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Concepcion Industrial (CIC PM — US$91 million) is an appliance company selling air conditioners and refrigerators in the Philippines.
The business was started by the Concepcion family in 1962. One year after being formed, it received exclusive distribution rights for Carrier-branded air conditioners in the Philippines. In 1987, Concepcion launched its own brand, “Condura” — now one of the top five brands in the country. And more recently, Concepcion has become a distributor for China’s Midea and Shark/Ninja brands.
In addition to consumer appliances, Concepcion also has a large commercial segment, where it installs HVAC systems or elevators in commercial or industrial properties across the country.
So what are the key drivers of the business?
- In the consumer segment, the weather is an important factor, as is the Philippine Peso/US Dollar exchange rate, as many of the components are imported from overseas.
- In the commercial segment, the key factor is the construction cycle, which itself is reliant on the availability of credit.
COVID-19 had a significant impact on the Philippine consumer appliance industry, forcing stores to close and leaving households short on cash. In the consumer business, profits are still below their 2019 levels. Concepcion has also seen greater competition from China’s Haier, Hisense and TCL. Data from Google Trends shows that the key Carrier brand has lost consumer mindshare.
Meanwhile, the commercial segment has now completely recovered from COVID-19. The outlook is positive, with the government pushing large-scale infrastructure projects, including the modernization of key airports.
If you combine the two segments, earnings are still down vs the 2019 level. The operating margin has gone from 18% in 2016 to just 8% today. So Concepcion remains somewhat of a turnaround story.
One exciting aspect about Concepcion is that they just hired a new CEO, Ariel Fermin. This marks a break from the past, as he’s the first outside CEO to run the business. Third-generation leader Raul “Jojo” Concepcion justified the decision saying that they were:
“lucky to find Ariel, who’s very capable... There are many family businesses that give the keys to their children who may not have the experience, capabilities or maturity to run things.”
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