Industry Overview

7. EXECUTIVE SUMMARY OF THE IMR REPORT 7. EXECUTIVE SUMMARY OF THE IMR REPORT I”I\OlEt;}, ,l\SSOCl!.\r!’:~.; suN ~!’l[) “,j,”‘” :”.IlTE (-0(;-06, “i..;I!.A MONT’ l{lhi’U\ ‘J. J/\L,~.N ~\iMU” MO!\lT’ K!I\BA
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G[i’I +503 G101 930\ Fl\;X H,O;; 6:;'(11 }302 1\””{W.P I () tcG 9 ~ < ((l m > n'”/ The Board of Directors Chin Hin Group Berhad No. A-1-9, Pusat Perdagangan Kuchai, No.2, Jalan 1/127, Off Jalan Kuchai Lama, 58200 Kuala Lumpur.
:[3 FEB 2016 Dear Sirs,
Executive Summary of the Strategic Analysis of the Building Materials Industry in Malaysia This Executive Summary of the ‘Strategic Analysis of the Building Materials Industry in Malaysia’ is prepared by Protege Associates Sdn. Bhd. (“Protege Associates”) for inclusion in the Prospectus of Chin Hin Group Berhad (“Chin Hin” or “the Company”) in relation to the proposed listing of and quotation for the entire issued and paid-up share capital of Chin Hin on the Main Market of Bursa Malaysia Securities Berhad. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’dj
1

MALAYSIA ECONOMIC OVERVIEW
The Malaysian economy registered a strong finish in 2014. It expanded at a faster pace of 6.0 percent in 2014 on the back of continued expansion in domestic demand and an improvement in external trade performance. In the third quarter of 2015, the Malaysian economy registered a growth of 4.7 percent on the back of continued growth in domestic demand driven by private sector expenditure. The improvement in public spending and the turnaround in the net exports had also supported growth in the Malaysian economy. The construction and manufacturing sectors managed to grow at a faster pace of 9.9 percent and 4.8 percent respectively in the third quarter (“Q3”) of 2015 as compared to their performance in the second quarter of 2015. The former was boosted by faster expansion in the civil engineering and specialised construction activities sub-sectors while the latter was driven by an improvement in the export-oriented industries. The other three sectors recorded a slower growth in the third quarter of 2015. The lower growth registered in the mining and quarrying sector as well as the agriculture, forestry and fishery sector was due to a moderation in crude oil and palm oil production respectively. Meanwhile, a slower capital market activity and a moderation in household spending have led to a slower expansion in the services sector. The Malaysian economy is expected to grow by between 4.5 to 5.5 percent and by between 4.0 to 5.0 percent in 2015 and 2016 respectively. The services sector is expected to remain the largest contributor to the economy by accounting for more than half of Malaysia’s real GDP in 2015 and 2016. In terms of pace of growth, the construction sector is expected to register the fastest pace among all the key economic sectors in 2015 and 2016. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)

INTRODUCTION This report will begin with an introduction on the construction and building materials, followed by a comprehensive overview of the bUilding materials market, including trends and insights pertaining to demands for building materials specifically from the construction industry. 2.1 DEFINITIONS Construction Construction refers to the conversion of raw materials through the use of labour into various forms of buildings and infrastructures. Construction is not limited to buildings alone, but also includes bridges, dams, roads, canals, et cetera (“etc”). Building Materials Building materials, aiso known as construction materials or construction-related materials, refer to any material used for the purpose of construction. This could include natural substances such as sand, wood, rocks, etc. or manufactured bUilding materials such as concrete, metal, cement, glass, etc. which are used in various applications for construction purposes. In addition, finishing or architectural products which include ready-made items/sections made from different materials that form part of a building, be it for architectural or decorative purposes, can also be classified as building materials.
2.2 SEGMENTATION ANALYSIS 2.2.1 Market Segmentation The building materials industry comprises manufacturers and producers of building materials and also building materials traders/distributors. The construction industry is therefore heavily dependent on the building materials industry to:­• Produce basic metal, metal fabrication, wood and wood products, and non-metallic products 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
” “i,,.,,,, < • ” ” “”.1M””h•, • Supply construction materials which are essential to the building of houses, factories and many others Generally, the building materials distributors form an integral iinkage between the building materials manufacturers/producers to the respective end-users of building materials including property developers, construction companies, contractors, wholesalers, retailers, etc. There are also bUilding materials manufacturers/producers that supply directly to the end-users. Figure 1: Building Materials Industry and End-Users Imported Building Materlills
End”Users
Source: IMR Report Building Materials Manufacturing/Production Market participants in the building materials manufacturing/production segment are involved in the manufacture and production of building materials. They typically market their products through distributors or agents, while some may also distribute their products through their own or related-party marketing arms. Building Materials Distribution Market participants in the building materials distribution segment supply and distribute locally manufactured and imported building materials to the end-users, mainly from the construction industry.
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d) “J> 1~ (“t-:I:; gl;_.~ _I>.._Y’ , __ …….
A\S0 ‘ IA•;-:, ” ,,” N tJ End-Users Demand for building materials mainly comes from end-users such as property developers, construction companies, contractors, wholesalers, retailers, renovators, etc, who are also participants of the construction industry. 2.2.2 Types of Building Materials Figure 2: Main Types of Building Materials Categories
Source: IMR Report 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)
, ‘Y’ f\ !, ~ f, 3 ANALYSIS OF THE BUILDING MATERIALS INDUSTRY IN MALAYSIA 3.1 OVERVIEW OF THE BUILDING MATERIALS INDUSTRY The construction industry is an important component of the Malaysia’s economy due to its extensive linkages with the rest of the economy. The construction industry serves as a catalyst for national wealth creation and has a multiplier effect to other industries such as manufacturing, financial as well as other related supporting services. The construction industry further supports the social development of the country through the provision of basic infrastructures and employment opportunities. The prominence given to the development of the construction industry has given rise to the emergence and development of related industries such as various building materials manufacturing and production industries along with supporting services like building materials distribution. The following provide overviews of selected building materials industries in Malaysia: • Basic Metal Industry The basic metal industry plays a major role in the development of manufacturing and construction industry. The industry covers the primary processing and downstream manufacturing of ferrous (iron and steel) and non-ferrous (aluminium, tin, copper, zinc, lead, etc.) metal products. • Metal Fabrication Industry The metal fabrication industry is a well-established industry in Malaysia and it caters to a diverse range of fabricated metal products. • Wood and Wood Products Industry The wood and wood products industry is one of the major contributors to the country’s economy. Over the years, the wood and wood products industry has developed from a 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
primary processing industry to a more advanced and technology-driven industry producing a significant number of downstream value-added products. • Non-Metallic Mineral Products Industry The non-metaliic mineral products industry includes cement and concrete products, fibre cement and gypsum products, ceramic and clay products, glass, insulation materials, dimension stones and other non-metaliic minerals. Malaysia is a net exporter of non­metallic mineral products and some of the major exports include glass and glassware, iime, cement and fabricated construction materials. The bUilding materials industry has grown and evolved in tandem with the expansion in the construction industry. It is largely dependent on the construction industry and the outlook remains encouraging as the Malaysian construction industry continues to be driven by government-led initiatives and spending, a sustained economic growth boosting spending and investment in properties and steady population growth.

 

3.2 OVERVIEW OF THE CONSTRUCTION INDUSTRY The Malaysian construction industry has been on a growth trajectory since 2007. In 2015, the industry is expected to expand by 8.8 percent. Growth in the industry is expected to be iargely supported by the various projects under the Economic Transformation Programme C’ETP”) specifically the Klang Valley Mass Rapid Transit (“MRT”) project and other Entry Point Projects (“EPPs”) as well as other major infrastructure projects such as the Pan-Borneo Highway and the West Coast Expressway. Moving forward, the Malaysian construction industry is expected to expand by 8.4 percent in 2016, supported by the on-going mega construction projects. Figure 3: Performance of the Construction Industry in Malaysia, 2013­2016
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
,-,,,,, ‘.’ Notes: 1) % change is based on real GDP at constant 2010 prices; 2) e denotes estimate; 3) f denotes forecast Source: IMR Report In 2014, construction activities within the residential sub-sector improved following the completion of several properties, particularly terrace houses and condominiums/ apartments. Construction activities in the residential sub-sector increased in completions by 18.7 percent to 96,879 units in 2014 as compared to 81,639 units in 2013. Construction starts increased by 6.8 percent from 145,779 units to 155,667 units in 2014. In Q3 2015, completions within the residential sub-sector registered 62,512 units, or 7,898 units lower as compared to Q3 2014. However, construction starts within the residential sub-sector improved to 152,801 units in Q3 2015 as compared to 110,021 units in Q3 2014. Meanwhile, there were mixed results in terms of construction activities in the purpose-built offices sub-sector in 2014. The sub-sector managed to register almost a three-fold increase in construction completions from 141,685 s.m. in 2013 to 423,739 s.m. in 2014. However, construction starts decreased by 47.4 percent from 290,553 s.m. in 2013 to 152,771 s.m. in 2014. Occupancy rate remained reasonably high at 84.9 percent in 2014. By comparison, in Q3 2015, construction starts for the purpose-built office sub-sector showed a marked improvement, overtaking the total completions in Q3 2014. Construction completions for the sub-sector stood at 412,758 s.m. for the same period. In 2013, the shop sub-sector recorded a contraction in construction completions and starts by 1.5 percent and 2.9 percent respectively. In 2014, construction completions and starts within the shop sub-sector stood at 9,520 units and 17,429 units respectively. And in Q3 2015, both construction completions and starts within the shop sub-sector were higher as compared to the corresponding period in 2014. Construction completions and starts within the shop sub­sector stood at 7,490 and 18,474 units respectively in Q3 2015. The shopping complexes sub-sector saw a 52.7 percent increase in completions from 451,743 s.m. in 2013 to 689,982 s.m. in 2014. Construction starts for the shopping complex sub­sector also registered an increase during the year. Construction starts within the shopping complex sub-sector increased from 263,040 s.m. in 2013 to 378,269 s.m. in 2014. In Q3 2015, the construction completions of this sub-sector were more toned down as compared to Q3 2014, with a total area of 304,532 S.m. However, construction starts of shopping 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
, . ” “”., , “-“,,. complexes sub-sector was strengthened to 579,147 s.m., higher than the construction starts of the sub-sector in Q3 2014. As for the industrial property sub-sector, there was a double-digit growth registered in terms of completions and starts in 2014. Construction completions increased by 11.2 percent from 827 units in 2013 to 920 units in 2014 while construction starts surged by 37.9 percent from 1,924 units in 2013 to 2,676 units in 2014. In Q3 2015, construction completions and starts for the industrial property sub-sector stood at 709 units and 1,750 units respectively. In terms of the Malaysian Government policies and support for the construction industry, projects with a high positive impact on the citizenry and low import value are expected to be implemented, although there is a possibility that major government projects with low multiplier effect may be rescheduled. PreViously in the Budget 2015, the Malaysian Government announced the implementation of large-scale infrastructure projects such as the 59-kilometre (“km”) Sungai Besi-Ulu Klang Expressway (“SUKE”) at a total construction cost of RM5.3 billion, the 276-km West Coast Expressway from Taiping to Banting at a total construction cost of RM5.0 billion, the 47-km Damansara-Shah Alam Highway (“DASH”) at a total construction cost of RM4.2 billion and the 36-km Eastern Klang Valley Expressway (“EKVE”) at a total construction cost of RM1.6 billion. The Malaysian Government has also highlighted its intention to start construction of the 1,663-km Pan-Borneo Highway at a total construction cost of RM27.0 billion. Besides that, RM150.0 million has been allocated to upgrade the East Coast railway line along Gemas­Mentakab, Jerantut-Sungai Yu and Gua Musang-Tumpat. In addition, the MRT and light rail transit (“LRT”) are being expanded with the future construction of the 56-km Second MRT Line from Selayang to Putrajaya at an estimated cost of RM23.0 billion and implementation of the LRT 3 project linking Bandar Utama to Shah Alam at an estimated cost of RM9.0 billion. These large-scale infrastructure projects are expected to be a growth catalyst for the construction industry in Malaysia. Affordable housing has continued to receive close attention from the Malaysian Government. Measures related to affordable housing announced in Budget 2015 included the allocation of RM1.3 billion under the IMalaysia People’s Housing Programme (“PRiMA”) to provide 80,000 units of affordable houses and RM644.0 million under the People’s Housing Programme (“PPR”) for the National Housing Department to build 26,000 units of house. In addition, 12,000 units of ‘Rumah Mesra Rakyat’, 5,000 units of ‘Rumah Idaman Rakyat’ and 20,000 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
, ( .”J. “,_, , ~~” r. f{I.. , units of Rumah Aspirasi Rakyat are expected to be built on private land by Syarikat Perumahan Negara Berhad as announced in the Budget 2015. In another development, a wholly-owned subsidiary of the Employees Provident Fund C’EPF”), Kwasa Land Sdn Bhd (“Kwasa Land”), announced that Malaysian Resources Corporation Berhad has won the bid to develop the first parcel of land in the massive Kwasa Damansara project. Kwasa Land was established to undertake the development of 2,330 acres of prime land located in the Klang Valley following the mandate given to EPF to purchase this massive acreage for future development in the 2010 Budget announced by the Prime Minister of Malaysia. The land is expected to be developed under a 15 to 20 year construction plan and this is expected to provide further impetus for the growth in the local construction industry. On a more recent note, the Malaysian government reiterated its ambition in the Budget 2016 to improving the infrastructure in the country with continued support for the construction of SUKE and DASH, on top of the construction of the 32S-km Central Spine Road. As for the East Malaysia, the Malaysian government continues to support the construction of Pan-Borneo Highway alongside the construction of Mukah Airport in Sarawak and a 706-km highway from Sindium to Tawau. Allocation is also made for the expansion of MRT Line 2 and LRT Line 3 at an estimated cost of RM28 billion and RM10 billion respectively. Affordable housing continued to be highlighted by the Malaysian Government. Measures related to affordable housing announced in Budget 2016 included the construction of 175,000 units of affordable houses by PRIMA, 10,000 units of ‘Rumah Mesra Rakyat’ by Syarikat Perumahan Negara Berhad, 100,000 houses by Perumahan Penjawat Awam 1 Malaysia, 22,300 units of apartment and 9,800 units of terrace houses by PPR, In another development, a total of RM900 million has been allocated for the Jalan Tun Razak Traffic Dispersal Project, which is expected to ease traffic flow in the area and in turn increase demand for properties within the vicinity. Other projects such as the Malaysian Vision Valley, the Cyber City Centre in Cyberjaya, the KUA Aeropolis, the Rubber City in Kedah, the Samalaju Industrial Park in Sarawak and the Palm Oil Jetty in Sabah is expected to provide growth in the construction and property industry in Malaysia. Moreover, the construction industry is expected to benefit from government led initiatives and spending as outlined the Eleventh Malaysia Plan (“lIMP”). A higher total of RM260 billion has been allocated under lIMP for development as compared to RM230 billion under the Tenth ,———-­Company No.: 1097507-W~ 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)
Malaysia Plan. Around half of the allocation has been pegged for infrastructure development. Among the notable construction projects outlined in the llMP include the Tun Razak Exchange, KL1l8 Tower, Kuala Lumpur-Singapore High Speed Rail, 5 new power plants, the Pan-Borneo Highway, the MRT Line 2 (Sungai Buloh to Serdang to Putrajaya), the LRT Line 3 (Bandar Utama to Klang) and the Gemas-Johor Bahru Rail Double-Tracking. 3.3 MARKET DYNAMICS SCORECARD Due to the diverse variety and nature of building materiais, along with the multitude of requirements and market participants serving the building materials industry, the market size of the bUilding materials market is not readily available. The building materials industry is driven as a result of the demand created from the construction industry and is used as a direct assessment of the market performance of the bUilding materials industry. The market dynamics for the building materials industry rises in tandem with the construction industry, of which details are shown in Figure 4 below. Figure 4: Market Dynamics Scorecard for the Construction Industry in Malaysia
Note: * Construction industry size and growth rate at constant 2010 prices. The construction industry creates demand for bUilding materials and hence acts as a proxy to illustrate the growth of the building materials industry. Source: IMR Report 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)
3.4  HISTORICAL  MARKET  PERFORMANCE  AND  GROWTH FORECAST  Protege  Associates  has  provided  the  historical  performance  and  growth  forecast  of the
construction industry in Malaysia based on the primary and secondary research as well as analytical works conducted. The construction industry in Malaysia was worth approximately RM38.7 billion in 2013, representing a 10.8 percent growth year-on-year from 2012. The growth in the industry was supported mainly by the civil engineering sub-sector. Besides that, the residential and non-residential sub-sectors had also contributed to the growth in the construction industry. Protege Associates has projected the construction industry to grow at a CAGR of 8.5 percent for the 2014 to 2019 periods. Figure 5: Estimated Market Size and Growth Forecast for the Construction Industry in Malaysia, 2012 -2019
CAGR (2014 -2019): 8.5percent Notes: 1. *At constant 2010 prices;
2. All figures are rounded; the base year is 2014. Source: IMR Report

The bUilding materials market is largely dependent on the construction industry, and its outlook is encouraging in the light of favourable growth in the construction industry moving forward. In 2014, the construction industry expanded by 11.8 percent. Growth in 2014 was supported by the implementation of various projects under the ETP specifically the MRT project, the Tun Razak Exchange and other EPPs. Growth within the construction industry is also supported by the implementation of other major infrastructure projects such as the West Coast  Expressway  and  the  redevelopment  of  Pudu  Jail.  And  in  2015,  the  Malaysian  12  155
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
construction industry is expected to expand by 8.8 percent attributed by the on-going mega construction projects. Going forward, the construction industry is expected to continue growing and is estimated to reach RM64.9 billion in 2019. The forecast expansion in the construction industry will underpin growth in demand for building materials and this augurs well for the overall development of the building materia is industry. Factors driving growth in the building materials industry in tandem with the expansion in the construction industry include the government-led initiatives and spending, a sustained economic growth boosting spending and investment in properties and steady population growth. Much of the construction industry’s growth prospects from 2016 to 2019 hinges upon the speed and effective implementation of the various projects identified under the 11MP and ETP, along with the continued execution of various public-private partnership (“PPP”) projects. The implementation of civil engineering projects in the utility and transportation segment is expected to support growth in the construction industry. Support from the oil and gas segment, while usually being one of the key contributors to the Malaysian construction industry, may be lesser in the short term due to the declining crude oil prices leading to cuts in capital expenditure for oil and gas industry players.

3.5 COMPETITIVE ANALYSIS 3.5.1 Key Market Players The fluid and competitive nature of the market Chin Hin Group operates in has resulted in a wide differentiation and diversification in terms of products/service offerings and business models by market players. As such, it is almost impossible to perform a direct or like-far-like comparison on market participants within the building materials industry. Nevertheless, certain comparable market participants within the following bUilding materials segments namely manufacture of articles of concrete, cement and plaster, manufacture of structural metal products and distribution of bUilding materials has been identified for comparison purposes. These market participants encompass local companies and local subsidiaries of multinational corporations (“MNCs”) and are selected based on their business activities, products offering and involvement in the corresponding bUilding materials segment as well their size in tandem with their respective financial performance. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Protege Associates has conducted the research through a combination of both secondary and primary research. The main secondary researched were with the Malaysian Standard Industrial Classification and relevant associations, including the Malaysia Hardware, Machinery and Building Materials Dealers’ Association, the National Ready-mixed Concrete Association of Malaysia and the Malaysian Iron and Steel Industry Federation to ascertain a list of comparable market players. Then, Protege Associates conducted primary research with the market players in the local construction industry to further identify the closest comparable market players in each segment. Individual revenue numbers for each identified market players were also obtained through companies’ searches and annual reports of listed companies to supplement our findings and to determine their size in tandem with their revenue. The list of these players is not exhaustive and each player’s product offerings may not exactly coincide with others’. Market players may participate in one or more segments other than the indicated bUilding materials segment. Distribution of Building Materials The bUilding materials distribution market in Malaysia is highly competitive and fragmented with numerous market players ranging from small to medium size companies catering to the various needs of the local market. The distribution of building materials segment is estimated to value at RM30.7 billion in 2013. In 2014, the value of distribution of building materials segment is estimated at RM32.3 billion. Chin Hin Group is involved in the building materials distribution segments with its building materials distribution activities through PP Chin Hin. PP Chin Hin distributes a wide range of bUilding materials, ranging from basic bUilding materials (such as cement, steel reinforcement bars and mesh, bricks) to finishing products (such as wall and floor tiles, sanitary wares, bath fixtures, paints, timber flooring, doors, windows and pavers). In addition, Chin Hin Group is also involved in the manufacturing segment within the building materials industry. For comparison purposes, Figure 6 details selected other market players within the distribution of bUilding materials segment that register annual turnover of over RM200 million attributed to the said segment, and distributes similar bUilding materials as Chin Hin Group. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Figure 6: Selected Other Market Players within the Distribution of Building Materials Segment
Chuan Huat Resources Berhad (“Chuan Huat”)
• Incorporated in 1976;
• Listed on the Main Market of Bursa Malaysia;
• Principally involved in the distribution of building materials segment as a stockist of iron and steel, and as an importer and exporter of structural steel and other construction materials;
• Also involved in the manufacture and sale of welded wire mesh and hard drawn steel wires through its wholly owned subsidiary, CH Samawira Mesh Sdn Bhd;
• Its bUilding material product range includes concrete products, roofing tiles, polyglass fibre, cement and bricks, Window and door frames, terram, storage tanks steel pipe products, etc;
• For its FYE 31 December 2014, Chuan Huat registered RM708.7 million in revenue, including RM657.9 million of segmental revenue from trading of steel and iron products, building and construction materials of all kinds, and RM52.1 miilion recorded by CH Samiwara Mesh Sdn Bhd in the manufacture and sale of welded wire mesh and hard drawn steel wires;
• For its FYE 31 December 2013, Chuan Huat registered RM693.2 million in revenue, including RM638.6 million of segmental revenue from trading of steel and iron products, building and construction materials of all kinds, and RM60.2 million recorded by CH Samawira Mesh Sdn Bhd in the manufacture and sale of welded wire mesh and hard drawn steel wires;
• For its FYE 31 December 2012, Chuan Huat registered RM708.3 million in revenue, including RM648.3 million of segmental revenue from trading of steel and iron products, bUilding and construction materials of all kinds, and RM70.3 million recorded by CH Samawira Mesh Sdn Bhd in the manufacture and sale of welded wire mesh and hard drawn steel wires.

 

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d) ].p_~.~ .<!L /…, JL .J’ Il.-. ~ _A -‘.. ” ,,-.’ , i ~, ,, s ” ” ,.”‘”, , ,..A'”,’./. ,'”.”,,,,. ,
Harrisons Holdings (Malaysia) Berhad \,Harrisons Malaysia”) • Incorporated In 1990;
• Listed on the Main Market of Bursa Malaysia;
• A wholly owned subsidiary of Harrisons and Crosfield PLC;
• Principally involved in marketing, sales, warehousing and distribution of consumer, bUilding materials and engineering products, fine wines, agricultural and industrial chemicals, and the operation of shipping/ logistics and travel agencies;
• Involved in distribution of bUilding materials in Peninsular Malaysia through its subsidiary, Harrisons Peninsular Sdn Bhd;
• Its building material products include cement, steel, roofing products, building boards, etc;
• For its FYE 31 December 2014, Harrisons Malaysia registered RM1.4 billion in revenue;
• For its FYE 31 December 2013, Harrisons Malaysia registered RM1,4 billion in revenue, including RM218.7 million recorded by Harrisons Peninsular Sdn Bhd in distribution of building materials;
• For its FYE 31 December 2012, Harrisons Malaysia registered RM1.4 billion in revenue, including RM207.5 million recorded by Harrisons Peninsular Sdn Bhd in distribution of bUilding materials.

 

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
~ ” ,. ” i’ ,””., ,., ,< I M,~” ‘lI ,
• Incorporated in 1975 and listed on the Main Market of Bursa Malaysia in 1993;
• Involved in multiple business segments, including trading, property and investment holding, contracting, manufacturing as well as property development;
• Involved in the distribution of bUilding materials segment as a distributor and supplier of construction and finishing building materials, heavy steel products, architectural hardware, home improvement materials, cabinet systems, fuel and lubricants for the construction, infrastructural and manufacturing sectors and end users;
• Involved in trading of general building products through its subsidiaries, Ipmuda Berhad, Ipmuda Utara Sdn Bhd, Ipmuda Selatan Sdn Bhd, Ipmuda Timuran Sdn Bhd, Ipmuda Borneo Sdn Bhd Ipmuda Trading Pte Ltd and Ipmuda Buildermart Sdn Bhd;
• Also involved in the manufacture of kitchen or wardrobe doors and wooden mouldings through Roset-BLG Sdn Bhd;
• For its FYE 31 December Z014, Ipmuda registered RM635.5 million in revenue, of which 8Z.0 percent amounting to RM5Z1.1 million of segmental revenue in trading of bUilding materials;

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
, -,., “,( , M ~ I, ‘”
• For its FYE 31 December 2013, Ipmuda registered RM628.1 million in revenue, of which 82.0 percent amounting to RM515.0 million of segmental revenue in trading of building materials;
• For its FYE 31 December 2012, Ipmuda registered RM657.2 million in revenue, including RM585.5 million of segmental revenue from its trading division.

 

Wah Seong Corporation • Incorporated in 1994; Berhad (“Wah Seong”) • Listed on the Main Market of Bursa Malaysia;
• Principally involved in the provision of infrastructure and

services for oil and gas and renewable energy sector, oil palm lantation as well as distribution of infrastructure and 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
“”” N” J) .” ” “(, ,””.,,,,_ , •
building materials; • Involved in building materials trading and distribution in Peninsular Malaysia through its subsidiary, Syn Tai Hung Trading Sdn Bhd;
• For its FYE 31 December 2014, Wah Seong registered RM2.4 billion in revenue, including RMS31.3 miilion recorded by Syn Tai Hung Trading Sdn Bhd in trading and distribution of bUilding materials;
• For its FYE 31 December 2013, Wah Seong registered RM1.8 billion in revenue, including RMSS1.3 million recorded by Syn Tai Hung Trading Sdn Bhd in trading and distribution of building materials;
• For its FYE 31 December 2012, Wah Seong registered RM1.9 billion in revenue, including RM617.6 million recorded by Syn Tai Hung Trading Sdn Bhd in trading and distribution of building materials.

Source: IMR Report Manufacture of Articles of Concrete. Cement and Plaster The manufacture of articles of concrete, cement and plaster segment includes the manufacture of ready-mix and dry-mix concrete and mortars, precast concrete, cement or artificial stone articles for use in construction, prefabricated structural components for bUilding or civil engineering of cement, concrete or artificial stone, etc. The value of the manufacture of articles of concrete, cement and plaster segment is estimated at RMS.4 billion in 2013. In 2014, the value of the manufacture of articles of concrete, cement and plaster segment is estimated at RMS.2 billion. Chin Hin Group is involved in the manufacture of articles of concrete, cement and plaster segment with its manufacture of ready-mixed concrete (through Chin Hin Concrete (KL) and Chin Hin Concrete (North)), and its manufacture of precast concrete products (through G­Cast). Subsequently in 2014, Chin Hin Group commenced its manufacture of MC blocks and outsourced its manufacture of ready-mixed concrete. For comparison purposes, Figure 7 details selected other market players within the manufacture of articles of concrete, cement and plaster segment that register annual turnover of above RMI00 million attributed to the said segment.
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
i~;,gl’ “””””” -“‘c,’­,J • Figure 7: Selected Other Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment
Hanson Building • A subsidiary of HeidelbergCement AG; Materials Malaysia Sdn Principally involved in the manufacture of ready-mix concrete Bhd (“Hanson Malaysia”) • and concrete products; • Has over 40 ready-mix concrete plants serviced by approximately 400 mixer trucks in Malaysia;
• For its FYE 31 December 2013, Hanson Malaysia registered RM365.0 million in revenue;
• For its FYE 31 December 2012, Hanson Malaysia registered RM296.7 million in revenue.

 

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Notes: 1. These market players are identified for comparison purpose only, and do not constitute and is not limited to the actual quantity of market players within the manufacture of artldes of concrete, cement and plaster segment; 2. The selected market players are alphabetically arranged and this does not constitute as a ranking. Source: IMR Report
Manufacture of Structural Metal Products The manufacture of structural metal products segment includes the manufacture of industrial frameworks (such as frameworks for blast furnaces, lifting and handling equipment, etc.), prefabricated buildings mainly of metal doors, windows and their frames, shutters and gates, and others (such as metal frameworks or skeletons for construction and parts thereof as well as metal room partitidns for floor attachment). In 2013, the value of the manufacture of structural metal products segment is estimated at approximately RM2.0 billion. In 2014, the value of structural metal products segment is estimated at approximately RM1.9 billion. Chin Hin Group is involved in the manufacture of structural metal products segment with its manufacture of wire mesh and metal roofing systems through Metex Steel. For comparison purposes, Figure 8 details selected other market players within the manufacture of structural metal products segment that register annual turnover of over RM30 million attributed to the said segment. Figure  8:  Selected  Other  Market  Players  within  the  Manufacture  of  Structural Metal Pro ducts Segment  .  Company  Key Activjties – ,
Ajiya Berhad \’Ajiya”) • Listed on the Main Board of the Bursa Malaysia;
• Principally involved in manufacturing and marketing of glass products, metal roofing, metal door and window frames, floor decks, metal ceiling and other bUilding materials;
• Involved in manufacturing of metal roll-forming products, such as metal roofing system, metal frame products, structural products, light-weight channel products, metal ceiling and sun shade products under its wholly-owned subsidiary, Asia Roofing Industries Sdn Bhd;
• Asia Roofing Industries Sdn Bhd has 3 manufacturing sites located in Segamat and Senai, Johore, and Shah Alam, Selangor;

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)
“N”‘,~’ “,’~~’TI ” ” , ;””” ~,,~, 0 ~h/” ” ? I: • ~ ;q Company .” . >.!J ‘. ,’,’ , “~! K.~¥ AGtlvl,tles ., . i •• , ~~ ~ ‘” ,”QI ~~ ,,-s ~~_ ~ 1, s ~ ~”‘~ ~ =, “-~ ” “~~, ~ ‘” . • For its FYE 30 November 2014, Aijaya registered RM412.5 million in revenue, including RM151.3 recorded by Asia Roofing Industries Sdn Bhd in manufacturing of metal roll­forming products;
• For its FYE 30 November 2013, Aijaya registered RM391.9 million in revenue, including RM143.6 million recorded by Asia Roofing Industries Sdn Bhd in manufacturing of metal roll­forming products;
• For its FYE 30 November 2012, Ajiaya registered RM379.2 million in revenue, including RM140.8 million recorded by Asia Roofing Industries Sdn Bhd in manufacturing of metal roll­forming products.
• Established in 2000;
• Principally involved in mesh manufacturing;
• Also involved in manufacturing and distribution of steel fabric for concrete reinforcement, galvanised welded mesh, low carbon hard drawn wire, steel bar, barbed wire, chain link fence, bed mesh and custom-made products;
• Majority products are used in construction, manufacturing and housing industries;
• For its FYE 31 December 2014, Bersatu Wire Mesh registered close to RM42.0 million in revenue;
• For its FYE 31 December 2013, Bersatu Wire Mesh registered close to RM36.1 million in revenue;
• For its FYE 31 December 2012, Bersatu Wire Mesh registered RM36.4 million in revenue.

 

Bersatu Wire Mesh Industries Sdn Bhd (“Bersatu Wire Mesh”) 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
” ” ” “” , “.,,,,, (:, I ‘,)”, ~ ,
• Incorporated in 2005;
• Principally involved in manufacturing and distribution of steel wire mesh for concrete reinforcement, galvanised welded mesh, steel bar, chain link fencing and barbed wire;
• Supplies its products to domestic and overseas market;
• For its FYE 31 December 2014, EC Excel Wire registered RM152.6 million in revenue;
• For its FYE 31 December 2013, EC Excel Wire registered RM87.3 million in revenue;

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
, ,’.” ,;”, (_ , M _”,,,’ ,
• Incorporated in 2000;
• Principally involved in manufacture of steel products, particularly steel roofing materials;
• For its FYE 31 December 2014, KHP Steel Product registered RM60.7 million in revenue;
• For its FYE 31 December 2013, KHP Steel Product registered close to RM53.0 million in revenue;
• For its FYE 31 December 2012, KHP Steel Product registered RM39.2 million in revenue.

 

7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Notes: 1) These market players are identified for comparison purpose only, and do not constitute and is notlifnitedtotheactualquantity ofmarketplayers within the manufacture ofstructuralmetal products segment; 2) The selected market players are alphabetically arranged and this does not constitute as a ranking. Source: IMR Report

 

3.5.2 Market Share Analysis For comparison purposes, figure below depicts the market share of each selected market players in respective building materials segment for the year 2012. Figure 9: Market Share Comparison between Chin Hin Group and Selected Market Players in Respective Segment, 2012 Distribution of Building Materials, 2012 3.5 2.93.0 i 2.5
2.2 2.1..1.9 2.0
-Ii 2.0 .l: Ul’ii 1.5
1.3……. :E 1.0 0.8 0′:;

 

I.i.L0.0

Chin Hln Chuan Hap 5rog Harrlsons HLI Ipmuda lafarge Wah Group Huat Malaysia Malaysia SOOng
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Manufacturing of Articles of Concrete, cement 9.0 8.0 …… ~ 7.0 ~ ~ 6.0 III ..c 5.0 III ‘tl 4.0 ~ 3.0 ~ 2.0 1.0 0.0

and Plaster, 2012 7.7 6.3 2.6

Chin Hln Group Hanson Malaysia Lafarge Malaysia Manufactureof Structural Metal Products, 2012 10.0 6.6 …… 9.0
Note: Market share of each player Is computed based on segmental revenue attributed to respective segment in 2012 Source: IMR Report The value of distribution of building materials segment was estimated at RM30.1 billion in 2012. For its FYE 31 December 2012, Chin Hin Group recorded RM872.2 million of revenue from its building materials distribution activities, equivalent to an estimate of 2.9 percent of the distribution of bUilding materials segment in 2012. For its FYE 31 December 2013, Chin Hin Group’s revenue from its building materials distribution activities increased to RM922.2 million, mainly contributed by the sale of other bUilding materials such as plywood, concrete 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
products, roofing, tiles, pipes, sanitary wares, ironmongery, wire mesh and bricks as the Group continued to focus on higher margin products. This is equivalent to 3.0 percent of the distribution of building materials segment in 2013 as depicted in figure below. In 2013, the value of the distribution of building materials segment is estimated at RM30.7 billion. Figure 10: Market Share of Selected Market Players within the Distribution of Building Materials Segment, 2013
_Chuan Huat Chin Hin Group 3.0% 2.1% Hap Seng 1.0% Harrisons Malaysia 0.7% Note: Market share of each market player is computed based on segmental revenue attributed to the distributionofbuildingmaterialssegmentin 2013; Source: IMR Report For its FYE 31 December 2014, Chin Hin Group recorded revenue of RM811.9 million from its bUilding materials distribution activities. This is equivalent to 2.5 percent of the distribution of building materials segment in 2014. In 2014, the value of the distribution of bUilding materials segment is estimated at RM32.3 billion. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Figure 11: Market Share of Selected Market Players within the Distribution of Building Materials Segment, 2014
1.6% Laforge Ipmuda 1.1% 1.8% 1.6% Notes: 1. Marketshare ofeach marketplayeriscomputedbasedonsegmentalrevenueattributedtothe distribution ofbuilding materials segment in 2014;
2. Market share in 2014 provided only for Chin Hin Group, Chuant HuaC HlJ, lpmuda, Lafarge and Wah Seong, as not all selected market players have reported their financial results for 2014, at the time ofpublication.

Source: IMR Report The value of the manufacturing of articles of concrete, cement and plaster segment is estimated at RM4.7 billion in 2012. For its FYE 31 December 2012, Chin Hin Group generated revenues of RM123.6 million from the manufacture of ready-mixed concrete and precast concrete products, including 5-month revenue of the manufacture of MC and precast concrete products since August 2012. This is equivalent to an estimate of 2.6 percent of the said segment in 2012. In 2013, Chin Hin Group further strengthened its presence in the manufacturing of articles of concrete, cement and plaster segment in line with an increase of its market share in the segment. For its FYE 31 December 2013, Chin Hin Group’s revenue from the manufacture of ready-mixed concrete and precast concrete products increased to RM190.2 million, after securing few new customers for the ready-mixed concrete segment that were involved in the construction of high rise buildings such as De Centrum City located in Bangi and mixed development located in Bandar Saujana Putra. These new customers collectively contributed approximately 11.0 percent to the Group’s revenue from the ready-mixed concrete segment in FYE 31 December 2013. The increase in revenue from the manufacture of ready-mixed concrete and precast concrete products was also attributed to a higher contribution from the
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
12-month revenue from the manufacture of MC and precast concrete products as compared to 5-month revenue for its FYE 31 December 2012. This is equivalent to an estimate of 3.5 percent of the said segment in 2013 as depicted in figure beiow. In 2013, the vaiue of the manufacture of articles of concrete, cement and piaster segment is estimated at RM5.4 billion. Figure 12: Market Share of Selected Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment, 2013 Hanson Malaysia
6.7% Note: Market share ofChin Hin Group and Lafarge Malaysia are computed based on segmental revenue attributedtothemanufadure ofarticlesofconcrete, cement andplastersegmentin2013 Source: IMR Report For its FYE 31 December 2014, Chin Hin Group recorded revenue of approximately RM253.1 million from its manufacture of ready-mixed concrete and precast concrete products activities. This is eqUivalent to 4.9 percent of the manufacture of articles of concrete, cement and plaster segment in 2014. In 2014, the value of the manufacture of articles of concrete, cement and plaster segment is estimated at RM5.2 billion. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
(“‘:'”” ! “”” .., ,., , ‘,’., ‘.”, f Figure 13: Market Share of Selected Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment, 2014
Chin Hin Group 4.9% Notes: 1. Market share of Chin Hin Group and Lafarge Malaysia are computed based on segmental revenue attributed to the manufacture of articles of concrete, cement and plaster segment in 2014;
2. Market share in 2014 provided only for Chin Hin Group and Lafarge Malaysia, as not all seleded market players have reported their financial results for 2014, at the time of publication.

Source: IMR Report Chin Hin Group ventured into the manufacture of wire mesh and metal roofing systems in 2011 through Metex Steel. The manufacture of structural metal products segment is estimated to value at RM2.0 billion in 2012. For FYE 31 December 2012, Chin Hin Group garnered 3-month revenue of RM6.7 million from the manufacture of wire mesh and metal roofing systems since October 2012. This is equivalent to 0.3 percent share of the manufacture of structural metal products segment. Following the acquisition of a factory in Prai, Penang in 2012 for the manufacturing of hard drawn wire and metal roofing systems, and the commencement of its operation in 2013, Chin Hin Group’s 12-month revenue from the manufacture of wire mesh and metal roofing systems stood at RM78.0 million for its FYE 31 December 2013. This translates to a market share of 3.9 percent of total industry revenue of RM2.0 billion in 2013 as depicted in the following figure. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Figure 14: Market Share of Selected Market Players within the Manufacture of Structural Metal Products Segment, 2013
Wire Huat Group 1.8% 4.4% 3.D% 3.9% Note:Marketshare ofAijaya,ChinHinGrolJP, ChlJanHlJatandSMPCarecomputedbased onsegmentai revenlJe attributedto the manlJfactlJre ofstrlJctlJraimetalprodlJctssegment in 2013 Source: IMR Report For its FYE 31 December 2014, Chin Hin Group recorded revenue of approximately RM119.4 million from its manufacture of wire mesh and metal roofing systems activities. This is equivalent to 6.3 percent of the manufacture of structural metal products segment in 2014. In 2014, the value of the manufacture of structural metal products segment is estimated at RM1.9 billion.
7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Figure 15: Market Share of Selected Market Players within the Manufacture of Structural Metal Products Segment, 2014 2.8% Note: Market share of Aijaya, Chin Hin Group, Chuan Huat and SMPC are computed based on segmental revenue attributed to the manufacture ofstructural metal products segment in 2014. Source: IMR Report

3.6 DEMAND AND SUPPLY CONDITIONS 3.6.1 Demand Conditions Government-Led Initiatives and Spending The building materials industry is expected to benefit from the healthy growth forecasted for the construction industry on the back of government led initiatives and spending. The construction industry registered double-digit growth in 2013 on the back of increased residential and non-residential activities following the implementation of infrastructure projects under the 10MP. Moving forward, the construction industry is expected to benefit from government ied initiatives and spending. A development allocation of RM260.0 billion has been earmarked under the llMP. On top of the llMP, the construction industry is also set to benefit directly from the rollout of the ETP. Under the ETP, a number of major property development projects pianned within the Greater KL along with infrastructure projects would support the growth of the construction industry. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Meanwhile, the Greater KL initiative targets to increase the number of people living in the city from 6.0 miliion in 2010 to 10.0 million by 2020. It is estimated that an additional 1.0 million homes would have to be constructed to meet the requirements of an enlarged population base. Moreover, the Malaysian Government has reiterated its support towards the construction of various infrastructure projects in the recent Budget 2016, such as construction of the SUKE and DASH, on top of the construction of the 325-km Central Spine Road. As for the East Malaysia, the Malaysian government continues to support the construction of Pan-Borneo Highway alongside the construction of Mukah Airport in Sarawak and a 706-km highway from Sindium to Tawau. Aliocation is also made for the expansion of MRT Line 2 and LRT Line 3 at an estimated cost of RM28 billion and RM10 billion respectively. Affordable housing continued to be highlighted by the Malaysian Government. Measures related to affordable housing announced in Budget 2016 included the construction of 175,000 units of affordable houses by PRIMA, 10,000 units of ‘Rumah Mesra Rakyat’ by Syarikat Perumahan Negara Berhad, 100,000 houses by Perumahan Penjawat Awam 1 Malaysia, 22,300 units of apartment and 9,800 units of terrace houses by PPR, In another development, a total of RM900 million has been aliocated for the Jalan Tun Razak Traffic Dispersal Project, which is expected to ease traffic flow in the area and in turn increase demand for properties within the vicinity. Other projects such as the Malaysian Vision Valiey, the Cyber City Centre in Cyberjaya, the KLIA Aeropolis, the Rubber City in Kedah, the Samalaju Industrial Park in Sarawak and the Palm Oil Jetty in Sabah is expected to provide growth in the construction and property industry in Malaysia. Growing Economy to Sustain Spending and Investment in Properties Malaysia’s real GDP is expected to grow between 4.5 and 5.5 percent in 2015 and between 4.0 to 5.0 percent in 2016. During good economic periods, the general population can expect better access to more job opportunities and salary growth, and this accordingly is expected to provide them with greater propensity to purchase, upgrade or invest in properties. Hence, the construction industry (including the property market) stands to benefit from the increase in uptake of properties and accordingly, improve the demand for bUilding materials. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
t,” “”., , ‘A,’ i<“, , Increasing Green Building Practices In Malaysia, Greenbuildingindex Sdn Bhd was incorporated in 2009 to promote the adoption of green building practices domestically by administrating the local green building rating tool, namely the Green Building Index (“GBI”) accreditation. Subsequently, green building practices also received attention from the Malaysian government. In the 2010 National Budget, the government introduced incentives for buildings awarded with the Green Building Index (“GBI”) certificates for the period from 24 October 2009 until 31 December 2014. The introduction of the incentive has successfully promoted the adoption of green building practices locally, with a total of 265 projects being GBI-certified as of 15 December 2014. FolloWing the awareness promoted after the initiatives by Greenbuildingindex Sdn Bhd and incentives for GBI certified projects for the 2009 to 2014 period, the construction industry may anticipate greater adoption of green building practices moving forward. The proliferation in green bUilding design and construction along with the expected rise in usage of green building materials are expected to drive the bUilding materials industry. Steady Population Growth The Malaysian population is expected to continue growing at a steady pace. According to the Population and Housing Census, Malaysia 2010, the total population of Malaysia was 28.6 million. The Malaysian population has been growing from 2011 to 2014, and stood at 30.1 million in 2014. This figure is projected to grow steadily to reach 38.6 million in 2040. Uptakes in property are correlated to population growth. Hence, the steady population growth is expected to spur the continued demand for properties in particular residential properties moving forward. PropertY Overhang Property overhang is defined as completed units that have obtained the certificate of fitness for occupation or temporary certificate of fitness for occupation but remained unsold for more than 9 months (on a cumulative basis). In Q3 2015, there was an overhang of 8,804 residential units, 4,839 commercial units of shop and 222 industrial units worth approximately RM6.7 billion. The property overhang situation for the property is considered to be still manageable. The expanding Malaysian economy along with the various policy and incentives to promote house ownership are expected to continue supporting demand for properties. 34 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Rising Cost of Borrowing within the Construction Industry On 10 July 2014, BNM raised the Overnight Policy Rate COPR”) by 25 basis points to 3.25 percent to curb rising household debt and to mitigate the risk of broader economic and financial imbalances that can undermine the growth prospect of the local economy. This has resulted in the increase in the cost of borrowing. There is on-going upward pressure on aPR as BNM continues to monitor and assess the economic growth rate, inflation rate and risk of financial imbalances. The possible continuing hike In the aPR does not augur well for the construction industry as it can further lead to the increase in the cost of existing and future borrowings. The lack of accommodative financing would impact on the construction projects implementation, and any growth contraction within the construction industry would adversely affect the demand for building materials.
3.6.2 Supply Conditions Established Local Building Materials Manufacturing [Production Segment in the Building Material Industry Malaysia has a huge and well established building materials manufacturing and production segment, producing anything from basic metal (raw material of structural metal products) to wood and wood products, and multiple other materials such as fabricated metal products, glass and glass products, non-metallic mineral products (such as cement and lime that are used to manufacture articles of concrete, cement and plaster), etc. These industries cater to both the domestic as well as export markets. For the period 2010 to 2013, manufacturing and production within construction-related cluster, which include iron and steel, non-metallic mineral products and fabricated metal, expanded by CAGR of 9.5 percent. In 2014, the construction-related cluster further benefitted from continued construction activity in the economy to register a 4.2 percent increase in production. Moving forward, the construction-related cluster is anticipated to remain supported by the continued implementation of various construction projects and hence the stronger demand for building materials such as steel and cement. The outlook for local bUilding materials manufacturing/production industries remained positive throughout the forecast period on the back of strong government support and 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
technology advancement spurring innovation in bUilding materials supply. Market participants within the manufacture of articles of concrete, cement and plaster, and manufacture of structural metal products segments are also set to benefit from a stable supply of raw materials, including the basic metal, cement and lime. • Strong government support The manufacturing and production within the construction-related cluster continued to receive support from the Malaysian government judging, from the inclusion of metal industry under the Third Industrial Master Plan 3 (“IMP3″). With this inclusion, the iron and steel sector can look forward to more concerted and organised efforts in pushing its growth to the higher level. This is expected to benefit the local manufacture of upstream products (including rolled products, coils, piates etc) and downstream products (including wire mesh, hard drawn wires, pipes etc) within the iron and steel sub-sector. Industry related infrastructure and support facilities along with institutional support are also expected to be strengthened under IMP3. • Technology Advancement spurring innovation in building materials supply In addition, the local building materials manufacturing/ production segment is also set to benefit from the advancement in technology to roll-out new or enhanced building materials in order to meet the changing demand from the end-users. For example, the introduction of green building materials has provided an ideal material option to the industrial end-users to meet the demand from environment supporters. Further advancement in technology particularly on bUilding material is anticipated to provide a more variety of building materials choices to the industrial end-users and accordingly increases the supply of local building materials.

3.7 MARKET CHALLENGES Fluctuation in Construction Material Price The construction industry is subjected to constant price fluctuations on construction material prices such as metal, steel bar and cement. Prices fluctuation of metal and cement also impact the manufacturing segment that uses the said materials for production. A combination of external factors such as the construction boom in China, West Asia and India, and the increase in global price of crude oil resulted in a huge increase in average price of major construction materials in the past few years. This directly impacts the viability of many 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
” ,1 i’,,” • ,.”,~ ‘””. ; ,~ .., ,c ” , construction projects due to margin erosion with some contractors unwilling to complete their projects at the original tender price. From the supply perspective, manufacturers within the bUilding materials industry are affected with an increase in raw materials prices. Although prices of construction material has stabilised since then, this remains as a market challenge for most construction market players and manufacturers of building materials. More recently, the Real Estate and Housing Developers’ Association (“REHDA”) noted that building material cost has increased by between 5.0 to 10.0 percent annually. Moreover, the implementation of Goods and Services Tax (“GST”) in April 2015 further pushed the price of building materials as current non-service taxable items such as cement, concrete, steel, bricks and sand are subjected to a 6.0 percent GST. Any recurrence of a huge price increase could potentially interrupt the ability of construction industry participants from implementing projects on schedule. Regulatory Changes The government is constantly reviewing and liberalising regulations pertaining to the sales and import of building materials. Cement and steel bars had ceased being controlled price items under the Price Control Act since 2008. The government had further scrapped the licensing system for steel bars and cement effective 15 July 2011. However, the Master Builders Association Malaysia C’MBAM”) has urged the government to further Iiberalise the imports of all building materials and equipment. According to the MBAM, the Malaysian import duties on bUilding materials were regarded as one of the highest in the Association of Southeast Asian Nations (“ASEAN”) and that the high import duties had contributed to the increase in construction costs. MBAM considers the current import duties imposed on marble tiles, sanitary ware and sinks, window and door ironmongeries and aluminium formwork as very high. Building materials industry players need to be mindful of the continued changes and market liberalisation taking place, and plan accordingly.
3.8 OVERVIEW OF THE PROPERTY MARKET In tandem with various cooling measures introduced to curb speculation and excessive price growth within the property market, the Malaysian property market registered a decline in total transaction volume to 381,130 in 2013 from 427,520 in the preceding year. Nonetheless, despite a negative growth of 10.9 percent in volume of transactions, the value of transactions continues to expand upwards, registering a year-on-year growth of 6.7 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
percent to RM152.4 billion. In 2013, residential properties continued to dominate market activity, accounting for 64.6 percent of total transactions, followed by agricultural (18.6 percent), commercial (9.0 percent), development land (5.6 percent) and industrial (2.2 percent). The Malaysian property market registered a growth in total transaction volume to 384,060 in 2014 from 381,130 in the preceding year. The value of transactions continued to expand upwards, registering a year-on-year growth of 7.0 percent to RM162.97 billion. In 2014, residential properties continued to dominate market activity, accounting for 64.4 percent of total transactions, followed by agricultural (18.8 percent), commercial (9.3 percent), development land (5.5 percent) and industrial (2.1 percent). For the first half of 2015 (“H1 2015”), the overall performance of the property market has been subdued. Should the property market continue its performance as experienced in the first half of the year, both the volume and value of property transactions for 2015 is expected to underperform that of the preceding year. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] Company No.: 1097507-W J 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d) p,t:(Jtege a “” ” <> ,.””h” ‘ Figure 16: Volume and Value of Property Transaction by Sub-Sector, 2012-Hl 2015
Source: IMR Report Residential property is the leading sub-sector in the local property market in terms of transactions volume and value. This sub-sector accounted for 64.4 percent of the total property transactions volume and 50.4 percent of the total property transactions value in 2014. There were approximately 4.8 million residential units in Malaysia as at the end of 2014 with 759,220 residential units expected to be added to the existing stock and another further 646,049 residential units being planned. Meanwhile, Selangor led all the other states and federal territories in terms of existing stock and incoming supply of residential units as at end of 2013 and 2014. In Q3 2015, existing stock and incoming supply of residential property rose further to reach more than 4.9 million units and more than 870,000 units respectively but planned supply dropped to 635,710 units. 182 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
~ ., ” h” , “‘.”‘, <:, , 0,'” n ~_ ,. , Shop Shop is one of the major sub-sectors in the local property market in terms of transactions volume and value. There were 405,105 shop units in Malaysia as at the end of 2014 with 78,763 shop units expected to be added to the existing stock and another further 68,649 shop units being planned. As with residential properties, Selangor has the highest number of existing stock and incoming supply for shop units as at the end of 2013 and 2014. In Q3 2015, existing stock, incoming supply and planned supply of shop units rose further to reach more than 410,000 units, more than 94,000 units and 72,000 units respectively. Shopping Complex Malaysia’s existing stock of shopping complex space in 2014 increased to approximately 13.0 million s.m. from 12.4 million s.m. in 2013. During the same year, incoming and planned supply stood at 1.3 million s.m and 0.9 million s.m. respectively. In Q3 2015, existing stock and incoming supply for shopping complex increased to more than 13.0 million s.m. and 1.8 million s.m. respectively while only planned supply decreased to almost 880,000 s.m.. Purpose-built Office Malaysia’s existing stock of purpose-built office space increased to 19.6 million s.m. in 2014 as compared to 19.0 million s.m. in 2013. During the same year, incoming and planned supply of purpose-built office space stood at 1.7 million s.m. and 0.5 million s.m. respectively. The occupancy rate for purpose-built office in Malaysia Improved from 82.7 percent in 2013 to 84.9 percent in 2014. In Q3 2015, existing stock and planned supply for purpose-built office rose further to more than 20.0 million s.m. and and more than 650,000 s.m. respectively but incoming supply dropped to around 1.5 million s.m.. Industrial Property The industrial property sub-sector is the smallest contributor to the local property market in terms of transactions volume and value. There was an existing stock of 97,123 industrial units in Malaysia as at end 2014, with 10,645 incoming units and 17,944 planned units. Selangor topped the rest in terms of existing stock and incoming supply as at end of 2013 and 2014. As at the end of Q3 2015, existing stock and incoming supply for industrial units rose further to more than 100,000 units and more than 11,000 units respectively while planned supply saw a decrease to around 12,400 units. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)
4 KEY ISSUES AND TRENDS
4.1 BARRIERS TO ENTRY High Capital Investment -A huge capital layout is required to enter the bUilding materials industry largely due to the need to invest in production building, machineries, storage facilities and labour for the manufacturing segment. In addition, any future upgrading of machinery is likely to incur a relatively higher initial cost due to technological advancement. In the bUilding material distribution segment, the similar entry barrier is also applicable as upfront capital is required for the provision of customer financing through standard business credit tenms. Higher upfront capital is needed for inventory procurement in order to deploy inventory model. Established Incumbent Market Players -New entrants in all segments of the Malaysian building materials industry are likely to encounter difficulties competing with incumbent market players. The dominance and reputation of large-scale, multi-plant firms may inhibit small market players from gaining a foothold in the narrower local bUilding materials industry. In addition, incumbent market players have established strong relationships with upstream raw material suppliers as well as the end-users from the construction industry. New market players may encounter difficulty in securing raw material at affordable prices and attracting customers from the construction industry.
4.2 SUBSTITUTE PRODUCTS OR SERVICES There are no direct substitutes to bUilding materials as the term refers to any material used for construction purposes. There is, however, a considerable degree of substitutability in terms of the differing business models and strategies which market participants can select as their own. Market participants depending on their business models and strategies, generally differentiate and compete on various key attributes inclUding product range, delivery time and price, customer service, track record and relationship, etc. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cant’d)

4.3 VULNERABILITY AND RELIANCE ON IMPORTS The manufacturing/ production segment of the Malaysian building materials industry is generally not reliant on imports of raw materials as Malaysia has rich natural resources of raw materials including metallic and non-metallic minerals. On the other hand, the distribution segment of the Malaysian building materials industry revolves around supply and distribution locally manufactured and imported building materials. Due to its business nature, the distribution segment of Malaysian bUilding materials industry possesses certain degree of reliance on imported bUilding materials.
4.4 GOVERNMENT REGULATORY AGENCY Building materials industry activities come under the purview of the Construction Industry Development Board (“CIDB”) which is a statutory body under the Minister of Works, Malaysia.
4.5 GOVERNMENT REGULATIONS Importing Building Materials CIDB is the agency responsible for enforcing the Customs Act (Prohibition of Import) 1988 Amendment 2004/2004 for assuring the quality of imported construction products. Construction materials listed in the Custom Act must have ‘Certificate of Approval’ from CIDB before the materials can be imported into Malaysia.
Malaysia Standards As of 31 July 2012, the Department of Standards Malaysia, under the purview of the Ministry of Science, Technology and Innovation, had issued 48 mandatory standards for the Building, Construction and Civil Engineering category under “ISC D”. For the category Mechanical Engineering specified under “ISC F”, there are 8 mandatory standards, while Fire Safety and Prevention under “ISC M” features 38 mandatory standards. These standards fall under the purview of various legal articles, for exampie Street Drainage Act 1976 -Uniform Building By­Laws, the Fire Services Act 1988, the Customs Act 1967 and the Timber Industry Board Act 1965. While ISC D mainly covers code of practices and specifications for raw materials used 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
‘.,,,’,”,’ r “‘.”, ,., , in construction, ISC F includes safety rules for construction and installation. Some safety rules also extend to the installation of electrical equipment and wiring systems under “ISC E”. The Malaysia Standards (“MS”) is published by SIRIM Berhad.

4.6 GOVERNMENT POI.ICIES Construction Industry Transformation Programme (2016-2020) The Construction Industry Transformation Programme (“CITP”) is developed by the CIDB to empower and strengthen the construction industry as espoused in the thrusts of the lIMP. The CITP, which sets important strategic goals and milestones to bring Malaysia’s construction industry to the next level, aims to transform the construction industry encompassing 4 strategic thrusts as listed below: • Raising the overall productivity level of the industry;
• Environmental sustainability being incorporated in the design, construction and subsequent maintenance of building and infrastructure;
• Focusing on improving competitiveness in the capability and capacity of our industry players to foray internationally; and
• Improving the overall quality, safety and professionalism of the industry.

Third Industrial Master Plan (“IMP3”) 2006 -2020 The IMP3 is a blueprint for greater industrial development, i.e. for the manufacturing and services sectors for the period 2006 to 2020. National Housing Policv (“NHP”) Launched in 2011, the NHP was designed to provide adequate, comfortable, quality and affordable housing to enhance the sustainabiiity of the quality of life of the people. International Services Commitments In context of a borderless world, Malaysia had undertaken part in several cross-border commitments in line with its efforts to implement open economic policies. Through various government agencies such as the Ministry of International Trade and Industry Malaysia 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
(“Mill”) and Malaysian Investment Development Authority (“MIDA”), the Malaysian Government had pledged progressive liberalisation of the domestic construction industry as per several international service agreements. 5 MARKET PROSPECTS AN D OUTLOOK The outlook for building materials industry in tandem with the construction industry remains positive for the immediate term, and steady growth is projected throughout the period of 2014 to 2019. The construction industry in Malaysia was valued at RM38.7 billion in 2013. In 2014, the construction industry grew by 11.8 percent to RM43.2 billion. And in 2015, the Malaysian construction industry is expected to expand by 8.8 percent attributed by the on­going mega construction projects. Moving forward, the construction industry is expected to continue growing and is estimated to reach RM64.9 billion in 2019 -representing a CAGR of 8.5 percent for the period of 2014 to 2019. The forecasted expansion in the construction industry will underpin growth in demand for bUilding materials and this augurs well for the overall development of the bUilding materials industry. Factors priming growth in the building materials industry in tandem with the .expansion in the construction industry are likely to come from the government-led initiatives and spending, a growing economy to sustain spending and investment in properties, and steady population growth. Following the awareness promoted after the initiatives by Greenbuildingindex Sdn Bhd and incentives for GBI certified projects for the 2009 to 2014 period, the construction industry may anticipate greater adoption of green building practices moving forward. The proliferation in green bUilding design and construction along with the expected rise in usage of green building materials are expected to drive the bUilding materials industry. 7. EXECUTIVE SUMMARY OF THE IMR REPORT (Cont’d)
Protege Associates has prepared this report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the report. We believe that this report presents a true and fair view of the industry within the boundaries and limitations of secondary statistics, primary research and continued industry movements. Our research has been conducted to present a view of the overall industry and may not necessarily reflect the performance of individual companies in this industry. We are not responsible for the decisions and/ or actions of the readers of this report. This report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies. Thank you. Yours Sincerely,
Managing Director Protege Associates Sdn Bhd

 

 

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