Industry Overview

5. INDUSTRY OVERVIEW AND PROSPECTS 5. INDUSTRY OVERVIEW AND PROSPECTS 5.1 OVERVIEW AND OUTLOOK OF THE GLOBAL ECONOMY The global economy grew at a more moderate pace in 2011 after the strong rebound in 2010. The growth momentum was weighed down by continued structural weaknesses and fiscal issues in the advanced economies, geopolitical developments in the Middle East and North Africa region and the disruptive impact of natural disasters on global manufacturing production. These developments reverberated onto international financial markets and contributed to heightened market volatility throughout the year. Despite the less favourable external environment, emerging economies continued to record firm domestic-driven economic growth. At the same time, emerging economies faced increasing chailenges from volatile capital flows and rising inflationary pressures. Amidst this environment, the Malaysian economy continued to grow steadily underpinned by the expansion in domestic activity and firm regional demand. The global economic recovery, which began in the second half of 2009, is expected to slow in 2012 largely due to the ongoing sovereign debt issues in the advanced economies. Growth in these economies would be largely constrained by fiscal consolidation and private sector deleveraging foilowing impairment of balance sheet of financial institutions. The extent of the moderation in globai growth is largely contingent on how the debt crisis evolves and the nature and timeliness of the policy actions in restoring market confidence. In particular, given Europe’s integration with the rest of the world, the spillover from the sovereign debt crisis wiil affect growth in both the advanced and emerging economies to varying degrees, through both trade and financial channels. Reflecting the weaker growth outlook and sentiments, global trade activity is expected to moderate, with a larger impact on the more open economies. In addition, continued volatility in international financial markets wiil have implications for global credit conditions through cross-border exposures to European banks, particularly to the banks that have weak balance sheets. Foilowing the large and unprecedented policy stimulus measures taken during the global financial crisis, fiscal and monetary authorities in the advanced economies now have less policy space to fuily mitigate the impact of these adverse developments on growth, thus reinforcing the expectations of a slower growth this year. The growth prospects of the advanced economies are therefore expected to remain subdued. While the recovery in private sector activity is expected to proceed at a gradual pace, economic growth wiil be constrained by negative spiilovers from the sovereign debt problems in the euro area. This wiil occur mainly through tighter credit conditions for households and businesses as banks embark on further deleveraging driven by continued financial market uncertainty and new regulatory requirements. In addition, fiscal consolidation measures wiil be a further factor affecting growth as the authorities attempt to restore fiscal credibility in view of high deficits and debt levels. For several European economies in particular, the pressure for further fiscal austerity is stronger as these economies face large gross financing needs during the year amid elevated sovereign bond yields. Furthermore, persistent crisis-related structural weaknesses, including impaired balance sheets of financial institutions, high unemployment and sluggish housing markets wiil continue to weigh on the fragile growth prospects. (Source: BNM Annual Repor! 2011)

THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cant’d) 5.2 OVERVIEW AND OUTLOOK OF THE MALAYSIAN ECONOMY The Malaysian economy recorded a steady pace of growth of 5.1 % in 2011 (2010: 7.2%), despite the challenging international economic environment. Growth was lower in the first half of the year, particularly in the second quarter, as the economy was affected by the overall weakness in the advanced economies and the disruptions in the global manufacturing supply chain arising from the natural disaster in Japan. Although the global economic environment became increasingly more challenging and uncertain in the second ha~-year, Malaysia’s economic growth improved due to stronger domestic demand. Domestic demand registered a strong growth of 8.2% in 2011 (2010: 6.3%), driven by both household and business spending, and higher public sector consumption. Private consumption strengthened in 2011, growing by 6.9% (2010: 6.5%), supported by a broad based growth in income following the overall improvement in labour market conditions and higher commodity prices. Private investment expanded by 14.4% in 2011 (2010: 17.7%). Higher capital expenditure was evident across all sectors, especially in the first half of the year, driven mainly by strong domestic demand. However, the strong investment momentum began to moderate slightly towards the second half of the year, especially in the manufacturing sector, following increased uncertainties on the global economic environment. Amid the more challenging external environment, Malaysia’s economy is projected to experience a steady pace of growth of 4 -5% in 2012. Domestic demand is expected to remain resilient and will continue to be the anchor for growth. Several measures that were announced in the 2012 Budget are expected to provide support to private consumption. These include the upward revision of public sector wages and the one-off financial assistance to low and middle-income groups. Private investment will be supported by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (ETP). The public sector will remain supportive of growth in 2012, with higher capital expenditure by both the Federal Government and the non-financial public enterprises. The implementation of the Special Stimulus Package through Private Financing Initiative that was announced in the 2012 Budget would provide further impetus to real activity during the year. On the supply side, most sectors will continue to expand in 2012. Nevertheless, the slower growth in global demand may adversely affect the export oriented industries in the manufacturing sector as well as the trade-related industries in the services sector. The performance of domestic-oriented industries, on the other hand, is expected to remain firm, benefiting from resilient domestic demand conditions. In particular, the construction sector is projected to record stronger growth, supported by the implementation of major infrastructure projects and the Special Stimulus Package. The GDP growth projection of between 4 -5% in 2012 is premised upon the expectation of a moderation in global growth and the timely and full implementation of measures announced in the 2012 Budget. Several risks, however, remain. These risks include an escalation in the eurozone sovereign debt crisis and much slower growth in our major trade partners. Should growth in the advanced economies turn out to be stronger than expected, there is some upside potential to domestic growth in 2012. It should also be noted that the authorities have sufficient policy flexibility to support the domestic economy and respond to global developments. (Source: BNM Annual Report 2011)


5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) 5.3 OVERVIEW AND OUTLOOK OF THE CONSTRUCTION AND PROPERTY DEVELOPMENT INDUSTRY The construction sector expanded at a moderate rate of 3.5% in 2011 (2010: 5.1 %), following slower activity in the civil engineering and non-residential sub-sectors. The civil engineering and special trade sub-sector registered a slower growth, especially in the second quarter, following the completion of major highway projects, and maintenance and upgrading work under the second stimulus package. The residential sub-sector registered an improved performance with a turnaround in growth. Construction of residential properties, particularly in the high-end segment, picked up significantly following a recovery in building approvals in 2010. The combination of robust demand, lower overhang and higher land and building materials costs resulted in higher house prices in 2011. The average national house price rose at a faster pace of 8.6% in the first three quarters of the year (2010: 6.7%), significantly above the average growth rate of 3.7% between 2000 and 2010. In the non-residential sub-sector, growth moderated after posting a strong double-digit growth in the previous year. Concerns over the oversupply of office space, particularly in the Klang Valley, affected the sub-sector’s performance in the second half of the year. (Source: BNM Annual Reporl2011) In the 2012 Budget, a total of RM232.80 billion is allocated to implement all Government development plans. From this amount RM181.60 billion is for operating expenditure and the remaining for development expenditure. In the effort to strengthen the domestic economy, the Government announced the implementation of a Special Stimulus Package amounting to RM6.00 billion through Private Financing Initiatives. The package will focus on 5 main areas which will be executed under the 10MP. Under the Rolling Plan 2, RM98.40 billion will be allocated where RM49.20 billion in 2012 another RM49.20 billion in 2013 for implementation of high impact development projects that will contribute to the economic growth. The main projects to be implemented are: (a) Gemas-Johor Bahru double tracking rail project;
(b) Lebuhraya Pantai Timur Jabor-Kuala Terengganu, Lebuhraya Pantai Barat Banling-Taiping, Lebuhraya Segamat-Tangkak and Lebuhraya Central Spine as well as the construction of Kota Marudu-Ranau road; and
(c) Redevelopment of the Sungai Besi Kuala Lumpur Air Base.

Another RM987.00 million will be allocated to accelerate the developments in the five regional corridors which include: (a) The construction of Johor Bahru-Nusa Jaya coastal highway in Iskandar Johor;
(b) Heritage tourism development in Taiping in the Northern Corridor;
(c) AgropoJitan scheme in Besut in the East Coast Economic Region;
(d) Palm oil cluster project in Lahad Datu in Sabah Development Corridor; and
(e) Samalaju water supply in Sarawak Corridor of Renewable Energy.

5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) The residential sector is expected to spearhead the property market and construction activity. The government announced the building of another 7,700 units of affordable homes, especially for middle income group, in Cyberjaya, Putra Heights, Seremban, Damansara and Bukit Raja through the 1Malaysia People’s Housing (PR1 MA) scheme. House prices under this scheme are lower than market prices as the land and facilitation funds are provided to developers. Stamp duty on the loan instruments of such homes will also be tax exempted. For the low income group, Program Perumahan Rakyal will continue with RM443.00 million allocations for the construction of 8,000 units for sale and 7,000 units for rent. Under this program a total of 75,000 units of affordable houses will be built nationwide under the 10MP. The Rumah Mesra Rakyat Programme managed by SPNB will be continued in 2012. Another 10,000 units, each costing RM65,OOO will be sold for RM45,OOO with RM20,000 subsidised by the Government. Under the Abandoned Housing Rehabilitation Programme, RM63 million is allocated to rehabilitate 1,270 abandoned houses and another RM40 million for restoration and maintenance of public and private low cost housing. Fisherman will also benefit from the 2012 Budget through the Special Housing Fund for Fishenman. A fund of RM300 million is allocated to build and refurbish houses with basic infrastructure. In the commercial property sub-sector, to accelerate the development of RM25.07 billion Kuala Lumpur International Financial District (KUFD), another incentive package which include 10 years income tax exemption for KLFID status company and 70% exemption for 5 years for property developers. These projects would contribute to the economic growth and benefit the real estate sector in the long run. These programmes will stimulate vigorous construction activities. There will be a spill over effect of these activities on the demand of development land for housing and commercial. On the overall property market pertonmance for 2012, it is expected that the resident sub­sector will be sustained. Higher housing starts and building plans approvals in 2011 signify confidence of developers and investors in the development activity. The vacant space in the office and retail sub-sectors is foreseen to be absorbed as more space is taken up when ETP takes place. Development in the various regional economic corridors and Greater Kuala Lumpur/Klang Valley will continue to give positive impacts on property development and the market in the coming years. The banking system would continue to support market activities with ample and accommodative funding. (Source: Property Market Report 2011 issued by the Valuation and Property Services Department, Ministry of Finance) THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d)

5.4 MARKET SEGMENTATION (i) Construction industry The construction industry generally comprises 3 segments as set out below: CONSTRUCTION INDUSTRY I  I  Building  Civil Engineering  Mechanical and  Construction  Construction  Electrical
CJ We operate mainly within these industry segments (I) Building Construction The Building Construction segment can be further divided into the following sub-sectors: • Prefabricated Buildings and Industrial Plant
• Steel Framed Buildings and Industrial Plant
• Restoration and Conservation
• General Buildings and Maintenance *
• Piling
• Concrete Repairs

• Interior Decoration • Waterproofing Installation
• Landscaping
• Plumbing
• Sign craft Installation

Note: We operate within these sub-sectors. (II) Civil Engineering Construction The Civil Engineering Construction segment can be further divided into the following sub­sectors: • Road and Pavement Construction *
• Bridge Construction *
• Marine Structures

5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) • Water Retaining Structures
• Tunneling and Underpinning
• Irrigation and Flood Control System
• Railway Tracks
• Slope Protection System
• Oil And Gas Pipe Lines
• Piling
• Concrete Repairs
• Soil Investigation and Stabilization
• Sign craft Installation
• Landscaping
• Offshore Construction Works
• Underwater Construction Works and Maintenance
• Airports
• Reclamation Works
• Sewerage Works
• Water Pipe Lines
• General Civil Engineering Works *

Note: We operate within these sub-sectors. (III) Mechanical and Electrical The Mechanical and Electrical segment can be further divided into the following sub­sectors: • Air-conditioning and Ventilation System
• Fire Prevention and Protection System
• Lifts and Escalators
• Building Automation System
• Workshop, Mill, Quarry System
• Medical Equipment
• Kitchen and Laundry Equipment
• Heat Recovery System
• Compressor and Mechanical Based Generator
• Chiller for Power Generation
• Specialized Fabrication and Treatment
• Specialized Plant
• Drilling Rig
• Pollution Control System

5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) • Miscellaneous Mechanical Equipment
• Sound System
• Security, Safety and Surveillance System
• Building Automation System and Energy Generation System
• Low Voltage Installation
• HighVoltage Installation
• Specialized Lighting System
• Telecommunication Installation
• External Telecommunication Works
• Miscellaneous Specialized

(Source: CIOB website at www.cidb.qov.mvl (ii) Property development industry . The property development industry generally comprises 7 segments as set out below: PROPERTY DEVELOPMENT


I II Residential Office Shop and
Industrial Agriculturall LeisureDevelopment Shopping Rural Land Property Complex
o We operate within these industry segments (Source: Properly Market Reporl 2011 issued by the Valuation and Properly Services Deparlment, Ministry of Finance) THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) 5.5 INDUSTRY PLAYERS AND COMPETITION The construction industry is highly competitive with a large number of players. As at 31 March 2012, there are 66,210 contractors registered with CIDB, the breakdown of which are as follows: Grade  Tender Amount (RM)  Paid-up Capital (RM)  Number of Registered Contractors  %  1 2 3 4 5 6 7  < 200,000 < 500,000 < 1,000,000 < 3,000,000 < 5,000,000 < 10,000,000 No limit  5,000 25,000 50,000 150,000 250,000 500,000 750,000  33,720 8,669 11,042 2,766 3,922 1,423 4,668  50.93 13.09 16.68 4.18 5.92 2.15 7.05  TOTAL  66,210  100.00
(Source: CIOB website at Competition is more intense for smaller construction projects as reflected in the number of registered contractors under Grade 1 to Grade 6 which comprises 92.95% of the total number of registered contractors as at 31 March 2012. The competition is less intense for Grade 7 contractors (the licence currently held by the companies in our Construction Division) which only comprise 7.05% of the total number of registered contractors as at 31 March 2012. Grade 7 contractors are allowed to tender for projects of any size and amount as there is no limit as compared to Grade 1 to Grade 6 contractors who can only tender for projects according to the tender amount as outlined in the table above. There are also approximately 1,678 Class A Bumiputera contractors registered with PKK as at 16 May 2012. In addition to the many players in the construction industry, the industry is by nature very fragmented, containing several sub-sectors as set out in Section 5.4 of this Prospectus, with the level of competition varying from one sub-sector to the other. Our Group is primarily involved in building and civil engineering construction and property development in the residential and commercial sectors. We have, via our subsidiaries in the Construction Division, the CIDB Grade 7 licence and PKK Class A licence which allows us to tender for both Government and private sector projects of any size and amount. Furthermore, as at the LPD, the REHDA represents 1,000 property development companies (Source: REHDA website at Therefore, in addition to the many players in the property development industry, the industry is also very fragmented, containing several sub-sectors as set out in Section 5.4 of this Prospectus, with the level of competition varying from one sub-sector to the other. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) Premised on the foregoing, there is no single construction or construction related company or property development company that is identical or directly comparable to us due to various factors which include, amongst others, type of services offered, composition of business activities, scale of operations, clientele profile, geographical markets, shareholders’ profile, track record and financial performance. Nevertheless, for illustration purposes, set out below are some of the broadly comparable companies (which may not be exhaustive) which are involved in similar business activities as us i.e. building and civil engineering construction as well as property development: PBTI  PBT  Name of  Revenue  (LBT)  Margin  Company  Business Activities  FYE  (RM’OOO)  (RM’OOO)  (‘!o)  Bina Puri Holdings Bhd  Investment holding, commission agent, contractor of  31 December 2011  1,178,063  25,849  2.19  earthworks, building and road  construction, property development. polyol and bricks  manufacturing, quarry and ready mix concrete  Ekovest Berhad  Investment holding, provision of civil engineering and building works, construction selVices  30 June 2011  128,175  35,558  27.74  and project management designs  Bintang  Contractor and  30 June  22,761  (1,269)  Not  Kencana Sdn  housing developer  2010  Applicable  Bhd  Binastra  Building construction  30 June  252,150  5,848  2.24  Construction (M)  work  2011  Sdn Bhd  Apex  Supply and  31  276,781  1,527  0.55  Communications  installation of  December  Sdn Bhd  telecommunication  2010  and broadcasting,  investment holding
5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) Name of Company  Business Activities  FYE  Revenue (RM’OOO)  PBTI (LBT) (RM’OOO)  PBT Margin (%)  Glomac Berhad  Investment holding, property development, property investment, equestrian and recreational club owner and management, building contractor services  30 April 2011  597,478  129,492  21.67  Dijaya  Residential and  31  375,218  86,647  23.09  Corporation  commercial property  December  Berhad  development including golf courses and resorts, mechanical engineering, general trading services and credit leasing  2011  MK Land  Investment holding,  30 June  418,856  32,172  7.68  Holdings Berhad  management services, hotel, resort and water’ theme park management  2011  Ken Holdings  Investment holding,  31  87,188  31,350  35.96  Berhad  construction, civil and marine engineering services, land reclamation, dredging and turnkey contracts, housing development  December 2011
(Source: Latest audited financial statements of the respective companies and Companies Commission of Malaysia) THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) 5.6 MARKET SIZE, POSITION AND SHARE (i) Construction industry Based on the GDP for the construction sector of RM18.80 billion in 2011 (based on the constant prices at year 2000) as extracted from the Department of Statistics Malaysia website ( and our proforma consolidated revenue of RM281.27 million for the FYE 2011 derived from the Construction Division, our Group is estimated to have a market share of 1.50% of the overall construction sector in Malaysia. The above estimated market share is for illustrative purposes only and we wish to qualify that our market share cannot be reliably and meaningfully established as the construction industry is highly fragmented with 66,210 local and foreign players registered with CIDB as at 31 March 2012. There is no dominant player in the industry. Furthermore, due to the nature of the construction industry which has a large number of players, there are many factors that may complicate the computation of a meaningful market share, for example, the location of the projects, the type of construction work that can be undertaken according to the grade of CIDB licence, the type of construction services offered and whether the projects are public or private sector projects. To the best of our Board’s knowledge, such segmentation of construction output is not publicly available. In addition, the GDP for the construction sector in 2011 is based on the constant prices at year 2000 while our proforma consolidated revenue for the FYE 2011 derived from the Construction Division is not adjusted to constant prices at year 2000. (ii) Property development industry In 2011, the size of the total property market in Malaysia in terms of total value of property transactions was RM137.83 billion, as extracted from the Property Market Report 2011. Based on our proforma consolidated revenue of RM91.18 million for the FYE 2011 derived from the Property Development Division, our Group is estimated to have a market share of 0.07% of the total property market in Malaysia.
5.7 RELEVANT LAWS AND REGULATIONS The construction industry is subject to various laws and regulations such as building regulations and technical requirements, building codes, building penmits and inspection .and the relevant professional and environmental regulations. The operations of Gabungan Strategik, Megah Ikhlas and Motibina are primarily governed by the CIDB Act. CIDB is responsible for regulating and improving the construction industry by providing consultancy and advisory services, promoting quality assurance, promoting, stimulating and undertaking research, and encourage the standardisation and improvement of construction techniques and material as well as provide training programmes. Pursuant to the CIDB Act, all contractors whether local or foreign are required to register with CI DB before they undertake to execute and complete any construction works in Malaysia. In addition, Gabungan Strategik is also required to comply with PKK’s guidelines in relation to participation in tenders called by the Malaysian governmental authorities, statutory bodies, regulatory authorities or an entity that is otherwise regarded to be in the public sector of the economy. 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) The AQRS Group is subject to the Housing Development (Control and Licensing) Act, 1966 which includes, amongst others, the requirement to obtain a Housing Developer Licence and advertising penmit from the Ministry of Housing and Local Government prior to commencing any property development project. The AQRS Group is also required to comply with the various state and local governments’ requirements and guidelines for, amongst others, land matters, approval of building plans and building inspections. A housing development covering an area of 50 hectares or more is also required by the Department of Environment to carry out an Environment Impact Assessment to be submitted to the Department of Environment for approval under the Environmental Quality (Prescribed Activities) (Environment Impact Assessment) Order, 1987. This is to ensure that efforts are made to adequately address environmental degradation. It also ensures that environmental factors are given due consideration by integrating environmental aspects into building plans. We are also subject to, amongst others, the Occupational Safety and Health Act, 1994. 5.8 DEMAND AND SUPPLY CONDITION On the construction front, the sub-sectors registered mixed performance. Residential, shop and industrial sub-sectors depicted similar construction patterns with more starts and new planned supply but fewer completions. In the residential sub-sector, starts and new planned supply increased by 36.6% and 44.4% respectively whilst completions decreased by 35.4%. Shop sub-sector recorded 51.0% and 66.1 % increase in starts and new planned supply respectively whilst completions decreased by 8.4%. Similarly, in the industrial sub-sector, starts and new planned supply grew by 43.4% and 95.9% respectively whereas completions decreased by 16.0%. The market sentiment was slightly cautious in the office and retail sub-sectors as both registered fewer starts in 2011. Completions and new planned supply remained positive for both sub-sectors. The office sub-sector saw 25 buildings (427,834 s.m.) commenced construction, down from 38 buildings (603,366 s.m.) in 2010. Completions and new planned supply increased by 29.5% and 24.6% respectively to 600,975 s.m. and 243,386 s.m. In the retail segment, 15 new commencements (316,665 s.m.) were recorded in 2011, fewer than 30 buildings (439,579 s.m.) recorded last year. On the other hand, completions increased by 12.7% to 600,400 s.m. whilst new planned supply increased slightly by 0.9% to 239,619 s.m. The downward trend shown in starts would help the retail market to gradually absorb the space available in the near future. The Malaysian property market continued to strengthen in 2011. There were 430,403 transactions worth RM137.83 billion registered in 2011 against 376,583 transactions worth RM107.44 billion in 2010. Both the volume and value recorded double-digit growths of 14.3% (2010: 11.4%) and 28.3% (2010: 32.6%) respectively. On quarterly performance, the most active period of the year was Q2 2011 which recorded 115,093 transactions. Market activity for all sub-sectors was active, led by residential sub-sectors with a double­digit expansion of 18.9% (2010: 7.2%). This was followed by the development land (14.7%), commercial (9.7%), industrial (6.5%) and agriculture (4.6%) sub-sectors. By market share, residential sub-sector dominated with 62.7% and trailed by agriculture (19.7%), commercial (10.1%), development land (5.0%) and industrial (2.4%) sub­sectors. States’ perfonmance were commendable on the whole with the exception of Pahang (-1.1%) and Terengganu (-0.9%), which recorded marginal declines. Seven states recorded double-digit growths. WP. Putrajaya led with the highest growth at 55.2% and trailed by Pulau Pinang (51.7%), Kedah (39.9%), Perak (23.1%), Negeri Sembilan (18.4%), WP. Kuala Lumpur (15.7%) and WP. Labuan (13.0%). 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) By value, all the sub-sectors continued to register double-digit growths against 2010. Two sub-sectors surpassed 50.0% growths, namely agriculture (65.4%) and development land (54.8%) sub-sectors. This was followed by residential (22.1 %), industrial (17.4%) and commercial (15.9%) sub-sectors. Across the nation, all states except Perlis (-40.9%) registered growths in value of transactions. The performance of residential primary market improved in 2011 despite more units launched. The year witnessed 49,290 units of new launches and achieved a slightly better sales performance of 46.3% (2010: 47,698 units; 45.7%). Eight states secured higher performance compared with the national average, spearheaded by Melaka with 69.0%. The five major states namely W.P. Kuala Lumpur, Selangor, Johor, Pulau Pinang and Perak secured 52.8%, 46.0%, 42.3%, 25.1 % and 44.1 % sales performance respectively. Selangor had the highest number of new launches, accounting for 20.2% (9,946 units) of the national total, followed by Johor at 19.6% (9,652 units) and Perak at 11.4% (5,618 units). In tandem with the better performance of new launches, the volume of residential overhang declined. As at year-end there were 19,607 units of residential overhang, indicating a decline of 15.2% in volume (2010: 23,133 units). On the other hand, the overhang value took an upturn of 16.8% (2011: RM4.92 billion; 2010: RM4.21 billion). The unsold under construction was on a similar downtrend, recording a decline of 3.1% whereas the unsold not constructed recorded a marginal increase of 0.1 %. As in past years, Johor retained the highest number of overhang and unsold units in both categories. Nevertheless, the numbers of overhang and unsold under construction were lower than those recorded last year. The state had 5,165 units of overhang worth RMO.92 billion (2010: 5,599; RM1.02 billion). For the unsold under construction category, Johor recorded 6,910 units whilst the not constructed category recorded 3,116 units. By type condominium / apartment units accounted for the largest share in the overhang volume and value (5,118 units; RM2.30 billion). By price range, most of the overhang units were priced below RM150,000, accounting for 55.7% (10,928 units) of the nation’s total. The overhang scenario in the shop sub-sector witnessed slight improvement. The overhang volume and value declined to 5,482 units worth RM1.59 billion (2010: 5,550 units worth RM1.67 billion), down by 1.2% and 4.8% respectively. The unsold under construction and not constructed shops saw the reverse as the volume increased by 2.2% and 51.6% respectively. Johor led in all three categories. In the industrial sub-sector, overhang scenario continued to improve. Against 2010, the volume and value of overhang decreased by 4.6% (625 units) and 10.2% (RM317.43 million) respectively. On the contrary the unsold under construction increased by 5.9%. The not constructed units recorded a major decline of 67.9%. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cant’d) The national performance of the purpose-built offices managed to obtain an overall occupancy rate above the 80% mark at 82.9% (2010: 84.3%) despite more new spaces that entered the market. Completions increased by 29.5% from the entry of 40 new office buildings (600,975 s.m.) recorded nationwide in the review period. The take-up space remained positive though lower at 256,792 s.m. against 925,064 s.m. recorded in 2010. Consequently, total vacant space in the country increased to 2.98 million s.m. (2010: 2.63 million s.m.). However, the states performance was promising with 11 states exceeding the country’s average occupancy level. As at end of 2011, existing supply of office space totaled 17.38 million s.m. with another 2.46 million s.m. in the incoming supply and 1.46 million s.m. in the planned supply. The retail sub-sector saw a slight moderation as the average occupancy rate of shopping complexes declined marginally to 79.5% (2010: 80.6%). The disequilibrium between the increase in completions and the take-up of these new spaces probably contributed to the pull-down in occupancy. The year saw the entry of 35 new shopping complexes, offering a total of 600,400 s.m. of space (2010: 532,628 s.m.). Nevertheless, the take-up of retail space (2011: 356,921 s.m.; 2010: 358,843 s.m.) was still favourable. As at end 2011, the country had 11.26 million s.m. of existing retail space, with another 1.68 million s.m. in the incoming supply. The market also had 1.76 million s.m. of retail space in the planned supply. (Source: Property Market Report 2011 issued by the Valuation and Property Services Department, Ministry of Finance)


5.9 SUBSTITUTE PRODUCTS/SERVICES The construction industry is highly competitive in nature with a large number of players. The services provided are generic in nature and may be provided by other competitors in the market. There is no clear substitute products/services available for it as it is necessary in the formation of new buildings and infrastructure, as well as for the repair, renovation and refurbishment of existing buildings and infrastructure. There are also no substitute products/services available for the property development industry as it is essential for the progress of a nation and the well-being of its citizens. However, there is a choice between the types and sizes of properties available, which varies depending on the purpose. The types of properties include, amongst others, residential, commercial, development land, agricultural, industrial and leisure properties.
5.10 RELIANCE ON AND VULNERABILITY TO IMPORTS The local construction and property development industries are not reliant on or vulnerable to imports. Major raw materials such as steel bars, pre-mixed and ready mixed concrete, sand, aggregates, cement, plywood timber and building materials are readily available locally and can easily be sourced from suppliers throughout Malaysia. Due to the generic nature of these raw materials, a construction or property development player in the industry can easily switch its suppliers of raw materials as the market for these supplies are relatively competitive. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d)
5.11 PROSPECTS OF OUR GROUP Our Board is of the view that the prospects of our Group are favourable in light of our future plans and strategies which are set out in Section 4.20 of this Prospectus and the prospects of the construction and property development industries that we are involved in as we believe that the following initiatives and strategies by the Government bodes well for our ongoing and future plans and supports our Group’s efforts and vision: (i) Rationalising the role of the Government in business In order to increase private sector participation in the economy, active steps will be taken to rationalise the role of the Government and GLCs in business. Three major initiatives will be undertaken towards this end, namely: (a) Increasing privatisation and PPPs Malaysia has been implementing privatisation programmes since 1983 and has already established 510 privatisation and PPP projects in the transportation, road, communications, health and energy sectors. Under the 9MP, 22 projects with an estimated value of RM12 billion were undertaken via privatisation and PPP _A new wave of privatisation will be implemented under the 10MP in order to increase private investment in the economy, improve efficiency in the delivery of services and relieve the financial burden of the Government. Privatisation and PPP will be substantially intensified under the 10MP period with 52 projects with an estimated value of RM62.7 billion already under consideration. Projects under consideration include seven toll highways, five Universiti Teknologi MARA branch campuses, the lIT in Gombak, privatisation of Penang Port, and redevelopment of Angkasapuri Complex, Kuala Lumpur as Media City. To ensure creation of value, strategies to strengthen privatisation and PPP will include: Monetisation of public sector assets through outright sale, joint venture or long-term lease of land with commercial potential, such as the Rubber Research Institute in Sungai Buloh and 1Malaysia Development Berhad land development project in Sungai Besi; Putting in place rigorous checks to ensure that prospective companies meet a minimum set of criteria, including financial standing, track record and management excellence; Strengthening the monitoring framework including establishing a strong project monitoring unit to ensure successful implementation of projects and adherence to contractual obligations; and Adopting value for money drivers such as optimal distribution of risks between the public and private sector, whole life costing, output specification that allows bidders to innovate in the design of the project, competition that provides fair value and performance-based payment mechanism. (b) Establishing a facilitation fund to provide support to private sector for projects of high strategic importance 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) A fund will be established to facilitate private sector investment in projects with high strategic value to the nation and multiplier effects. The RM20 billion fund will be designed to bridge the viability gap for private investment in priority areas such as infrastructure, education, tourism and health projects. Priority will be given to new investment and large scale ventures that are in line with the strategic priorities of the country. Projects currently under consideration include the Senai Hi-tech Park in Iskandar Malaysia, Johor and the Raw Water Supply for Industrial Complex in Tanjong Langsat. Johor. Projects with a minimum capital cost or investment of RM1 00 million will be eligible for assistance. The private sector will be required to finance and undertake all risks with Government funding only used to improve viability of the project. Applicants must prove that they have secured the financing for the project before funds can be disbursed. The fund will be provided to finance land cost and basic infrastructure such as construction of access roads, bridges and provision of water supply required to make a project viable. The utilisation will be on the basis of reimbursable or progress payments. The Public-Private Partnership Unit (“3PU”) of the Prime Minister’s Department will be the secretariat responsible for the processing of approvals, disbursement and monitoring of the fund. (c) Achieving an appropriate balance between the Government, GLCs and the private sector In the pursuit of economic growth there is a need to ensure an appropriate balance between Government, GLCs and the private sector, as well as to create an appropriate separation between regulator and operator. This is necessary to accelerate private sector investment and create an effective platform to regionalise and globalise Malaysian firms. (Source: 10MP) (ii) Business services -One of the National Key Economic Areas chosen on the basis of their contribution to high income, sustainabilit}’ and inclusiveness Between 2006 and 2009, business and professional services grew at 6.3% and contributed 2.6% of GDP in 2009, equivalent to RM13.3 billion. This sector has the potential to raise productivity through intra and inter sectoral linkages and the diffusion of best practices and technology. In addition, it will continue to generate knowledge-intensive employment opportunities in line with moving to a high income economy. The target is to increase this sector’s contribution to 3.3% of GDP by 2015. To achieve this target, the focus will be on further developing construction related and environmental management services. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) During the 10MP period, the strategies to propel the construction related sector forward include: (a) Providing support such as market intelligence, networks and government-to-government relations to enable finms to export professional construction services within ASEAN region, India and China as well as Organisation of Islamic Countries countries;
(b) Establishing a consolidated presence and brand for Malaysian professional construction services overseas. In this regard, the role of the CIDB and Professional Services Development Corporation will also be rationalised; and
(c) Amending legislation to facilitate commitments made at bilateral, regional and multilateral levels to Iiberalise the industry and create new business opportunities.

Environmental management is an incipient industry with substantial grow1h potential in green technology and will spin off new categories of professionals and new areas of specialisation for architectural and engineering services. The key strategies to nurture the grow1h of this segment include: (a) Streamlining the Green Technology Councii to drive the green technology agenda across multiple ministries and agencies which include regulatory aspects, developmental, awareness and promotion; and
(b) Creating the environment and demand for the green technology industry to spur business opportunities for professional and service providers by:

Developing and enforcing regulations especially on energy efficiency in buildings for new developments; Promoting investment in renewable energy to provide long-tenm contracts for renewable energy providers and create the spillover effects on the related domestic service providers; and Promoting culture of conservation and efficiency in energy and water use. (Source: 10MP)
THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) (iii) Ensuring basic physical infrastructure is accessible to all Moving forward, the Government will focus on the expansion and upgrading of rural road networks. Road design and construction will be upgraded to improve quality and reduce maintenance costs through new technologies and methods such as utilising soil stabilisers and concrete paving. The new design will increase road strength to sUppOrt commercial and heavy vehicles and will enhance connectivity between rural areas and urban economic centres to expedite development of economic sectors in rural areas. By the end of the 10MP period, a total of 6,312 kilometres of paved roads will be constructed in Peninsular Malaysia, 2,540 kilometres in Sabah and 2,819 kilometres in Sarawak, benefiting 3.3 million people nationwide. (Source: 10MP) (iv) Strengthening efforts to deliver high quality and environmentally sustainable housing During the 10MP period, existing laws, including the Uniform Building By-Laws 1984, will be reviewed to incorporate minimum specifications of housing quality, particularly on ensuring quality in the provision of affordable housing developments. The Government, through the CIOB, will encourage housing providers to be accredited, particularly for the usage of skilled and quaiified labour and improved construction processes. Environmentally friendly townships and neighbourhoods will be encouraged through the introduction of Green Guidelines and a Green Rating System. Putrajaya and Cyberjaya will be the flagship Green Townships. The Government will review tax incentives, such as tax breaks for buildings and designs that are environmentally friendly, incorporating green design elements like solar panels for heating, rain water harvesting facilities and water conservation features. There will also be focus on creating public community spaces within housing projects that are well­landscaped and equipped with basic amenities, such as parks and playgrounds, to reinforce interaction and integration among local communities. (Source: 10MP) (v) Cultivating a healthy and sustainable housing industry The National Housing Policy sets out the strategies for the Government to promote a healthy industry and protect the public’s interests. Among the major efforts that will be made include: (a) Encouraging urban rejuvenation through an en-bloc sale mechanism The Government wili implement a mechanism to ease the sale of collectively-owned developments. This will be done by amending laws governing the sales of property and land to allow collective sale of properties, including land, when majority consent is obtained, or an en­bloc sale mechanism. The appropriate level of majority consent will be detenmined from at least 80% to 90% of owners agreeing to a sale. This will create market incentives for private redevelopment of aging properties in prime locations; 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) (b) Strengthening monitoring and enforcement Monitoring and enforcement regulation and capabilities will be strengthened to protect the interests of house buyers, especially on quality of housing construction; (c) Promoting the adoption of the BTS approach
Housing developers will be encouraged to adopt the BTS approach through the provision of additional incentives such as shortening the approval processes for land and building plans and exemption of deposit payments for licensing housing developments; and
(d) Rehabilitation of abandoned housing projects

The Government will continue to provide assistance towards the rehabilitation of abandoned housing projects. As of 30 April 2010, there were 107 abandoned projects with 38,600 units involving 25,300 buyers. (Source: 10MP) (vi) Promoting energy efficiency to encourage productive use of energy Energy efficiency measures will be intensified to harness energy savings potential and reduce Malaysia’s carbon emissions and dependence on fossil fuels. Intrinsic barriers to energy efficiency that pose challenges in capturing this opportunity will also be addressed. The National Energy Efficiency Master Plan, 2010 will be a holistic implementation roadmap to drive efficiency measures across sectors with a target to achieve cumulative energy savings of 4,000 kilo tonnes of oil equivalent (ktoe) by 2015. Initiatives to drive energy efficiency efforts for, amongst others, buildings, are as follows: (a) Revision of the Uniform Building By-Laws to incorporate the Malaysian Standard: Code of Practice on Energy Efficiency and Renewable Energy for Non-Residential Buildings (MS1525). This allows for integration of renewable energy systems and energy saving features in buildings;
(b) Wider adoption of the GBlto benchmark energy consumption in new and existing buildings; and
(c) Increasing the use of thermal insulation for roofs in air conditioned buildings to save energy.

(Source: 10MP) To promote the construction of green buildings, the Government also had, pursuant to 2010 Budget, announced the following measures: (a) Buiiding owners obtaining GBI certificates from 24 October 2009 until 31 December 2014 be given income tax exemption equivalent to the additional capital expenditure in obtaining such certificates; and 5. INDUSTRY OVERVIEW AND PROSPECTS (Cont’d) (b) Buyers purchasing buildings with GBI certificates from developers be given stamp duty exemption on instruments of transfer of ownership. The exemption amount is equivalent to the additional cost incurred in obtaining the GBI certificates. This exemption is given to buyers who execute sales and purchase agreements from 24 October 2009 un!il 31 December 2014. (Source: 2010 Budget) (vii) Creating innovation opportunities The Government will deliberately act to create incentives and opportunities for Malaysian companies to invest in innovation, through the public procurement process and the design of regulations which includes, amongst others, a push towards green technology through the National Green Technology Policy, in preparation for green products and services becoming the preferred choice for public procurement. To support this, the green technology financing scheme will continue to issue credit guarantees of 60% for companies developing or using green technology. Firms will also be encouraged to meet Malaysian Standards and recognised international standards for goods and services such as Hazard Analysis and Critical Control Points and Good Manufacturing Practice. (Source: 1aMP) Premised on the above Government’s initiatives and strategies, coupled with our Group’s future plans, competitive strengths and advantages and the outlook of the construction and property development industries in Malaysia, our Board believes that the combination of these factors will put us in good stead to achieve the desired growth and provide reasonable retum of investment to our shareholders. Nonetheless, potential future challenges and the risk factors faced by our Group as set out in Section 3 of this Prospectus may pose a threat and materially affect our ability to implement our future plans, which may impair the prospects of our Group. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK


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