expenditure allocation.
The country’s BPO sector is also expected to surpass revenue from OFW remittance within the next decade,
according to the BSP.

INDUSTRY LIFE CYCLE

The Real Estate Industry in the Philippines is in the Stabilization and Market Maturity Phase of the Industry
Life Cycle.
The underlying factors of this are:
 significant competition within the industry,
 current and projected average growth,
 more normalized Return on Capital – Return on Assets and Return on Equity

PORTER’S 5 FORCES
Bargaining Power of Buyers- LOW
The growing demand for real estate properties from low-cost to high-end buyers makes the industry’s
bargaining power of buyers low.
Consumers cannot influence the profitability of the industry as numerous competitors provide very close price
ranges.
 increasing OFW remittances
 rising demand for BPOs

Threat of New Entrants- LOW to MODERATE

Entering the real estate sector in the country would require a vast amount of capital in order to operate and
compete with numerous players in the industry.Another significant barrier to entry in terms of distribution
channels would be having enough capital to undertake large-scale advertising and marketing.

Threats of Substitute Products- HIGH

The real estate industry as a whole has no substitutes. In the context of looking within, there can be found a lot
of substitutes:
e.g Ayala Land, SM Prime, Filinvest Land, Inc..They offer the same properties with the same functionalities,
which are seen as substitutes.The switching costs of consumers are lower, due to the similar prices that
developers offer; thus, making the threat of substitution higher.

Rivalry among Existing Competitors- MODERATE to HIGH

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The competition in the real estate sector has been tight as it was compared to “street fighting” in the residential
segment.
Numerous developers exist in the real-estate industry; however, the domination of top players:
 Ayala Land Inc.
 Megaworld Corporation
 SM Prime Holdings, etc.

Bargaining Power of Suppliers- MODERATE

Suppliers of the meet the different companies of the industry at the middle. They could not impose too high and
too low bargaining power as they have already been tied up and contracted with established companies.

SWOT ANALYSIS
Strengths

 Sustained a diversified development portfolio The Company intends to maximize earnings, continue
to pursue revenue and property diversification as it develops community townships with the live work-play-
learn concept, mixed-use residential and commercialdevelopments located throughout Metro Manila, Cebu,
Iloilo and Davao.

 Branding and reputation The Company continues to enhance its branding and reputation by
maintaining an in-house marketing and sales division for each of its projects who exclusively market the
Megaworld brand.

 Competitive position in the market The Company has competitive edge over others due to the prime
locations of its properties, innovative projects and a good reputation for high quality designs, affordable pre-
sales financing, after-sales service and a consistent track record of completion.

Weakness

 Inconsistent Business InterestMegaworld’s interests of joint development partners for the Company’s
development projects may differ from the Company’s and they may takeactions that adversely affect the
Company.

 Insufficient manpowerMegaworld Corporation has insufficient manpower in relation to workload, for

development of coordination per department, ample transactions per employee. This prevents the company from
completing its consumer service on time.

Opportunities

 Further growth of tourism in the Philippines. DOT projecting international tourist arrivals to reach 6
million by end-2016,driving demand for hotel accommodation.

 Continued Growth of Population. Growing population have provided opportunities for the real estate
industry. It can increase the market for real property investment which would help the company to increase and
boost their revenues through the years.

 Unstable Employment Rate. According to Philippine Statistics Authority, the employment rate
increased from 93.4% in January 2015 to 94.2% in January 2016. But decreased by 10% in 2020 due to
pandemic.

Threats

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 Low Cost Competitors. The company is into catering middle to high income clients. Their competitors
that offer lower or budget friendly amortization become its trigger in reducing their future sales. Some of the
prospect buyers might shift in choosing and buying more budget friendly property.

 Inability to Acquire Land for Future Development. Megaworld is dependent, in large part, on the
availability of land suitable for development. As the Company and its competitors attempt to locate sites for
development, it may become more difficult to locate parcels of suitable size in locations and at prices acceptable
to the Company.

MAJOR COMPETITORS
Megaworld Corporation (MEG)is the top three real estate industry in the Philippines with a market capitalization
of Php. 131.31B. Ayala land Inc. is one of MEG’s significant competitors when it comes to community townships
developments. But with respect to office and retail leasing business, it has many competitors such as RLC, ALI and
SMPH.

TRAVELLERS INTERNATIONAL (Hotel and Gaming Industry)

INDUSTRY OUTLOOK
A further slump in the Philippine casino industry is expected as a result from the gaming slowdown in Macau
by the end of the year. Despite the slowdown, Bloomberry Resorts Corp (the company behind Solaire Resort
and Casino) and City of Dreams Manila believe that an improvement in earnings will be registered next year.
The report also pointed to the fact that Philippine casino operators have altered their strategy by attracting more
mass market players in a bid to increase revenue. According to experts, this change would result in lower (as
compared to what could be generated from VIP gambling customers) but stable revenue in the long term. The
growth of gaming/casino revenues is driving hotel demand. To remain competitive, incorporating a hotel and
casino concept is a natural integration to stay in the game. Investment bank Credit Suisse forecasts Philippine
casinos to generate gaming revenue of $6 billion by 2018, potentially making the country one of the top four in
the world. Colliers, in its 2015 Philippine Research and Forecast Report, also concurred that substantial hotel
room stock will be added in 2016.The Philippines' large domestic market is expected to sustain the gaming
industry, more so than its casino hub neighbors Macau and Singapore.The Philippines also has the fastest
growing working age population. The accelerating wage growth, higher spending power, consumer confidence
all point to favorable demand prospects.

INDUSTRY LIFE CYCLE

Changing competitive forces of potential entrants, industry rivals, customer markets, and substitute products are
the evidence that the industry is in the mature phase of its life cycle. As the industry continues to mature, club
management needs to adapt to these intensifying competitive forces if the hotel and gaming industry is to
maintain its level of appeal and profitability. Like all products, gaming does have a saturation point, beyond
which new products tend to cannibalize existing products which occurs in the mature phase of its life cycle.

PORTER’S 5 FORCES
Bargaining power of buyers
Brand recognition is the key to attract customers. Differentiation between brands is important, as one brand
becomes synonymous with price, quality or a target age group. Therefore, top players have a wide portfolio of
brands ranging from budget to extravagant hotels to cater their customers. In addition, innovation is paramount
in attracting customers especially when price is closely linked to customer’s perception of quality. In the
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premium market, players can attract customers by offering more amenities, such as gym, spas and the like,
which reduces buyer power. As customers are numerous and mostly small in size, their buyer power is reduced,
since the impact of losing one customer is not a significant threat to business. However, if the number of
travelers falls, buyer power is driven up, as consumers have more options available, often at a lower price point.
Overall, buyer power is assessed as moderate.

Bargaining power of suppliers

Real estate companies are often much smaller companies and they are usually local to the property they
develop, which reduces their financial muscle and ability to negotiate favourable contracts. Those supplying
technology are not wholly reliant on the hotel industry due to the wide applicability of technology systems.
Staff costs are significant as success in the hotel industry is strongly influenced by the quality of the service
provided, which strengthens supplier power. However, advances in check-in and booking technologies have
resulted in the requirement for fewer staff overall. Suppliers are not likely to forwards integrate on a large scale
due to the lack of synergies between their core businesses and the hotel & motel industry. Supplier power is
assessed as moderate overall.

Threat of new entrants

It is likely to enter the industry easily by opening a small hotel as a sole proprietor. However, the industry is
capital intensive, which requires large up-front investment in infrastructures. In addition, the uptrend market
growth will attract new entrants into the hotel industry. Thus, threat of new entrants is moderate.

Threat of substitutes
Substitutes to hotels include alternative forms of leisure accommodation, such as camping facilities or
recreational vehicles. Threat will also be magnified by the ability to stay with people in their own houses. While
some these substitutes have lower costs, hotels often provide additional benefits, such as restaurants and spas.
So when consumers are in a more affluent position, threat is likely to decline. This threat can be mitigated by
expanding into the threatening business area as hotel companies might maintain a range of private villas.
Overall, threat of substitutes is moderate.

Threat of competitors
Strong rate of market growth serves to alleviate rivalry somewhat in the hotel industry. Companies try to offer
more complex packages and value-added services, such as free breakfast, parking, and the like. However, exit
barriers in the industry are fairly high because most of the major tangible assets are highly specific to their
industry, and thus harder to divest. Threat of competitors is assessed as moderate.

SWOT ANALYSIS
Strengths

 Strategic location. It is located across NAIA Terminal 3 and nearest to Makati town centre
 Partnership between AGI and GHK (Genting Hong Kong Limited). GHK can leverage on its strong IR
track record, global network & extensive membership database
 AGI offers local ground knowledge, network & database, along with experience in property
development
 Limited restrictions on junkets & local gambling, supportive regulator (PAGCOR)

Weakness

 Lower exposure to higher spending Northern-Asia VIP

Opportunities

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 Philippines’s positive macro factors (1) growing young population (2) rising urbanisation (3) robust
GDP growth (4) increased discretionary spending
 Extensive Expansion projects Phases 2-3 expansions last 2017 doubled earnings and the development
of three further new hotel offerings (1)The Hilton Manila (2) Sheraton Manila Hotel and (3) Maxims II.

Threats
 Intense competition that could cannibalise RWM’s market share. Some competitors may have
substantially greater financial and other resources, which may allow them to undertake more aggressive
marketing and to react more quickly and effectively to changes in the markets and in consumer preferences.

 Negative security perception of the Philippines. Money laundering and cheating or other fraudulent
methods at gaming areas may harm its reputation and ability to attract customers, and materially and adversely
affect its business, goodwill, financial condition and results of operations.

 Regulatory developments. The Company’s results of operations could be affected by the nature and
extent of any new legislation, interpretation or regulations, including the relative time and cost involved in
procuring approvals for projects

MAJOR COMPETITORS
Travellers International Hotel Group, Inc. (RWM), being the first integrated resort with world-class gaming
in the Philippines, has set a benchmark in a very high and unique manner. They are the leading company in the
industry of hotel and gaming. However, Melco Crown entertainment and Bloomberry Resorts Corporation have
been making a competitive move.

GOLDEN ARCHES DEVELOPMENT CORP. (Food Service Industry)

INDUSTRY OUTLOOK
Fast food is expected to record a value CAGR of 6% at constant 2015 prices over the forecast period. The
growth can be attributed to growing younger population with rising disposable income, changing consumer
eating habit with more inclination towards attractively packaged fast food, growing number of dual income
households. There is also notable growth in the number of consumers from the middle-income segment who are
likely to dine-in frequently in full-service restaurants than fast food because they can afford to do so. Stiffer
competition within fast food is likely to result in the launch of more interesting and premium products, which is
set to increase sales per outlet in fast food over the forecast period.

INDUSTRY LIFE CYCLE

The Fast Food Restaurants industry is in the mature phase of its industry life cycle. This industry is in a low
growth phase currently and has possibly now reached saturation point, or is very close to it, in the domestic
market. Also, around a quarter of total industry revenue is controlled by multi-establishment and franchised
operators. Increasing demand for healthy foods away from high fat and high salt and supersize meals, as obesity
epidemic continues to rise tend to result in price-based competition in order to capture market share.

PORTER’S 5 FORCES
Competitive Rivalry or Competition with McDonald’s (High)
McDonald’s faces tough competition because the fast food restaurant market is already saturated. The strong
force of competitive rivalry is based on the following external factors (1) High number of firms (2) High
aggressiveness of firms (3) Low switching costs. Mostly medium and large firms aggressively market their

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products. Also customers can easily transfer to other restaurants which means that they experience low
switching costs

Bargaining Power of McDonald’s Customers/Buyers (High)

McDonalds has to be specialized in the product that they offer to their customers because there is no switch
costs for them and order to keep loyalty of customers. Furthermore, way of life is changing and people are more
aware of what they eat and looking for healthy food.

Bargaining Power of McDonald’s Suppliers (Low)

The weak bargaining power of suppliers is based on the following external factors (1) Large number of
suppliers (2) Low forward vertical integration (3) High overall supply. The large population of suppliers
because of the lack of regional or global alliance weakens the effect of individual suppliers on McDonald’s.
Company’s suppliers do not control the distribution network linked to McDonald’s facilities. Also, the relative
abundance and availability of materials like flour and meat reduces suppliers’ influence on McDonald’s.

Threat of Substitutes or Substitution (High)

The following external factors make the threat of substitution a strong force (1) High substitute availability (2)
Low switching costs (3) High performance-to-cost ratio. There are many substitutes to McDonald’s products,
such as products from artisanal food producers and local bakeries and these substitutes are competitive in terms
of quality and consumer satisfaction.

Threat of New Entrants or New Entry (Moderate)

The moderate threat of new entrants is based on the following external factors (1)Low switching costs (2)
Moderate capital cost (3) High cost of brand development. The moderate capital costs of establishing a new
restaurant makes it moderately easy for small or medium-sized firms to affect McDonald’s.

SWOT ANALYSIS
Strengths

 Well recognize brand McDonald’s has one of the most recognizable brands in the world and world’s
largest fast food restaurant chain in the world.

 Diversified Income: Since it was a large company with many locations, it can diversify its income. This
diversification allows McDonald’s to have relatively stable cash flows, and generate consistent profitability.

Weakness

 Negative publicity The Company has always maintained the view that its food is unhealthy; many
health conscious consumers don’t even consider having a meal though they are giving efforts to introduce
healthier products.

 High Employee Turnover Most jobs offering at McDonalds are low skilled and low paying. As a
result, there is a significant amount of employee turnover which lead to high training cost and affects the
productivity of workers.

Opportunities

 New and innovative technology ithelps the company to upgrade its menu to remain competitive in the
market
 Expansion plans McDonalds PHILIPPINES will achieve its goal of putting up 500 stores within the
year

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Threats

 Highly Competitive Market.The company competes on the basis of price, convenience, service, menu
variety, and product quality but unlike its competitors who come up with new products gradually, McDonalds
does not diversify its product regularly

MAJOR COMPETITORS
Golden Arches Development Corporation, ranked second in the Philippine Fast food sector with a market
share of 20.3% last 2015. Jollibee Foods corporation is their major competitor here in the Philippines ranking 1st
with respect to its market share. Yum! Brands Inc., Seven & I Holdings Co Ltd and Max's Group, Inc. are their
other competitors as well that is engaged in restaurant business.

SIGNIFICANT DATA RELATED TO AGI

Sales per Business
2018 2019 Delta
PHP (in Million) % PHP (in Million) %
Megaworld 56,906 37.6% 66,821 38.3% +17.42%
Emperador 47,038 31.1% 51,507 29.5% +9.5%
Golden Arches Development Corporation 28,620 18.9% 32,255 18.5% +12.7%
Travellers 22,412 14.8% 28,438 16.3% +26.89%
Unallocated Corporate 1,810 1.2% 967.73 0.6% -46.52%
Sales per region
2018 2019
Delta
PHP (in Million) % PHP (in Million) %
Philippines 156,785 103.5% 179,989 103.1% +14.8%
Equities
Vote  Quantity Free-Float Company-owned shares Total Float
Stock A 1 10,178,506,479 1,903,300,873 18.7% 451,193,400 4.4% 18.7%
Shareholders
Name Equities %
Andrew Tan 4,071,762,644 41.8%
Capital Research & Management Co. (Global Investors) 619,287,340 6.36%
Yorkshire Holdings, Inc. 471,873,508 4.85%
Altavision Resources, Inc. 451,570,334 4.64%
Globaland Holdings, Inc. 220,004,000 2.26%
Asiagroup Holdings, Inc. 220,000,000 2.26%

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Grand Belair Holdings, Inc. 220,000,000 2.26%
The Vanguard Group, Inc. 139,406,464 1.43%
Capital International, Inc. (Investment Management Singapore) 135,603,500 1.39%
Capital Research & Management Co. (World Investors) 123,500,000 1.27%
Holdings
Name Equities % Valuation
Emperador Inc. (EMP) 13,281,215,500 83.4% 2,709,367,962 USD
Megaworld Corporation (MEG) 20,667,265,882 64.6% 1,261,943,255 USD
MEGAWORLD CORP PFD 6,000,000,000 100.0% 366,360,000 USD
Suntrust Home Developers, Inc. (SUN) 100,000,000 1.38% 2,393,000 USD
Empire East Land Holdings, Inc. (ELI) 56,000,000 0.38% 311,920 USD

AGI’s RESPONSE TO CURRENT CRISIS

In response to all the mentioned eefects of COVID-19 pandemic to AGI, the company has developed 5-
point recovery strategy to address and resolve those downturns. Theyjhave made 5 important concepts in
adapting and recovering namely (1) Sustainability and Well-being, (2) Earnings Diversity, (3) Digitalization, (4)
Financial Flexibility and (5) Adaptability.These strategieshelps the company to bounce back from losses and
integrate the current situation into opportunities to adapt new ideas such as the use of digital devices,
diversification of investment for security and promote sustainable well-being in the company through
introduction and promotion of new sustainable goals and flexibility within the organization.

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