Industry Overview

7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH

2 1 APR 2017 The Board of Directors, Inta Bina Group Berhad No. 15&17(1st Floor), lalan SS15/8A, 47500 Subang laya, Selangor, Malaysia Dear Sirs/Madams, Executive Summary of the Strategic Analysis of the Construction Industrv in Malaysia
This Executive Summary of the ‘Strategic Analysis of the Construction Industry in Malaysia’ is prepared by Protege Associates Sdn. Bhd. (“Protege Associates”) for inclusion in the Prospectus of Inta Bina Group Berhad (“18GB”) in relation to its listing on the Ace Market of Bursa Malaysia Securities Berhad. 1.0 Malaysia Economic Overview The Malaysian economy registered a 4.2 percent growth in its real gross domestic product (“GOP”) in 2016 as compared to a 5.0 percent growth registered in 2015. The slower pace in the growth of the Malaysian economy can be attributed to an overall moderation in private sector consumption and investment growth in an environment of prolonged uncertainties particularly in the international economic, financial and political landscapes. The Malaysian economy is expected to grow by between 4.3 percent to 4.8 percent in 2017. The services sector is expected to remain the largest contributor to the economy by accounting for more than half of l’vlalaysia’s real GOP in 2017.
2.0 Introduction to the Construction Industrv 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 infrastructures such as bridges, dams, roads and canals. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
1~«f\NU I l’INANCE J MAUKI,l A typical construction job is usually managed by a project manager and supervised by a construction manager, design engineer, construction engineer and/or project architect. To ensure the success of the project, the design and execution of the infrastructure must be effectively planned and should take into consideration various issues such as budget, timeline, construction site safety, the environmental impact of the job, the availability of building materials, logistics and bidding.
3.0 Market Segmentation The construction industry in Malaysia can generally be segmented into two distinct segments namely, real estate construction and civil engineering & special trade work as illustrated in Figure 1.
Figure 1: Construction Industry Segmentation
~ ~'”” -Civil Engineering &Real Estate Construction Special Trade Work Source: Protege Associates
Real Estate Construction Real estate construction refers to the construction of structures and bUildings for residential as well as non-residential purposes. Other activities within the real estate construction category are the assembly and erection of prefabricated constructions on the site such as stairs, windows, walls, wall panels and floor panels as well as bUilding construction activities not elsewhere classified such as restoring of historical sites and bUildings. 1nta Bina Sdn Bhd (“1BSB”) is mainly involved in the construction of residential and non-residential bUildings. Such activities are considered to be under the real estate construction category.
Civil Engineering and Special Trade Work Civil engineering mainly refers to the construction of infrastructures such as roads and highways, utility structures and buildings, and public infrastructures like bridges, stadiums, ports, dams and railways. Meanwhile, special trade works involve the construction of parts of buildings and civil engineering works without responsibility for the entire project. Special 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
HilAND 1 I’InANC:li. [ MAIIKl,T trade works consist of activities such as metal works, earthworks, electrical works, refrigeration and air-conditioning works, painting works, plumbing, sewerage and sanitary works, glass works, carpentry as well as tiling and flooring works. 3.1 Overview of the Property Market in Malaysia In 2015, the Malaysian property market registered a total transaction volume of 362,105 as well as a total transaction value of RM149.90 billion. Going into 2016, the total transaction volume registered in the first three quarters amounted to 240,001 transactions with a value of RM95.67 billion. Residential properties dominated market activity in 2015, with the sub­sector accounting for 65.2 percent and 49.0 percent of the property market in terms of transaction volume and value respectively. FolloWing this trend, residential properties continued to dominate market activity in the first three quarters of 2016, and accounted for 63.2 percent and 50.8 percent of transaction volume and value respectively during that period. Figure 2 denotes the volume and value of property transaction by sub-sector in Malaysia for 2015 and in the first three quarters of 2016. Figure 2: Volume and Value of Property Transaction by Sub-Sector in Malaysia, 2015 and the First Three Quarters of 2016
Notes: 1) 2)  *Less than 0.1% Figures may not add up due to round-offerror  Source: National Property Information Centre (nNAPIC”)
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
l.nf\ND I “IHIIN(-f’. J MJ1,HKI’:l 4.0 Market Dynamics Scorecard The market dynamics scorecard provides a snapshot of the overall market characteristics based on selected key market indicators and its respective measurements and trends. The market dynamicsfor the construction industry is shown in Figure 3. Figure 3: Market Dynamics Scorecard for the Construction Industry in Malaysia
Source: Protege Associates 5. 0 Historical 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 market size (revenue) of the Malaysian construction industry stood at RM43.12 billion and RM46.63 billion in 2014 and 2015 respectively. The Malaysian construction industry was estimated at a market size (revenue) of RM50.09 billion in 2016, which was an increase of 7.4 percent over the previous year’s revenue of RM46.63 billion. In addition, the forecast CAGR for the Malaysian construction industry from 2017 to 2021 is 8.9 percent. The historical market size (revenue) and growth forecast of the construction industry in Malaysia are as shown in Figure 4. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
r~n,;NIJ I !;INANCt:.’ Mi\IlKl’.T Figure 4: Historical Market Size (Revenue) and Growth Forecast for the Construction Industry in Malaysia, 2014-2021
CAGR (2017-2021) (base year of2016): 8.9percent Note: At constant price 2010 Sources:Department ofStatisticsMalaysia, BankNegaraMalaysia (”BNM”) andProtegeAssociates Going forward, expansion in the local construction industry is expected to be driven by factors such as the government-led initiatives and spending on the implementation of various infrastructure projects and affordable housing schemes, a sustained economic growth boosting investment in properties and steady population growth. Much of the construction industry’s growth prospects hinges upon the speed and effective implementation of the various projects identified under the Eleventh Malaysia Plan (,’l1MplI) and Economic Transformation Programme (“ETplI), along with the continued execution of various public­private partnership projects. Some of the ongoing and expected future government-led mega infrastructure projects include the following: i. the Sarawak Pan-Borneo Highway; ii. the second line of the Klang Valley mass rapid transit namely the Sungai Buloh­Serdang-Putrajaya Line (“MRT2”); iii. the Sungai Besi-Ulu Klang Elevated Expressway (“SUKE”); iv. the Damansara-Shah Alam Elevated Expressway (“DASH”);
v. the third line of the light rail transit namely the Bandar Utama, Damansara-Johan Setia, Klang Line (“LRT3”);

vi. the East Coast Rail Line (“ECRL”); and 5 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
vii. the Kuala Lumpur-Singapore High Speed Rail (“HSR”). The pace of growth in the construction industry in Malaysia is expected to grow by 8.0 percent and 8.5 percent in 2017 and 2018 respectively. Growth is expected to rise to 11.5 percent in 2019, boosted by more expected construction activities from the HSR and ECRL projects. From 2020 to 2021, the local construction industry is projected to continue expanding albeit at a moderating pace during this period. This is in line with the expected completion of some major government-led construction projects such as the LRT3 and SUKE during this period as well as more construction projects such as the IVIRT2 and the Sarawak Pan-Borneo Highway being at the later stage of completion with majority of the required works expected to have been completed by then. The development of these large-scale infrastructure projects is also expected to spur property development activities within the vicinity of the infrastructures and bodes well for the growth of the construction industry in IVlalaysia. The market size (revenue) of the industry is expected to reach RM76.58 billion in 2021. Protege Associates has also provided historical performance and growth forecast of the real estate construction market in Malaysia. The real estate construction market is a sub-segment within the broader construction industry. Its share of the local construction industry stood at within the range of 50 percent to 55 percent during the period from 2013 to 2016. Figure 5: Estimated Share of Real Estate Construction Market in the Construction Industry in Malaysia, 2013-2016
Source: Protege Associates The Malaysian real estate construction market stood at a market size (revenue) of RM23.65 billion and RM25.63 billion in 2014 and 2015 respectively. The figure was estimated to reach RM27.55 billion in 2016 and the market is expected to grow at a forecast CAGR of 4.8 percent from 2017 to 2021. The historical market size (revenue) and growth forecast of the real estate construction market in Malaysia is as shown in Figure 6. 6 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
Itfii\Nn· 1 FINANCE II\”li\HKEl Figure 6: Historical Market Size (Revenue) and Growth Forecast for the Real Estate Construction Market in Malaysia, 2014-2021
CAGR (2017-2021) (base year of2016): 4.8 percent Note: At constant price 2010. Source: Protege Associates The growth trend in the real estate construction market is expected to mirror closely to the growth trend in the broader construction industry. The market is also expected to benefit government-led initiatives and spending particularly on affordable housing schemes. In addition, the market is expected to be further boosted by the ongoing and/or future implementation of large-scale projects such as the Bukit Bintang City Centre and Forest City projects. On the flipside, the stringent policies imposed to curb speculative activities and promote responsible financing as well as the impact of the GST are expected to weigh on the overall performance of the market. On the closer look at the three areas/states that IBSB have a business footprint, the Klang Valley and Johor are expected to register more real estate construction activities as compared to Perak with the ongoing development of the Greater Klang Valley NKEA as well as the Iskandar Malaysia development plan anchoring the performance of each respective market. 6.0 Competitive Landscape of the Construction Industry The construction industry in Malaysia is regulated by the government, and it is mandatory for all contractors whether local or foreign to register with the Construction Industry Development Board CCIDB”) before they undertake to execute and complete any construction works in Malaysia. 7 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
Il11ANIJ 1 l’JrlAf”c:t I MlI.II Kl”” The construction industry is highly competitive and fragmented with different grades of contractors capable of bidding for varying project sizes according to their capabilities and levels of services. In general, there are three main registration categories for registered contractors in Malaysia, namely the building construction category, the civil engineering construction category as well as the mechanical and electrical category. Each main category can be further segmented into various specialisations. There are 28 specialisations under the building construction category ranging from B01 to B28, of which some of the specialisations include building general works, concrete repair work, landscaping, paint works and metal works. As for the civil engineering construction, there are 43 specialisations under this category ranging from CE01 to CE43, of which some of the specialisations include road and pavement construction, bridge construction, soil investigation, reclamation works, general civil engineering works and earthworks. As for the mechanical and electrical category, it can be further divided into the mechanical sub-category and the electrical sub-category. The mechanical sub-category has 23 specialisations ranging from MOl to M23, of which some of these specialisations include lifts and escalators, heat restoration system, kitchen appliances and pollution control system. The electrical sub-category has 35 specialisations ranging from E01 to E35, of which some of these specialisations include sound system, monitoring and security system, building automation system and general electrical works. IBSB is currently registered under the B04 (General BUilding Works) and CE21 (General Civil Engineering Works) specialisations. Figure 7 depicts the category and description of the registrations held by IBSB. F.gure 7: CIDB Registrations held by IBSB Category Specialisation Description ::~~:::~~ Building  B04 -General  General construction  Construction (B)  Building Works  works for buildings and  plants
Experienced/Technical personnel/Certificate of Competency in l”1anagement
As of the end of December 2016, there were a total of 79,883 contractors registered contractors in Malaysia. These contractors are categorised by grade from G1 to G7. As 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
IIltfl.NB I FINANCE I M,rr,.nKl’.l’ illustrated in Figure 8, G1, G2 and G3 contractors cumulatively amount to 62,408 contractors and account for 78.1 percent of the total. The remaining contractors are registered under the G4 to G7 grades and account for 21.9 percent of the total. As at the end of December 2016, there were a total of 79,883 registered contractors in Malaysia. These contractors are categorised by grades G1 to G7. As illustrated in Figure 8, contractors registered under G1 to G3 grades cumulatively amount to 62,408 contractors and represent 78.1 percent of the total registered contractors. The remaining 21.9 percent represent contractors registered under G4 to G7 grades. Figure 8: Number of Market Participants in the Malaysian Construction Industry by Grade, 2014-December 2016
Source: GDB Out of a total of 79,883 registered contractors as at end of December 2016, the number of active contractors stood at 56,330, representing 70.5 percent of the total. As at end of December 2016, 11,528 new contractors entered the local construction industry -signalling the continued interest by new contractors to participate in the growing construction industry. The majority of the registered contractors were concentrated in certain geographic locations where there were higher demand for construction activities and services. Selangor, Sabah, Wilayah Persekutuan and Johor accounted for the highest number of contractors registered in Malaysia at 13,351, 11,249, 8,862 and 7,711 respectively as at end of December 2016. 9 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
IIlli,NO I 1′.NAN<:f~ I ~’1iI.HJ(l’T G7 contractors mainly comprise established contractors who are able to compete for and undertake projects of unlimited size as they have the required financial strengths, track record, reputation and technical expertise to implement such large-scale projects. As at end of December 2016, there were 5,752 active and 451 new G7 contractors while 665 were either semi active or dormant. G7 contractors are able to undertake and manage the entire project on their own and may work with or sub-contract certain portion/process to smaller contractors to benefit from cost and time savings. They typically have existing work relationships and track records with many customers that they are able to leverage upon to attain new projects. Some would have been pre-qualified with certain of their customers, allowing them to participate in closed tenders, giving them an edge in winning the bid. The real estate construction market is a sub-segment within the broader construction industry. As part of the construction industry in Malaysia, the real estate construction market is also considered to be mature and fragmented with the presence of many market players. Among the licensed contractors that have registered with CIDS, approximately 70,000 contractors have respectively registered under the building general works category and general civil engineering works category as at 31 December 2016. Figure 9 depicts the number of contractors registered with CIDS under the bUilding general works category by grade in IltJalaysia as at 31 December 2016. Figure 9: Contractors Registered under the B04: Building General Works Category by Grade in Malaysia, as at 31 December 2016
Note: Numbers may not necessary add up due to round-offerror  Source: CIDS  10  142
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’dj
G1 contractors accounted for almost half of the total contractors registered with CIDB for each category with G2 contractors at a distant second in terms of share of total contractors. G7 contractors, which are able to tender for projects of unlimited size, accounted for 8.6 percent of total contractors registered in the building general works category. Like in the rest of the markets within the construction industry, G7 contractors are typically considered the ‘big boys’ with the necessary financial strength and human resources to undertake large scale construction projects as compared to their counterparts. G7 contractors are generally established with a relatively long operating track record as well as technical expertise. 6.1 Industry Player Analysis IBSB is a building contractor. The company constructs residential and non-residential buildings. As a main contractor, IBSB is involved in the day-to-day management and implementation of construction projects awarded to the company. IBSB generally performs all major aspects of the construction project, including building construction, substructure and external infrastructure works. As at 31 December 2016, the number of registered G7 contractors under the building general works category in Malaysia stood at 6,064. For the purpose of this report, Protege Associates has used the following criteria when selecting other industry players in Malaysia for comparison with IBSB: • Registered an annual revenue of less than RM300 million;
• Registered as a G7 contractor with CmB for the category of B04 (Building General Works); and
• Incorporated in the Klang Valley region.

The criteria are used to further narrow down the list of industry players that can be selected for comparison with IBSB. After taking into consideration the above criteria, Protege Associates has selected five industry players namely HLKS Construction Sdn Bhd (“HLKS”), Jallcon (M) Sdn Bhd (“Jallcon”), Jasmurni Sdn Bhd (“Jasmurni Construction”) Pesona Metro Sdn Bhd CPesona Metro”) and Sri Binaraya Sdn Bhd (“Sri Binaraya”) for comparison purpose. It needs to be highlighted that the list of industry players used for comparison purpose is not exhaustive as only industry players with available financial information for financial year ended 2015 or later are taken into consideration. As such the list of industry players only serves as a reference for readers. 11 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
IJHAND I ~·IN:’1rJCr. I MAHKl,r HLKS Construction Sdn Bhd HLKS was registered as a private limited company on 17 May 2005 with the Companies Commission of IVlalaysia. HLKS is principally involved in the provision of construction works. For the financial year ended 29 February 20161 HLKS registered revenue of RM112.5 million and profit after tax of RM2.5 million. Jasmurni Construction Sdn Bhd Jasmurni was registered as a private limited company on 12 July 2001 with the Companies Commission of Malaysia. Jasmurni is principally involved in the provision of general construction works. For the financial year ended 31 December 20151 Jasmurni registered revenue of RM206.1 million and profit after tax of RM34.5 million. Jallcon (M) Sdn Bhd Jallcon was registered as a private limited company on 13 May 1983 with the Companies Commission of Malaysia. Jallcon is principally involved in the construction industry as bUilding contractors and civil engineers. They are also involved in investment holding. For the financial year ended 30 April 20161 Jallcon registered revenue of RM173.5 million and profit after tax of RM9.6 million. Pesona Metro Sdn Bhd Pesona Metro was registered as a private limited company on 11 September 1996 with the Companies Commission of Malaysia. It is a wholly-owned subsidiary of Pesona Metro Holdings Berhadl a public listed company on the Official List of Bursa Malaysia Securities Berhad. Pesona Metro is principally involved in the provision of bUilding and construction works. For the financial year ended 31 December 20151 Pesona IVletro registered revenue of RM242.6 million and profit after tax of RM9.1 million. Sri Binaraya Sdn Bhd Sri Binaraya was registered as a private limited company on 21 March 1980 with the Companies Commission of Malaysia. Sri Binaraya is principally involved in the provision of contract construction and provision of related services. For the financial year ended 31 December 20151 Sri Binaraya registered revenue of RM252.8 million and profit after tax of RM3.6 million. ~any No.: 1134880-W I 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d) Figure 10: Comparison between IBSB and Selected Industry Players in the Construction Industry in Malaysia
145 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
IlUAND I j’ltll\l’lCL: I Mf\HKlif Notes: 1) Thelistofselectedindustryplayersaboveis notexhaustive 2) The above figures only provide an indication and are not considered directly comparable due to the following reasons: (a) Not all industry players have the same financial year end; and
(b) Not all industry players carry out activities which are completely similar to each other or in the

same geographical area a) Working capital = current assets -current liabilities b) Gross Profit Margin = Gross Profit/Revenue c) Profit Before Tax Margin = Profit Before Tax/Revenue d) Profit After Tax Margin =Profit After Tax/Revenue e) Current Ratio = Current Assets/Current Liabilities f) Asset Turnover = Revenue/(Current Assets + Non-current Assets) g) Debt to Equity Ratio= (Non-current Liabilities + Current Liabilities}/(Total Assets -Total Liabilities) * Not available Sources:IBS8, CompaniesCommission ofMalaysiaandProtegeAssociates The current ratios registered by these selected industry players (including IB5B) were within the range of 1.04 times to 2.93 times with HLK5 registering the highest liquidity and IB5B registering the lowest liquidity. A current ratio of above one time indicates that an industry player is able to meet its short-term obligation as its amount of current assets is higher than its amount of current liabilities. In terms of the level of gearing, Pesona Metro registered the highest debt to equity ratio of 4.01 times while HLK5 had the lowest at 0.54 times. IB5B’s debt to equity ratio of 2.88 times falls within the range of 0.54 times to 4.01 times. The asset turnover ratio measures a company’s efficiency in utilising its assets to generate revenue and HLK5 recorded the highest ratio at 4.59 times whilst Pesona Metro recorded the lowest ratio at 0.99 times. IB5B’s asset turnover ratio of 1.19 times indicates that it is able to generate more than RI\11 in revenue for each RM1 in assets utilised. On another note, working capital is generally used to measure a company’s liquidity, efficiency and overall short-term financial health. The working capital registered among the selected industry players were within the range of RM5.7 million to RM56.8 million, with IB5B having the lowest working capital and Jasmurni having the highest working capital. A positive working capital shows that a company has a higher amount of current assets as compared to current liabilities As at 31 December 2016, IB5B has investment properties of RM18.9 million. These properties were received by IB5B as certain of IB5B’s clients had settled their contract sum owing to 185B by way of ‘contra’ in the form of properties developed by the clients. 185B’s investment strategy is to own and dispose these properties in the secondary market within 3 to 5 years from the handover of these completed properties. As the properties are captured in IB5B’s financial statements as investment properties (which does not form part of current assets), there is a mismatch between collections from clients and payment to sub­7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
t1HANO I 1-INAN<:t.. l (I,t,’\HKF.T contractors and suppliers, and hence lower current assets for IB5B. However, upon the disposal of these investment properties, a total of RM18.9 million will be added to IB5B’s current assets, thus improving the company’s working capital. Other competitors may have different investment and financial strategies to IB5B and different balance sheet management. Protege Associates is unable to comment further on this due to lack of publicly available information. All the industry players highlighted in Figure 10 are profitable. However, the profitability level of these industry players varies when measured against profitability ratios such as gross profit margin, profit before tax margin and profit after tax margin. For example, Jasmurni recorded the highest gross profit margin of 27.2 percent while HLK5 had the lowest at 5.3 percent. IB5B’s gross profit margin of 10.8 percent falls within the range of 5.3 percent to 27.2 percent. The profit before tax margin registered by 5ri Binaraya was just 1.9 percent as compared to 22.4 percent recorded by Jasmurni. IB5B’s profit before tax margin of 6.9 percent is within the range of 1.9 percent to 22.4 percent. In terms of profit after tax margin, Jasmuni recorded the highest at 16.7 percent whilst 5ri Binaraya recorded the lowest at 1.4 percent. 6.2 18S8’s Market Share Analysis For the financial year ended 31 December 2016, IB5B generated revenue of RM257.1 million, equivalent to a 0.5 percent share of the construction industry in 2016. This is based on IB5B’s revenue of RM257.1 million against total market size (revenue) of the construction industry in Malaysia of RM50.09 billion in 2016. Figure 11: 18S8’s Estimated Market Share within the Construction Industry in Malaysia, 2016
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
“UAND J rINANe’.i I MAltKE”r Source: Protege Associates 1656’s revenue of RM257.1 million for the financial year ended 31 December 2016 was equivalent to 0.9 percent share of the real estate construction market in Malaysia in 2016. This is based on 1656’s revenue of RM257.1 million against total market size (revenue) of the real estate construction market in Malaysia of RM27.55 billion in 2016. Figure 12: 1858’s Estimated Market Share within the Real Estate Construction Market in Malaysia, 2016
Source: Protege Associates 6.3 Barriers to Entry The construction industry has relatively low entry barriers due to its wide and diversified entry points in which construction activities are rendered. However, market players will likely face several notable challenges while penetrating into the top tiers of the construction industry. These challenges include: • Established Track Record -Construction projects involve high risks and require substantial financial commitment from the prospective project owners or property developers. Hence, the contractor’s track record becomes a key consideration during the selection of the potential service provider for the project. Without a sound track record, potential entrants face a daunting challenge in prOVing itself and attracting new clients.
• Industrial Experience and Expertise -The construction industry is highly competitive and having a strong management team with the relevant experience and expertise is crucial to be successful in the industry. However, developing a team with diverse experience and expertise can be both time consuming and costly. Contractors will likely

16 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
nHI\NO I I’INAN(:l, I N!f\HKF.T be required to work on tight timeframes with numerous parties such architects, quantity surveyors, engineers as well as raw material suppliers to perform the construction activities as scheduled. The personnel involved need to possess the required technical expertise in construction. In addition, they need to be familiar with the other construction industry-related matters. They have to be flexible and comfortable working within a fast­paced and demanding environment, while being up to date with industry trends/standards and having the right industry contacts. • Established Incumbent Market Players -Potential entrants in all segments of the Malaysian construction industry are likely to encounter difficulties competing with incumbent market players. The dominance and reputation of large-scale companies may hinder small market players from gaining a firm foothold in the local construction industry. A badly done construction project can seriously jeopardise a firm’s reputation and future business prospects. In addition, incumbent market players have established strong relationships with upstream raw material suppliers as well as the end-users from the construction industry. Potential entrants may encounter difficulty in securing raw material at affordable prices and attracting customers from construction industry. Potential entrants would need to possess the necessary market knowledge and experience to compete successfully in the construction industry. 7.0 Demand and Supply Conditions Figure 13: Demand and Supply Conditions Affecting the Construction Industry in Malaysia, 2017
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
I I INJ\NCI’ I M.AltKt’OT
Source: Protege Associates 7.1 Demand Conditions Government-Led Initiatives and Spending The construction industry is expected to benefit from government-led initiatives and spending particularly those relating to the infrastructure development. A RM260 billion development allocation has been earmarked under the 11MP. Of the RM260 billion development allocation, around half is for developing infrastructure -which is to be undertaken by the construction industry. The CITP that covers the period from 2016 to 2020 which was introduced by the Malaysian Government under the 11MP is also expected to drive the local construction industry forward. This programme has identified four main strategies under the 11MP to transform the construction industry namely enhancing knowledge content, driving productivity, fostering sustainable practices and increasing the internationalisation of construction firms. A Favourable Interest Rate Environment All the key stakeholders in the construction industry in Malaysia namely existing borrowers (for purchasing property), contractors and property developers generally rely heavily on financing for various purposes such as purchasing property, working capital and capital expenditure. As such, the interest rate environment in the country typically has a big impact on these stakeholders and they are likely to reap the benefits derived from any low interest rate environment given that the cost of borrowing for them will also likely to be lower as well. However, the extent of the benefits that they stand to enjoy is dependent on the type of financing that they are using or applying i.e. fixed rate loan and floating rate loan. These stakeholders have been enjoying a favourable interest rate environment in Malaysia over the past years. The overnight policy rate (“OPR”) in Malaysia has been relatively stable and it has only been hovering between 2.25 percent to 3.25 percent since 2010 with only four upticks of 25 basis points each recorded during the period from 2010 to 2016. Besides 18 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
llHflNO I rrNfll’\l(‘f: I ‘\If,ltKICT being stable, the interest rate is expected to trend downward during the forecast period. In July 2016, BI\IM already announced the decision to cut the OPR by 25 basis points from 3.25 percent to 3.00 percent. The interest rate environment in the banking and financial institutions in Malaysia is expected to remain stable with room for further cut in OPR during the forecast period and has continued to be closely supervised by BI\IM. With the growing uncertainties in the world’s economy which is expected to grow at a slower pace, the central bank is expected to be more inclined towards maintaining a low interest rate environment. The Push by Property Developers to Boost Property Sales Property developers have been struggling to secure sales for the past few years since 2014 as BNM’s measures in curbing property speculation as well as cheap credit and financing schemes have led to many genuine property buyers facing difficulty in purchasing a property. This is expected to drive more promotional activities and incentives for the sales of properties by property developers in Malaysia. Promotional activities and incentives offered may vary from developer to developer but generally have two common features. The first feature involves the requirements for a low initial financial outlay and having a larger commitment at a later date. The second feature is premised on two assumptions, namely the credit profile of buyers/borrowers will improve in the future as well as the hope for a rebound in the property market within the next few years. These schemes are generally available for a limited time frame and/or apply to certain properties only. Sustained Economic Growth to Boost Investment in Properties Malaysian consumers are generally attaining greater affluence as a result of broad economic growth seen for the country over the past half-century. In addition, the per capita income in IVlalaysia rose by 4.6 percent from RM36,078 in 2015 to RM37,738 in 2016. This figure is projected to reach RM39,656 in 2017. IVlalaysia’s real GDP expanded by 4.2 percent in 2016. It is projected to grow by between 4.3 percent to 4.8 percent in 2017. 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 stands to benefit from the increase in uptake of properties. 19 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
illtl’lNO J l’INANr:L, 1′.’lf\..ltKt’T 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 in 2010. This figure is projected to grow steadily to reach 41.5 million in 2040. On a closer look at the areas where IBSB has a business footprint, population in the Klang Valley grew from 5.7 million in 2000 to an estimated 8.0 million in 2015 while population in Johor expanded from 2.8 million in 2000 to an estimated 3.67 million in 2016. Population in these two areas is expected to continue growing in view of the ongoing developments in Klang Valley and Johor. The demand for properties is positively correlated to the growth in population. A higher population can translate to a higher demand for housing which is one of the life’s basic necessities. A higher population can also create a bigger pool of potential demand for recreational needs offered by leisure properties such as shopping complexes and hotels. In addition, infrastructures need to be built or upgraded in order to cope with higher frequency of usage stemming from a higher population. As such, the construction industry in Malaysia can look forward to more construction activities for both the residential and non-residential sectors with the expected growth in population. Stringent Policies Dampening Growth in the Property Market Amidst concerns over spiralling prices and home ownership issues, the Malaysian Government has put in place various measures and initiatives to curb speculative activities and promote responsible financing practices over the past years. For example, BNM announced the implementation of a maximum loan-to-value ratio of 70 percent for the third mortgage and above taken out by a borrower. This measure was aimed at supporting a stable and sustainable property market and to promote the continued affordability of homes for the general public. In addition, to promote responsible financing practices, BNM has implemented new gUidelines that took effect from 1 January 2012. The gUidelines require financial institutions to apply the net income calculation method instead of gross income when computing the debt service ratio for potential borrowers. The guidelines are meant to ensure lenders do not compromise prudent and responsible financing practices in the competitive environment, while at the same time, help individuals to borrow within their means. This is targeted at curbing excessive property speculation activities and is not expected to hamper genuine consumers from buying a house for own stay. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
BNM rolled out several measures on 5 July 2013, which take effect immediately, to pare down household indebtedness such as maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties (from 45 years), maximum tenure of 10 years for financial extended for personal use (from 25 years) and prohibition on the offering of pre-approved personal financial products. Besides that, loans (all loans and financing from corporate and retail banking but excluding hire purchase) that have been rescheduled or restructured following an increase in the credit risk of a borrower are reqUired to be tagged as restructured and rescheduled in the Central Credit Reference Information System and classified as impaired based on the “Classification and Impairment Provisions for Loans/Financing” policy document issued by BNM. Banks can reclassify these accounts as non-impaired after observing a minimum six months’ nursing period. The implementation of these restrictive measures has dampened the growth in the property market which is one of the key catalysts for the construction industry in IVlalaysia. The number of potential property buyers has been reduced accordingly with the incidences of loan applications rejection becoming more frequent as banks adhere to the gUidelines by Bank Negara Malaysia. In another development, the Malaysian Government announced a few measures that can be seen as efforts to curb speculative buying in the property market. These measures include raising the real property gain tax (“RPGT”) to 30 percent for gains on properties disposed of within three years, 20 percent for four years and 15 percent for 5 years, imposing 30 percent RPGT for properties disposed of by non-citizens within five years and 5 percent for disposals after five years, prohibiting the Developer Interest Bearing Scheme and increasing the minimum price of property that can be purchased by foreigners from RM500,OOO to RM1 million. Such measures are expected to blunt the vibrancy in the property market with potentially lesser number of property transactions expected to be registered moving forward. Any unfavourable impact to the property market can hinder the progress in the construction industry. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
HilAND’ “INANCE I ~Jjt1,IIl{.;-T Higher GST-Pushed Entry Price for New Properties Dampening Demand The implementation of GST since 1 April 2015 has inevitably led to higher inflationary pressure on the prices of properties in Malaysia. With the GST, there is now a 6 percent tax rate on construction input materials such as cement, bricks, steels, floor tiles, pipes, fittings, paint as well as outsourced construction works along with the related architectural, legal and professional services. Unless property developers are willing to sacrifice their total profit margin, the higher increase in construction cost is likely to be passed to property buyers, either partially or in entirety, resulting in higher selling price for new properties launched. With the entry cost of owning new properties being pushed higher post-GST, potential buyers are in a weaker position to accommodate a revised budget for new investment. This is expected to weigh on demand for new properties. Some of them may delay or postpone their property investment plans due to the need to save more money over a longer period of time. In addition, the implementation of GST has affected consumer sentiment and this is expected to remain a concern due to possible aversion to spending on big-ticket items such as properties. 7.2 Supply Conditions CIDB Providing the Necessary Leadership in Spearheading the Development of the Local Construction Industry eIDS is a name synonymous with the construction industry in Malaysia. It was established under the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994 (Act 520) (“LPIP Act”). Over the past 20 years, eIDS has been playing an active role in helping to shape the direction and spur the growth in the construction industry in Malaysia. Various reforms and innovations have been initiated under the leadership of eIDS to bring positive changes and cohesion to the industry. l\1oving forward, eIDS is expected to continue playing a prominent role in helping to drive the local construction industry to a successful future. eIDS has already developed the industry blueprint, eITP that outlines strategic goals and milestones to bring the local construction industry to the next level as espoused in the thrusts of llMP covering the period from 2016 to 2020. In addition, eIDS was given more power under the recent Lembaga Pembangunan Industri Pembinaan Malaysia (Amendment) Act 2011. 22 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
flrlANO I 1,INAN(:i.. 11\1″UKt:’l Active Role Taken by MBAM in Pushing for the Betterment of the Construction Industry in Malaysia The MBAM strives to become the prime mover and the recognised voice of the local construction industry. It was established in 1954. MBAM has also been actively utilising various media platforms to create awareness and promote the betterment of the local construction industry as well as to highlight industry related issues faced. It publishes three issues annually of its official journal, Master Builders Journal. Besides that, all relevant and updated information are constantly disseminated to its members via its websites. Moving forward, MBAM is expected to continue playing a significant role in helping to address any issues or problems faced by the local construction industry and gUide the industry to a successful future. Strengthened Mechanism to Address Payment Disputes and Facilitate Adjudication The construction industry in Malaysia has been grappling with long history of lengthy payment times and contract disputes as well as non-payment issues. These have resulted in many contractors suffering from cash flow problems leading to delayed projects. However, local construction industry players have reasons to be optimistic on resolVing these long­standing issues folloWing the introduction of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) and the establishment of specialised construction courts in Malaysia. Both developments can go a long way towards helping to alleviate the prevalent and pervasive practice of delayed, underpayment and/or non-payment for works carried out under a construction contract in Malaysia. Labour Shortage and High Dependency on Foreign Workers The construction industry in Malaysia is labour intensive. However, it has continued to grapple with labour shortage including for skilled workers. Poor participation from l”1alaysians has also further exacerbated the problem. Most locals shun these jobs as they view them as dangerous, dirty and difficult, and they expect higher wages. Therefore, the construction industry has been relying heavily on foreign workers. The l”1alaysian Government announced that foreign workers in the construction sector need to pay a levy of RM2,500, up from RMl,250, with effect from 1 February 2016. However, the levy was subsequently revised to RMl,850 follOWing the outcry from employers and it came 23 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d) Protege
~ ,.. _. <“:,,·\S,.”OC1″\IL_, (,nANO I IINAN(,C I MflltKfi1 into force in Peninsular Malaysia with effect from 18 March 2016. This development will likely raise the cost of hiring foreign workers leading to higher cost of operations. In March 2016, the IVlalaysian Government announced the stop of recruitment of foreign workers but in May 2016, the ban was partially lifted with four sectors being allowed to hire foreign workers, including the manufacturing, construction, plantation and furniture-making industries. On a more recent note, the Malaysian Government had announced that beginning 1 January 2017, employers are required to pay for foreign worker levies instead of deducting it from the foreign workers’ wages under the Employer Mandatory Commitment. However, following an outcry from the public on increased operating cost under the new policy, the levy ruling under the Employer Mandatory Commitment was deferred to 2018. Higher Capital Demand from Elevated Post-GST Cost of Construction Notable cost components for a contractor namely, construction input materials, outsourced construction works as well as related architectural, legal and professional services in Malaysia are subject to a 6 percent GST. In addition, local construction industry players need to invest in more manpower and related software to undertake the additional administrative works required and comply with the regulatory requirements. Hence, contractors need to commit more working capital to undertake construction activities. The amount of additional working capital required is higher as businesses start to scale up their operations. It does not help also that there is expected to be a gap in the timing of GST refund, if any, due to the processing and investigation time required by the authority. In light of this, local construction industry players may need to have additional working capital to address any issues pertaining to the resulting mismatch in the timing of cash flow. Lack of Traction in the Adoption of IBS Construction Despite being introduced in Malaysia in the 1960s, the adoption rate of IBS construction has failed to gain significant traction due to various hurdles related to industry preparedness and cost considerations. Higher initial costs required seem to be deterring construction industry players. Construction industry players need to fork out a huge upfront deposit to IBS manufacturers which can impact their cash flow. They are likely to be less motivated to make the switch towards IBS construction given the continuing availability of foreign labour at a cheaper cost comparatively. It also does not help that existing import duty rates have rendered the costs high too for importing the required heavy construction machinery. In the absence of a mass adoption by the local construction sector, it is hard for construction industry players to obtain meaningful economies of scale that can lead to economic viability. 24 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
llftANU i IIN;\Nl:(,’ I MAriK’o1 There is also a lack of standardisation of 1B5 in Malaysia as customised components for one project not necessarily fit into another project leading to higher costs incurred for new mould and design. Besides that, design consultants are not adequately trained or fully equipped to undertake 165 design related tasks. In addition, there is limited number of construction industry players that are ready to fully immerse themselves in an 1B5-driven environment. 8.0 Substitute Products or Services There are no direct substitutes to the activities conducted by the construction industry as it refers to a form of services and process in the construction or assembling of bUildings and/or infrastructures. The services and processes in the construction industry are generic in nature and may be provided by any construction company. There is however a considerable degree of substitutability in terms of differing business models and strategies in which market participants can select as their own. 9.0 Reliance on and Vulnerability to Imports The construction industry is generally not reliant on imports of raw materials. Major raw materials typically used in the construction industry such as cement, steel bars, pre-mixed and ready-mixed materials are readily available in IVlalaysia. The construction industry is however, reliant on the import of construction machinery and equipment especially on the import of heavy construction machinery. The construction industry is also reliant on foreign workers in particular low-skilled foreign workers due to the labour-intensive nature of the industry. Foreign workers are employed in the construction industry due to cost reasons as well as poor participation by the local labour force. Most locals shunned these jobs as they view it as dangerous, dirty and difficult, and they expect higher wages. Therefore, the construction industry is highly reliant on foreign workers. The CIOB is aware of the issue and has accordingly taken initiatives to transform and reduce the industry’s reliance on foreign workers via the adoption of IB5 and creation of a local skilled construction workforce. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
“nAND, IINJ\NCI’ I !\”’-IlKET 10.0 Relevant Laws and Regulations Governing the Industry and Peculiarities of the Industry 10.1 Regulations Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994 (Act 520) The LPIP Act came into force on 1 January 1994. Pursuant to the LPIP Act, the CIDB was established as the governing body entrusted with the responsibility to provide effective leadership and coordination among construction industry players in Malaysia. All builders, contractors and sub-contractors, be it local or foreign, are required to register with the CIDB and comply with the provisions of the LPIP Act before undertaking or executing any construction work in Malaysia. Any person who undertakes to carry out and complete any construction works without being registered as a registered contractor with the CIDB shall be gUilty of an offence under the LPIP Act. Amendments to the LPIP Act were passed in Parliament and gazetted in 2011. The revised LPIP Act, now known as the Lembaga Pembangunan Industri Pembinaan Malaysia (Amendment) Act 2011, or “CIDB Act 2011″ was amended to upgrade the LPIP Act to be in line with best international practices in the industry. Registration as Contractors The Certification of Registration issued by the CIDB is valid for a minimum period of one year and a maximum term not exceeding three years, unless cancelled, suspended or revoked earlier by the CIDB. There are three categories of registrations, namely building construction, civil engineering construction and mechanical and electrical. The scope of registration can be further classified into seven grades with each grade having different tendering capacity as depicted in Figure 14. Figure 14: CIDB Registration Requirements
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
uurll’ll) I llNANCE I MHllICr;r
Notes: * Paid Up Capital (for Private Limited Company/ Public Company) ** Net Capital Worth (for sale proprietorship/ partnership) in the form of current account bank statement (average balance considered)/ balance from savings account! overdraft facilities/ uncharged fixed deposit statement! Amanah Saham Bumiputera (”ASB’)/ Amanah Saham Nasional (”ASN”) shares/ Premium Saving Certificate # Group A -Degree holder in construction related fields Group B -Diploma holder in construction related fields or other degree holder with experience in construction works
Source: CIDB The CIDS registration also applies to foreign contractors providing construction services in Malaysia. A foreign contractor is a company incorporated in Malaysia or abroad, with equity owned by foreign individuals or company of 30 percent and above. A foreign contractor must apply for a Provisional Registration Certificate before participating in any tenders in Malaysia, Companies are not allowed to participate in any tenders before obtaining a Provisional Registration Certificate from CIDS. After that, a Foreign Contractor Registration Certificate is required to undertake construction services. A Foreign Contractor Certificate is only issued to foreign contractors to carry out construction projects stated within the certificate. A foreign contractor is not permitted to carry out or undertake to carry out any construction project before obtaining a Foreign Contractor Certificate. The Malaysian Government had implemented the ‘Sistem Satu Pendaftaran Kontraktor’ (“SSPK”) with immediate effect from 15 October 2012. SSPK is a method that combines the registration procedures of CIDS and Construction Services Centre (“PKK”). The PKK, which is an agency under the Ministry of Works, is involved in granting the bumiputera status to eligible contractors. PKK also plays an active role in developing quality and competent bumiputera contractors in Malaysia. 27 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
llHI\NIl J 1-INAN(,’I.o, “.\AltJ<l:T Under the new system, all the contractor licences issued by PKK in relation to participation in tenders called by the Malaysian Government authorities, statutory bodies, regulatory authorities or an entity that is otherwise regarded to be in the public sector are cancelled and replaced with ‘Sijil Perolehan Kerja Kerajaan’ (“SPKK/) issued by CIDB. Nevertheless, the issuance of ‘Sijil Taraf Bumiputera’ for the identification of bumiputera status has remained under the control and supervision of PKK. Companies that apply for bumiputera status must fulfil the conditions stated in Surat Pekeliling Perbendaharaan Bil. 4 Tahun 1995 which are: i. Majority or at minimum 51% company shareholders are held by bumiputera whereby bumiputera individual share ownership should exceed non-bumiputera individual shares; ii. Majority or at minimum 51% of the Board of Directors are bumiputera; iii. Post of Executive Chief, Managing Director or General Manager and other key posts (key post) are held by bumiputera; iv. Majority or at minimum 51 % of employees are bumiputera;
v. Financial operations must be managed by bumiputera; and

vi. Company organisation chart and management function must show full dominance by bumiputera. The scope of registration for SPKK can be further classified into two categories, namely civil engineering, building or mechanical and electrical with six grades for each category. Each grade has different tendering capacity. CIPAA Modelled along similar mechanisms in the United Kingdom, Australia and Singapore, CIPAA has been developed to take in local legal and business requirements. It aims to set a benchmark for industry players to honour cash payments, paving new ways of doing business. With the enforcement of the CIPAA, late payments -which is characteristic of the industry is expected to trickle out and cash flow issues are also expected to be resolved speedily and professionally through the adjudication process. The industry stands to gain from the implementation of the CIPAA, as one of its defining features is the statutory right given to affected parties to refer a dispute to adjudication. This 28 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
nHANO J IINI\N<:li I MI’llKF.’­inevitably compels parties to diligently comply with their respective contractual obligations. Hence, major potential disputes arising out of non-conformance to contractual obligation is automatically averted. CIPM is applicable to most written construction contracts for both the government and private sectors irrespective whether the contracts use local or international forms of contracts. It covers all construction works carried out wholly or partly within Malaysia, including construction works entered into by the government. However, there are a few exceptions. CIPM does not apply to construction contracts entered into by a natural person for any construction works in respect of any buildings which is less than four storeys high and which is wholly intended for his (own) occupation. Environmental Regulations Under the Environmental Quality (Prescribed Activities) (Environment Impact Assessment) Order 1987, an environmental impact assessment is required for the following activities including the construction of airports, land reclamation, housing development, infrastructure, ports, petroleum, etc. -subject to certain conditions -prior to project commencement. Other Related Regulations Other known related regulations include the Occupational Safety and Health Act 1994 (Act 514) (“OSHA”) and Factories and Machinery Act 1967 (reVised 1974) (Act 139) (Factories and Machineries Act (Amendment) 2006) (the “Act”). OSHA covers several pertinent issues such as the general duties of the employers and self-employed persons to ensure, so far as it is practicable, the safety, health and welfare at work of all his employees as well as persons other than employees, duty to formulate safety and health policy, as well as duties of designers, manufacturers and suppliers so far as it is practicable, that the plant is so designed and constructed as to be safe and without risks to health when properly used. Meanwhile, pursuant to the Act, provisions relating to safety, health and welfare were outlined in Part II, Section 10. The aforementioned Section was not affected by the amending act except where amendments were made pertaining to terms and definitions. Further regulations were introduced under the Act such as Factories and Machinery (Building Operations and Works of Engineering Construction) (Safety) Regulations 1986, and Factories and Machinery (Safety, Health and Welfare) Regulations 1970, Factories and Machinery (Person-in-charge) (Amendment) Regulations 2014 and Factories and Machinery (Special Scheme of Inspection) (Risk-based Inspection) Regulations 2014. 29 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
UHI’INO JJ INA1I1Cr I M/\llL<‘f’T Malaysia Standards (“MS”) As of 28 February 2015, the Department of Standards Malaysia, under the purview of the Ministry of Science, Technology and Innovation, had issued 399 mandatory standards for the Building, Construction and Civil Engineering category under “ISC D”. For the category Mechanical Engineering specified under “ISC F”, there are 328 mandatory standards, while Fire Safety and Prevention under “ISC M” features 93 mandatory standards. While ISC D mainly covers code of practices and specifications for raw materials used 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 MS is published by SIRIM Berhad. The MS was initially modelled after the British Standards. Over time, other standards including standards from the International Organisation for Standardisation (“ISO”), American Society for Testing and Materials (“ASTM”), American Concrete Institute (“ACI”), Joint Commission International (“JCI”) accreditation standards for hospitals as well as joint Australia/New Zealand standards were also adopted by the MS. In March 2010, following the shift of British Standards to Structural Eurocodes, the European Standards (“EN”) was also adopted into the MS. With the arrangement of the European Committee for Standardisation (“CEN”), the structural Eurocodes will be published as “MS EN”. As such, this shift has already been implemented in Malaysia, for example, MS EN 10025: Part 1:2009 (P):2011 for structural steels as well as MS EN 197-1:2007 and I’v1S EI\I 197-2:2007 for specifications of cement and cement conformity evaluation respectively. As the scope of these mandatory standards is so Wide, many different authorities are tasked with its enforcement. Among these include CIDB, state governments, Department of Occupation, Health and Safety, the Fire Department and Ministry of International Trade and Industry. Furthermore, the CIDB, in collaboration with other organisations such as the Public Works Department, National Housing Department, Real Estate and Housing Developers’ Association Malaysia (“REHDA”), Malaysian Institute of Architects and National House Buyers Association (“HBA”) had issued its own construction industry standard (CIS 7:2006) on Quality Assessment System for Building Construction Work. This standard specifies requirements on quality of workmanship and assessment procedures for building construction work, as part of the Quality Assessment System in Construction (“QLASSIC”). CIDB had also engaged in efforts to encourage local construction companies to attain ISO 9001 and ISO 14001 certifications to ensure the existence of a balanced environment where economic and social goals are in equilibrium. 30 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
l~flAN{> 1 1’lt.ll\f’l(‘I., {M/lnl,I”1 CONQUAS, QLASSIC and SHASSIC The Construction Quality Assessment System or CONQUAS is a workmanship assessment system developed by the Building and Construction Authority Singapore (“BCA”) for a quantitative measure of the overall quality of a building’s workmanship. The Quality Assessment System in Construction or QLASSIC is a system or method to measure and evaluate the workmanship quality of a building construction work based on Construction Industry Standard (CIS7:2006). QLASSIC enables the quality of workmanship between construction projects to be objectively compared through a scoring system. The number of projects assessed using QLASSIC increased from 40 in 2007 (with an average QLASSIC score of 60 percent) to 270 in 2015 (with an average score of 72.5 percent). The Safety and Health Assessment System in Construction or SHASSIC conducted by the CIDB, is a new independent method to assess and evaluate the safety and health performance of a contractor in construction works/projects. 10.2 Policies In mapping the future of the construction industry, the government had formulated distinct policies and tasked certain agencies to sustain the momentum and growth of the industry. These policies are described briefly in the subsequent sub-sections. Construction Industry Transformation Programme (2016-2020) The CITP is developed by the CIDB to empower and strengthen the construction industry as espoused in the thrusts of the llIVIP. 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 four strategic thrusts as listed in Figure 15: Figure 15: Strategic Thrusts of CITP
Source: CIDB 31 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
“HAND I ‘·INI\N(:I., I !'<‘If\HKl;T 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. For the construction industry, key highlights from the IMP3 include: (1) Measures to encourage greater growth and contribution of small and medium enterprises in terms of technical expertise as well as to form linkages with large construction companies to participate in construction projects domestically and overseas;
(2) To enhance exports for construction and related engineering services (identified as one of the growth areas) -tasked to Malaysian External Trade and Development Corporation (“MATRADEff), the Professional Services Development Corporation, the National Professional Services Export Council (“NAPSECff) and other relevant agencies;
(3) Greater Iiberalisation under the World Trade Organisation (“WTO”) agreements such as General Agreement on Trade in Services (“GATSff ) (the construction services is recognised as a service sub-sector) and ASEAN Framework Agreement on Services (“AFASff) increases competition in the domestic sphere. Hence, the government encourages consolidation of smaller construction companies to increase their tendering capacity in emerging markets such as India, China and West Asia; and
(4) Measures to shift construction providers to a cluster-based bidding strategy, encompassing related services such as architectural, engineering and financial services, to bid for larger projects (shifts to total solutions prOViders).

National Housing Policy (“NHP”) Launched in 2011, the NHP was designed to proVide adequate, comfortable, quality and affordable housing to enhance the sustainability of the quality of life of the people. The I\IHP comprised of six thrusts and 20 policy statements.
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
llUANO I I’INI\N(:I.” MAllKt;T Investment Policies and Initiatives To encourage investments in Malaysia, the government had initiated several policies. Among the investment-friendly policies which impact the construction industry include: Incentive for IBS Companies that incur expenses on the purchase of moulds used in the production of IBS components are eligible for Accelerated Capital Allowances (“ACA”) for a period of three years. Applications should be submitted to Inland Revenue Board (“IRB”). Industrial Building Allowance (“IBA “) An IBA is granted to companies incurring capital expenditure on the construction or purchase of a bUilding that is used for specific purposes, including manufacturing, agriculture, mining, infrastructure facilities, research, Approved Service Projects and hotels that are registered with the Ministry of Tourism. Such companies are eligible for an initial allowance of 10.0 percent and an annual allowance of 3.0 percent. As such, the expenditure can be written off in 30 years. Claims should be submitted to IRB. IBA for BUildings in MSC Malaysia To encourage the construction of more bUildings in Cyberjaya for use by l”1ultimedia Super Corridor (“MSC”) Malaysia status companies, IBA for a period of 10 years will be given to owners of new buildings occupied by MSC Malaysia status companies in Cyberjaya. Such new buildings include completed bUildings but are yet to be occupied by MSC Malaysia status companies. Claims should be submitted to IRB. International Services Commitments In context of a borderless world, Malaysia had taken 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 and Malaysian Investment Development Authority, the Malaysian Government had pledged progressive liberalisation of the domestic construction industry as per several international service agreements. These agreements are classified based on the Central Product Classification, i.e. (the “CPC”) and four modes of services trade: (a) Mode 1 -Cross Border Trade: Supply of services by service producers of one country to purchasers in another 33 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
fillANO I IINAN<:r I !'<‘IP,HKhT country, but where there is no movement of the service supplier/ purchaser across border (e.g. Internet e-trading); (b) Mode 2 -Consumption Abroad: Supply of services in the territory of one country to the service consumer of another country (involves travelling, e.g. tourism and education services); (c) Mode 3 -Commercial Presence: Supply of services by a service producer of one country through the commercial presence in the territory of another country (e.g. foreign direct investments in services); and (d) Mode 4 -Movement of Natural Persons: Supply of service by a service personnel who travels to another country to provide the service (e.g. expatriates, business and professional services abroad and foreign workers). 11.0 Prospects and Outlook of the Construction in Malaysia The outlook for the construction industry is positive for the immediate term, and steady growth is projected throughout the forecast period from 2017 to 2021. For 2016, the market size (revenue) of the construction industry in Malaysia stood at an estimated RMSO.09 billion and has a forecast CAGR of 8.9 percent from 2017 to 2021. Protege Associates projects the market size (revenue) of the construction industry in Malaysia to reach RM76.S8 billion in 2021. Figure 16: Market Size (Revenue) and Growth Forecast for the Construction Industry in Malaysia, 2017-2021
90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2017 2018 2020 2021
Note: At constant price 2010. Source: Protege Associates 34 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’d)
HU!INO J I’INJ\N(:r.: I Mfl.ltKltT Similarly, the outlook for the real estate construction market is also positive for the immediate term and is expected to post moderate growth throughout the forecast period from 2017 to 2021. For 2016, the market size (revenue) of the real estate construction market in Malaysia stood at RM27.55 billion and it is expected to grow at a CAGR of 4.9 percent from 2017 to 20201. Protege Associates projects the market size (revenue) of the real estate construction market in Malaysia to reach RM34.84 billion in 2021. Figure 17: Market Size (Revenue) and Growth Forecast for the Real Estate Construction Market in Malaysia, 2017-2021 36 35 ,…… III 34::lI c 33 ~,…… III ~ 32
~ .­…..­III :E 31 i:ii ::E 30 ­..N ~ ~””’29 I. fa 28::E 27 26
2017 2018 2019 2020 2021 Year Note: At constant price 2010. Source: Protege Associates Factors priming growth within the construction industry is likely to come from the government-led initiatives and spending particularly that relating to the infrastructure development, a favourable interest rate environment, the push by property developers to boost the sales of properties, a sustained economic growth boosting spending and investment in properties and steady population growth. However, stringent policies imposed on the property market by the Malaysian Government and higher GST-pushed entry price for new properties are expected to dampened demand for properties. In addition, a weakened property market is expected to weigh on the overall performance of the real estate construction market in Malaysia. However, the push for more affordable housing is expected to provide impetus for the growth in the property market in Malaysia. 35 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH (Cont’dj
On the supply side, the industry is expected to be boosted by efforts from industry bodies such as CIDB and MBAM by providing necessary leadership in spearheading the development of the local construction industry as well as raising profile and pushing for the betterment of the construction industry in Malaysia. In addition, the introduction of the CIPAA has also served as a strengthened mechanism to address payment disputes and facilitate adjudication within the industry. On the other hand, the Malaysian construction industry is expected to be hampered by factors including labour shortage and high dependency on foreign workers, high capital demand from elevated post-GST cost of production, as well as the lack of traction in the adoption of ISS construction. 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,
SEOW CHEOW SENG Managing Director Protege Associates Sdn. Bhd.

 

Comments are closed