The following information is extracted from the Executive Summary of the “Strategic Analysis of the Building Materials Industry in Malaysia” prepared by Protégé Associates Sdn. Bhd. (Protégé Associates) for inclusion in the Prospectus of Chin Hin Group Berhad dated 18 February 2016.

SEGMENTATION ANALYSIS
Market Segmentation

The building materials industry comprises manufacturers and producers of building materials and also building materials traders/distributors. The construction industry is therefore heavily dependent on the building materials industry to:-

  • Produce basic metal, metal fabrication, wood and wood products, and non-metallic products
  • Supply construction materials which are essential to the building of houses, factories and many others

Generally, the building materials distributors form an integral linkage between the building materials manufacturers/producers to the respective end-users of building materials including property developers, construction companies, contractors, wholesalers, retailers, etc. There are also building materials manufacturers/producers that supply directly to the end-users.

Figure 1: Building Materials Industry and End-Users
Source: IMR Report
Types of Building Materials
Figure 2: Main Types of Building Materials Categories
Materials Products
Cement portland cement, asbestos cement
Concrete Products ready-mixed concrete, bricks, blocks, roofing tiles, piles, poles/posts, beams, culverts
Clay and Refractory Construction Materials refractory bricks, clay roofing tiles, ceramic wall and floor tiles, clay pipes, ceramics sanitary ware
Glass and Glass Products float glass, laminated glass, architectural glass, mirror
Dimension Stone marble slabs and tiles, granite slabs and tiles
Iron and Steel Products long products, flat-rolled products, iron and steel bars and rods, tubes and pipes, iron and steel angles, shapes and sections, billets, hot rolled coil (“HRC”), cold rolled coil (“CRC”)
Non-Ferrous Metals aluminium extrusions for windows and doors, curtain walls, aluminium panels, aluminium roofing
Wood and Wood Products plywood, hardboard, veneer, particle board, block board, mouldings & builders’ carpentry & joinery, reconstituted wood-based panel
Source: IMR Report
ANALYSIS OF THE BUILDING MATERIALS INDUSTRY IN MALAYSIA
OVERVIEW OF THE BUILDING MATERIALS INDUSTRY

The following provide overviews of selected building materials industries in Malaysia:

Basic Metal Industry

The basic metal industry plays a major role in the development of manufacturing and construction industry. The industry covers the primary processing and downstream manufacturing of ferrous (iron and steel) and non-ferrous ( aluminium, tin, copper, zinc, lead, etc.) metal products.

Metal Fabrication Industry

The metal fabrication industry is a well-established industry in Malaysia and it caters to a diverse range of fabricated metal products.

Wood and Wood Products Industry

The wood and wood products industry is one of the major contributors to the country’s economy. Over the years, the wood and wood products industry has developed from a primary processing industry to a more advanced and technology-driven industry producing a significant number of downstream value-added products.

Non-Metallic Mineral Products Industry

The non-metallic mineral products industry includes cement and concrete products, fibre cement and gypsum products, ceramic and clay products, glass, insulation materials, dimension stones and other non-metallic minerals. Malaysia is a net exporter of non-metallic mineral products and some of the major exports include glass and glassware, lime, cement and fabricated construction materials.

The building materials industry has grown and evolved in tandem with the expansion in the construction industry.

OVERVIEW OF THE CONSTRUCTION INDUSTRY

The Malaysian construction industry has been on a growth trajectory since 2007. In 2015, the industry is expected to expand by 8.8 percent. Growth in the industry is expected to be largely supported by the various projects under the Economic Transformation Programme (“ETP”) specifically the Klang Valley Mass Rapid Transit (“MRT”) project and other Entry Point Projects (“EPPs”) as well as other major infrastructure projects such as the Pan-Borneo Highway and the West Coast Expressway. Moving forward, the Malaysian construction industry is expected to expand by 8.4 percent in 2016, supported by the on-going mega construction projects.

Figure 3: Performance of the Construction Industry in Malaysia, 2013-2016
Year % Change
2013 10.8
2014 11.8
2015 e 8.8
2016 f 8.4

Notes:

%change is based on real GDP at constant 2010 prices
edenotes estimate
fdenotes forecast
Source: IMR Report
HISTORICAL MARKET PERFORMANCE AND GROWTH FORECAST

The construction industry in Malaysia was worth approximately RM38.7 billion in 2013, representing a 10.8 percent growth year-on-year from 2012. The growth in the industry was supported mainly by the civil engineering sub-sector. Besides that, the residential and non-residential sub-sectors had also contributed to the growth in the construction industry.

Protégé Associates has projected the construction industry to grow at a CAGR of 8.5 percent for the 2014 – 2019 periods.

Figure 5: Estimated Market Size and Growth Forecast for the Construction Industry in Malaysia, 2012 – 2019
Year Market Size (RM billion)* Growth Rate (%)
2012 34.88 -
2013 38.65 10.8
2014 43.19 11.8
2015 46.97 8.8
2016 50.94 8.4
2017 55.37 8.7
2018 60.36 9.0
2019 64.88 7.5

CAGR (2014 – 2019): 8.5 percent

Note:

* At constant 2010 prices
All figures are rounded; the base year is 2014
Source: IMR Report

The building materials market is largely dependent on the construction industry, and its outlook is encouraging in the light of favourable growth in the construction industry moving forward.

The construction industry is expected to continue growing and is estimated to reach RM64.9 billion in 2019. The forecast expansion in the construction industry will underpin growth in demand for building materials and this augurs well for the overall development of the building materials industry. Factors driving growth in the building materials industry in tandem with the expansion in the construction industry include the government-led initiatives and spending, a sustained economic growth boosting spending and investment in properties and steady population growth.

Much of the construction industry’s growth prospects from 2016 to 2019 hinges upon the speed and effective implementation of the various projects identified under the Eleventh Malaysia Plan (“11MP”) and ETP, along with the continued execution of various public-private partnership (“PPP”) projects. The implementation of civil engineering projects in the utility and transport segment is expected to support growth in the construction industry. Support from the oil and gas segment, while usually being one of the key contributors to the Malaysian construction industry, may be lesser in the short term due to the declining crude oil prices leading to cuts in capital expenditure for oil and gas industry players.

COMPETITIVE ANALYSIS
Key Market Players

The fluid and competitive nature of the market Chin Hin Group operates in has resulted in a wide differentiation and diversification in terms of products/services offerings and business models by market players. As such, it is almost impossible to perform a direct or like-for-like comparison on market participants within the building materials industry.

Nevertheless, certain comparable market participants within the following building materials segments namely manufacture of articles of concrete, cement and plaster, manufacture of structural metal products and distribution of building materials has been identified for comparison purposes

The list of these players is not exhaustive and each player’s product offerings may not exactly coincide with others. Market players may participate in one or more segments other than the indicated building materials segment.

Distribution of Building Materials

The building materials distribution market in Malaysia is highly competitive and fragmented with numerous market players ranging from small to medium size companies catering to the various needs of the local market. The distribution of building materials segment is estimated to value at RM30.7 billion in 2013. In 2014, the value of distribution of building materials segment is estimated at RM32.3 billion.

Chin Hin Group is involved in the building materials distribution segments with its building materials distribution activities through PP Chin Hin. PP Chin Hin distributes a wide range of building materials, ranging from basic building materials (such as cement, steel reinforcement bars and mesh, bricks) to finishing products (such as wall and floor tiles, sanitary wares, bath fixtures, paints, timber flooring, doors, windows and pavers). In addition, Chin Hin Group is also involved in the manufacturing segment within the building materials industry.

For comparison purposes, Figure 6 details selected other market players within the distribution of building materials segment that register annual turnover of over RM200 million attributed to the said segment, and distributes similar building materials as Chin Hin Group.

Figure 6: Selected Other Market Players within the Distribution of Building Materials Segment
Company Key Activities
Chuan Huat Resources Berhad (“Chuan Huat”)
  • Listed on the Main Market of Bursa Malaysia
  • Principally involved in the distribution of building materials segment as a stockist of iron and steel, and as an importer and exporter of structural steel and other construction materials
  • Also involved in the manufacture and sale of welded wire mesh and hard drawn steel wires through its wholly owned subsidiary, CH Samawira Mesh Sdn Bhd
  • Its building material product range include concrete products, roofing tiles, polyglass fibre, cement and bricks, window and door frames, terram, storage tanks steel pipe products, etc
Hap Seng Consolidated Berhad (“Hap Seng”)
  • Involved in multiple business segments, including plantations, property investment and development, credit financing, trading of fertilisers and automotive, as well as building materials and stone quarries
  • Involved in the distribution of building materials segment through its subsidiary, Hap Seng Trading (BM) Sdn Bhd, to supply a wide range of building materials for the construction and building industry
  • Its building material products include steel bars, cement, wire mesh, concrete products, aggregates, pipes, roofing, sanitary wares, tiles, ironmongery, wood and board, as well as adhesive
  • Also involved in the manufacture of bricks through Hap Seng Clay Products Sdn Bhd
Harrisons Holdings (Malaysia) Berhad (“Harrisons Malaysia”)
  • Listed on the Main Market of Bursa Malaysia
  • A wholly owned subsidiary of Harrisons and Crosfield PLC
  • Principally involved in marketing, sales, warehousing and distribution of consumer, building materials and engineering products, fine wines, agricultural and industrial chemicals, and the operation of shipping/ logistics and travel agencies
  • Involved in distribution of building materials in Peninsular Malaysia through its subsidiary, Harrisons Peninsular Sdn Bhd
  • Its building material products include cement, steel, roofing products, building boards, etc
Hong Leong Industries Berhad (“HLI”)
  • Principal activities are segregated into 4 main categories i.e. semiconductor, motorcycle, building materials and others
  • Involved in the distribution of building materials segment through its wholly owned subsidiaries, Hume Marketing Co. Sdn Bhd and Hume Marketing (EM) Sdn Bhd
  • Products under the trading and distribution of building materials division include cement, ceramic tiles, paint, steel bars, pipes, wire mesh, sanitary wares and fittings, ceiling sheets and roofing materials
Ipmuda Berhad (“Ipmuda”)
  • Listed on the Main Market of Bursa Malaysia in 1993
  • Involved in multiple business segments, including trading, property and investment holding, contracting, manufacturing as well as property development
  • Involved in the distribution of building materials segment as a distributor and supplier of construction and finishing building materials, heavy steel products, architectural hardware, home improvement materials, cabinet systems, fuel and lubricants for the construction, infrastructural and manufacturing sectors and end users
  • Involved in trading of general building products through its subsidiaries, Ipmuda Berhad, Ipmuda Utara Sdn Bhd, Ipmuda Selatan Sdn Bhd, Ipmuda Timuran Sdn Bhd, Ipmuda Borneo Sdn Bhd, Ipmuda Trading Pte Ltd and Ipmuda Buildermart Sdn Bhd
  • Also involved in the manufacture of kitchen or wardrobe doors and wooden mouldings through Roset-BLG Sdn Bhd
Lafarge Malaysia Berhad (“Lafarge Malaysia”)
  • A subsidiary of Lafarge S.A.
  • Listed on the Main Market of Bursa Malaysia
  • Principally involved in the manufacture and sale of cement, ready-mixed concrete, aggregates and other related building materials
  • Manufacturing facilities include 3 integrated cement plants in Langkawi, Kanthan and Rawang, a grinding station in Pasir Gudang, more than 30 ready-mixed concrete batching plants and 6 aggregates quarries throughout Peninsular Malaysia
  • Involved in manufacturing and sale of ready-mixed concrete through its subsidiaries, Lafarge Concrete (Malaysia) Sdn Bhd, Lafarge Concrete Industries Sdn Bhd and Lafarge Concrete (East Malaysia) Sdn Bhd
  • Also involved in trading of cement and other building materials through its wholly owned subsidiary, CMCM Perniagaan Sdn Bhd in Malaysia, and Lafarge Cement Singapore Pte Ltd in Singapore
Wah Seong Corporation Berhad (“Wah Seong”)
  • Listed on the Main Market of Bursa Malaysia
  • Principally involved in provision of infrastructure and services for oil and gas and renewable energy sector, oil palm plantation, as well as distribution of infrastructure and building materials
  • Involved in building materials trading and distribution in Peninsular Malaysia through its subsidiary, Syn Tai Hung Trading Sdn Bhd
Source: IMR Report
Manufacture of Articles of Concrete, Cement and Plaster

The manufacture of articles of concrete, cement and plaster segment includes the manufacture of ready-mix and dry-mix concrete and mortars, precast concrete, cement or artificial stone articles for use in construction, prefabricated structural components for building or civil engineering of cement, concrete or artificial stone, etc. The value of the manufacture of articles of concrete, cement and plaster segment is estimated at RM5.4 billion in 2013. In 2014, the value of the manufacture of articles of concrete, cement and plaster segment is estimated at RM5.2 billion.

Chin Hin Group is involved in the manufacture of articles of concrete, cement and plaster segment with its manufacture of ready-mixed concrete (through Chin Hin Concrete (KL) and Chin Hin Concrete (North)), and its manufacture of precast concrete products (through G-Cast). Subsequently in 2014, Chin Hin Group commenced its manufacture of AAC blocks and outsourced its manufacture of ready-mixed concrete. For comparison purposes, Figure 7 details selected other market players within the manufacture of articles of concrete, cement and plaster segment that register annual turnover of above RM100 million attributed to the said segment.

Figure 7: Selected Other Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment
Company Key Activities
Hanson Building Materials Malaysia Sdn Bhd (“Hanson Malaysia”)
  • A subsidiary of HeidelbergCement AG
  • Principally involved in the manufacture of ready-mix concrete and concrete products
  • Has over 40 ready-mix concrete plants serviced by approximately 400 mixer trucks in Malaysia
Lafarge Malaysia
  • A subsidiary of Lafarge S.A.
  • Listed on the Main Market of Bursa Malaysia Securities Berhad (“Bursa Malaysia”)
  • Principally involved in the manufacture and sale of cement, ready-mixed concrete, aggregates and other related building materials
  • Manufacturing facilities include 3 integrated cement plants in Langkawi, Kanthan and Rawang, a grinding station in Pasir Gudang, more than 30 ready-mixed concrete batching plants and 6 aggregates quarries throughout Peninsular Malaysia
  • Involved in manufacturing and sale of ready-mixed concrete through its subsidiaries, Lafarge Concrete (Malaysia) Sdn Bhd, Lafarge Concrete Industries Sdn Bhd and Lafarge Concrete (East Malaysia) Sdn Bhd
  • Also involved in trading of cement and other building materials through its wholly owned subsidiary, CMCM Perniagaan Sdn Bhd in Malaysia, and Lafarge Cement Singapore Pte Ltd in Singapore

Notes:

1. These market players are identified for comparison purpose only, and do not constitute and is not limited to the actual quantity of market players within the manufacture of articles of concrete, cement and plaster segment.
2. The selected market players are alphabetically arranged and this does not constitute as a ranking.
Source: IMR Report
Manufacture of Structural Metal Products

The manufacture of structural metal products segment includes the manufacture of industrial frameworks (such as frameworks for blast furnaces, lifting and handling equipment, etc.), prefabricated buildings mainly of metal doors, windows and their frames, shutters and gates, and others (such as metal frameworks or skeletons for construction and parts thereof as well as metal room partitions for floor attachment). In 2013, the value of the manufacture of structural metal products segment is estimated at approximately RM2.0 billion. In 2014, the value of structural metal products segment is estimated at approximately RM1.9 billion.

Chin Hin Group is involved in the manufacture of structural metal products segment with its manufacture of wire mesh and metal roofing systems through Metex Steel. For comparison purposes, Figure 8 details selected other market players within the manufacture of structural metal products segment that register annual turnover of over RM30 million attributed to the said segment.

Figure 8: Selected Other Market Players within the Manufacture of Structural Metal Products Segment
Company Key Activities
Ajiya Berhad (“Ajiya”)
  • Listed on the Main Board of the Bursa Malaysia
  • Principally involved in manufacturing and marketing of glass products, metal roofing, metal door and window frames, floor decks, metal ceiling and other building materials
  • Involved in manufacturing of metal roll-forming products, such as metal roofing system, metal frame products, structural products, light-weight channel products, metal ceiling and sun shade products under its wholly-owned subsidiary, Asia Roofing Industries Sdn Bhd
Asia Wire Steel Mesh Manufacturers Sdn Bhd (“Asia Wire”)
  • Principally involved in manufacturing of steel products and supplying reinforcing steel fabric, steel wire and galvanised products for building, construction, rural and other industries in Malaysia
  • Asia Wire’s products include steel welded mesh and galvanised mesh
Bersatu Wire Mesh Industries Sdn Bhd (“Bersatu Wire Mesh”)
  • Principally involved in mesh manufacturing
  • Also involved in manufacturing and distribution of steel fabric for concrete reinforcement, galvanised welded mesh, low carbon hard drawn wire, steel bar, barbed wire, chain link fence, bed mesh and custom-made products
  • Majority products are used in construction, manufacturing and housing industries
Chuan Huat
  • Listed on the Main Market of Bursa Malaysia
  • Principally involved in the distribution of building materials segment as a stockist of iron and steel, and as an importer and exporter of structural steel and other construction materials
  • Also involved in the manufacture and sale of welded wire mesh and hard drawn steel wires through its wholly owned subsidiary, CH Samawira Mesh Sdn Bhd
  • Its building material product range include concrete products, roofing tiles, polyglass fibre, cement and bricks, window and door frames, terram, storage tanks steel pipe products, etc
EC Excel Wire Sdn Bhd (“EC Excel Wire”)
  • Principally involved in manufacturing and distribution of steel wire mesh for concrete reinforcement, galvanised welded mesh, steel bar, chain link fencing and barbed wire
  • Supplies its products to domestic and overseas market
Kamen Steel Industries Sdn Bhd (“Kamen Steel”)
  • Principally involved in manufacturing and supply of welded mesh, steel bar, hard drawn wire, fence, engineering bar and others
KHP Steel Product (M) Sdn Bhd (“KHP Steel Product”)
  • Principally involved in manufacture of steel products, particularly steel roofing materials
SMPC Corporation Berhad (“SMPC”) (currently known as Atta Global Group Berhad)
  • Listed on the Main Market of Bursa Malaysia
  • Principally involved in manufacturing or processing of steel coil, tube, strapping, steel furniture, metal roofing, floor decking, perforated metal and the industrial recycling of scrap metal
  • Assumed its current name of Atta Global Group Berhad in September 2015.

Notes:

1. These market players are identified for comparison purpose only, and do not constitute and is not limited to the actual quantity of market players within the manufacture of structural metal products segment.
2. The selected market players are alphabetically arranged and this does not constitute as a ranking.
Source: IMR Report
Market Share Analysis

The value of distribution of building materials segment was estimated at RM30.1 billion in 2012. For its FYE 31 December 2012, Chin Hin Group recorded RM872.2 million of revenue from its building materials distribution activities, equivalent to an estimate of 2.9 percent of the distribution of building materials segment in 2012. For its FYE 31 December 2013, Chin Hin Group’s revenue from its building materials distribution activities increased to RM922.2 million, mainly contributed by the sale of other building materials. This is equivalent to 3.0 percent of the distribution of building materials segment in 2013 as depicted in Figure 10 below. In 2013, the value of the distribution of building materials segment is estimated at RM30.7 billion.

Figure 10: Market Share of Selected Market Players within the Distribution of Building Materials Segment, 2013

Note:

Market share of each market player is computed based on segmental revenue attributed to the distribution of building materials segment in 2013.
Source: IMR Report

For its FYE 31 December 2014, Chin Hin Group recorded revenue of RM811.9 million from its building materials distribution activities. This is equivalent to 2.5 percent of the distribution of building materials segment in 2014. In 2014, the value of the distribution of building materials segment is estimated at RM32.3 billion.

Figure 11: Market Share of Selected Market Players within the Distribution of Building Materials Segment, 2014

Notes:

1. Market share of each market player is computed based on segmental revenue attributed to the distribution of building materials segment in 2014.
2. Market share in 2014 provided only for Chin Hin Group, Chuant Huat, HLI, Ipmuda, Lafarge and Wah Seong, as not all selected market players have reported their financial results for 2014, at the time of publication.
Source: IMR Report

In 2013, Chin Hin Group further strengthen its presence in the manufacturing of articles of concrete, cement and plaster segment in line with an increase of its market share in the segment. For its FYE 31 December 2013, Chin Hin Group’s revenue from the manufacture of ready-mixed concrete and precast concrete products increased to RM190.2 million, after securing few new customers for the ready-mixed concrete segment that were involved in the construction of high rise buildings such as De Centrum City located in Bangi and mixed development located in Bandar Saujana Putra. These new customers collectively contributed approximately 11.0 percent to the Group’s revenue from the ready-mixed concrete segment in FYE 31 December 2013. This is equivalent to an estimate of 3.5 percent of the said segment in 2013 as depicted in Figure 12 below. In 2013, the value of the manufacture of articles of concrete, cement and plaster segment is estimated at RM5.4 billion.

Figure 12: Market Share of Selected Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment, 2013

Note:

Market share of Chin Hin Group and Lafarge Malaysia are computed based on segmental revenue attributed to the manufacture of articles of concrete, cement and plaster segment in 2013
Source: IMR Report

For its FYE 31 December 2014, Chin Hin Group recorded revenue of approximately RM253.1 million from its manufacture of ready-mixed concrete and precast concrete products activities. This is equivalent to 4.9 percent of the manufacture of articles of concrete, cement and plaster segment in 2014. In 2014, the value of the manufacture of articles of concrete, cement and plaster segment is estimated at RM5.2 billion.

Figure 13: Market Share of Selected Market Players within the Manufacture of Articles of Concrete, Cement and Plaster Segment, 2014

Notes:

1. Market share of Chin Hin Group and Lafarge Malaysia are computed based on segmental revenue attributed to the manufacture of articles of concrete, cement and plaster segment in 2014.
2. Market share in 2014 provided only for Chin Hin Group and Lafarge Malaysia, as not all selected market players have reported their financial results for 2014, at the time of publication.
Source: IMR Report

Chin Hin Group ventured into the manufacture of wire mesh and metal roofing systems in 2011 through Metex Steel. Following the acquisition of a factory in Prai, Penang in 2012 for the manufacturing of hard drawn wire and metal roofing systems, and the commencement of its operation in 2013, Chin Hin Group’s 12-month revenue from the manufacture of wire mesh and metal roofing systems stood at RM78.0 million for its FYE 31 December 2013. This translates to a market share of 3.9 percent of total industry revenue of RM2.0 billion in 2013 as depicted in the following figure.

Figure 14: Market Share of Selected Market Players within the Manufacture of Structural Metal Products Segment, 2013

Note:

Market share of Aijaya, Chin Hin Group, Chuan Huat and SMPC are computed based on segmental revenue attributed to the manufacture of structural metal products segment in 2013.
Source: IMR Report

For its FYE 31 December 2014, Chin Hin Group recorded revenue of approximately RM119.4 million from its manufacture of wire mesh and metal roofing systems activities. This is equivalent to 6.3 percent of the manufacture of structural metal products segment in 2014. In 2014, the value of the manufacture of structural metal products segment is estimated at RM1.9 billion.

Figure 15: Market Share of Selected Market Players within the Manufacture of Structural Metal Products Segment, 2014

Note:

Market share of Aijaya, Chin Hin Group, Chuan Huat and SMPC are computed based on segmental revenue attributed to the manufacture of structural metal products segment in 2014.
Source: IMR Report
DEMAND AND SUPPLY CONDITIONS
Demand Conditions
  • Government-led initiatives and spending
  • Growing economy to sustain spending and investment in properties
  • Increasing green building practices
  • Steady population growth
  • Property overhang
  • Rising cost of borrowing within the construction industry
Supply Conditions
  • Established local building materials manufacturing/production segment in the building material industry
  • Strong government support
  • Technology advancement spurring innovation in building materials supply
MARKET CHALLENGES
Fluctuation in Construction Material Price

The construction industry is subjected to constant price fluctuations on construction material prices such as metal, steel bar and cement. Prices fluctuation of metal and cement also impact the manufacturing segment that uses the said materials for production.

More recently, the Real Estate and Housing Developers’ Association (“REHDA”) noted that building material cost has increased by between 5.0 to 10.0 percent annually. Moreover, the implementation of Goods and Services Tax (“GST”) in April 2015 further pushed the price of building materials as current non-service taxable items such as cement, concrete, steel, bricks and sand are subjected to a 6.0 percent GST. Any recurrence of a huge price increase could potentially interrupt the ability of construction industry participants from implementing projects on schedule.

Regulatory Changes

The government is constantly reviewing and liberalising regulations pertaining to the sales and import of building materials. Cement and steel bars had ceased being controlled price items under the Price Control Act since 2008. The government had further scrapped the licensing system for steel bars and cement effective 15 July 2011.

However, the Master Builders Association Malaysia (“MBAM”) has urged the government to further liberalise the imports of all building materials and equipment. According to the MBAM, the Malaysian import duties on building materials were regarded as one of the highest in the Association of Southeast Asian Nations (“ASEAN”) and that the high import duties had contributed to the increase in construction costs.

KEY ISSUES AND TRENDS
BARRIERS TO ENTRY
High Capital Investment

A huge capital layout is required to enter the building materials industry largely due to the need to invest in production building, machineries, storage facilities and labour for the manufacturing segment. In addition, any future upgrading of machinery is likely to incur a relatively higher initial cost due to technological advancement.

In the building material distribution segment, the similar entry barrier is also applicable as upfront capital is required for provision of customer financing through standard business credit terms. Higher upfront capital is needed for inventory procurement in order to deploy inventory model.

Established Incumbent Market Players

New entrants in all segments of the Malaysian building materials industry are likely to encounter difficulties competing with incumbent market players. The dominance and reputation of large-scale, multi-plant firms may inhibit small market players from gaining a foothold in the narrower local building materials industry.

In addition, incumbent market players have established strong relationships with upstream raw material suppliers as well as the end-users from the construction industry. New market players may encounter difficulty in securing raw material at affordable prices and attracting customers from construction industry.

SUBSTITUTE PRODUCTS OR SERVICES

There are no direct substitutes to building materials as the term refers to any material used for construction purposes. There is however a considerable degree of substitutability in terms of the differing business models and strategies which market participants can select as their own. Market participants depending on their business models and strategies, generally differentiate and compete on various key attributes including product range, delivery time and price, customer service, track record and relationship, etc.

VULNERABILITY AND RELIANCE ON IMPORTS

The manufacturing/production segment of the Malaysian building materials industry is generally not reliant on imports of raw materials as Malaysia has rich natural resources of raw materials including metallic and non-metallic minerals.

On the other hand, the distribution segment of the Malaysian building materials industry revolves around supply and distribution locally manufactured and imported building materials. Due to its business nature, the distribution segment of Malaysian building materials industry possesses certain degree of reliance on imported building materials.

GOVERNMENT REGULATORY AGENCY

Building materials industry activities come under the purview of the Construction Industry Development Board (“CIDB”) which is a statutory body under Minister of Works, Malaysia.

MARKET PROSPECTS AND OUTLOOK

The outlook for building materials industry in tandem with the construction industry remains positive for the immediate term, and steady growth is projected throughout the period of 2014 to 2019. The construction industry in Malaysia was valued at RM38.7 billion in 2013. In 2014, the construction industry grew by 11.8 percent to RM43.2 billion. And in 2015, the Malaysian construction industry is expected to expand by 8.8 percent attributed by the ongoing mega construction projects.

Moving forward, the construction industry is expected to continue growing and is estimated to reach RM64.9 billion in 2019 – representing a CAGR of 8.5 percent for the period of 2014 to 2019. The forecasted expansion in the construction industry will underpin growth in demand for building materials and this augurs well for the overall development of the building materials industry. Factors priming growth in the building materials industry in tandem with the expansion in the construction industry are likely to come from the government-led initiatives and spending, a growing economy to sustain spending and investment in properties, and steady population growth.

Following the awareness promoted after the initiatives by Greenbuildingindex Sdn Bhd and incentives for GBI certified projects for the 2009 to 2014 period, the construction industry may anticipate greater adoption of green building practices moving forward. The proliferation in green building design and construction along with the expected rise in usage of green building materials are expected to drive the building materials industry.

* Please read this section in conjunction with Section 7 from page 144 to page 188 of Chin Hin Group Berhad’s Prospectus dated 18 February 2016.