THE RECENT GENERAL ELECTION and uncertainties in the domestic political scene may have changed the landscape of Malaysian construction companies, for this year at least.
Some brokerage firms are having second thoughts about the construction sector, saying that the shocking performance of the ruling Barisan Nasional coalition has put some lavish mega projects in limbo. Hence, a de-rating of the sector.
Analysts say the situation may have some negative effects on share prices of stocks like Malaysian Resources Corp Bhd, Scomi Group Bhd, Scomi Engineering Bhd and UEM World Bhd.
TA Securities Bhd says concerns may arise on the implementation of projects like the Ipoh-Padang Besar double tracking and Pahang- Selangor interstate water transfer. This may consequently exert selling pressure on share prices of companies like MMC Corp Bhd, Gamuda Bhd and Kumpulan Perangsang Selangor Bhd.
Kenanga Investment Bank Bhd's research unit expects mega projects, especially in states controlled by Opposition parties like Parti Keadilan Rakyat (PKR) in Selangor and the Democratic Action Party (DAP) in Penang, to be reviewed.
`Major projects like the Penang Global City Centre (PGCC), Penang monorail, Penang Outer Ring Road, Langat II water treatment plant and Selangor-Pahang interstate water transfer project would likely slow down in the awarding of contracts and commencement of work,' Kenanga Research says.
Nevertheless, Penang Chief Minister Lim Guan Eng from the DAP has made it clear that the PGCC project was not an issue as no approval had been given in the first place.
Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim from PKR, meanwhile, has said that the state government would honour contracts signed under the RM9 billion Pahang-Selangor water transfer project.
But it would review the RM2.5 billion contract for the Langat II water treatment plant that would receive raw water from Pahang. Kumpulan Darul Ehsan Bhd was, last January, given the letter of award to build and operate the water treatment plant in Ulu Langat.
Kenanga Research expects more contracts to be awarded on an open tender basis to capable and competent companies or contractors. This should lower contract value and, theoretically, lower government development expenditure.
RHB Research Institute Sdn Bhd has downgraded the sector to `underweight' from `neutral', given the possible structural changes in terms of awards of public contracts into a new one that is more transparent.
`The dismantling of the decades-old public procurement model that was a money spinner for most companies in the past means that construction companies should now trade at lower multiples.
`(The dismantling) theoretically would be good for the sector over the long-term as it promotes competition and efficiency. Unfortunately, over the short-term, this means one key appeal of most Malaysian construction companies, ie, the ability to win direct- negotiated public contracts that fetch fat margins, is now gone,' it says.
Consequently, RHB Research has downgraded its benchmark one-year forward price earnings ratio (PER) for the sector from 15x to 10x. Indicative fair values of industry players have been cut too.
What are the good stocks?
Kenanga Research has suggested that investors focus on construction stocks with significant overseas order books. This means the likes of Muhibbah Engineering Bhd and LCL Corp Bhd.
Analysts at rating agency RAM Holdings Bhd say larger players such as Gamuda have long begun extending their geographical reach to reduce reliance on the domestic market.
Aside from diversifying their earnings base, the current construction and real-estate booms and untapped development prospects of the Gulf countries and emerging economies such as Vietnam and Cambodia also present opportunities to the larger companies with the requisite financial muscle and technical expertise, it adds.
RHB Research likes Zelan Bhd and Sunway Holdings Bhd, expecting them to outperform the market. Zelan, the firm says, deserves a fair value of RM5.69 while Sunway Holdings is targeted at RM1.93.
RHB Research has changed its recommendation on WCT Engineering Bhd and Hock Seng Lee Bhd to `market perform' from `outperform' previously. Its coverage on Prinsiptek Corp Bhd has been halted in view of the market's reduced appetite for construction stocks with small market capitalisation and low share liquidity.
Gamuda and IJM Corp Bhd also are not in the `good' books of RHB Research at the moment. The former's one-year forward PER is now being traded as low as 7x, while IJM's is at 11x from 17x previously.
`During the downcycle in 1999-2000, Gamuda's one-year forward PER was de-rated from a peak of 15x to a low of 7x, while during the 2002-2003 downcycle (that was shallower), it was de-rated from 13x to 9x. So far in the current 2008 downcycle, it has already been de- rated from 25x to 13x,' the firm notes.
For IJM, RHB Research notes that its one-year forward PER was de- rated from a peak of 22x to a low of 11x during the downcycle in 1999-2000, while during the 2002-2003 downcycle, it was de-rated from 17x to 13x. So far in the current 2008 downcycle, it has been de-rated from 17x to 11x.
Overall sectoral performance
Despite the general gloomy feeling, RAM thinks the construction sector should grow further by 5.2% in 2008 with more pace seen in the second half of the year. For 2007, the growth had been anticipated at 4.2%.
`As expected, the construction sector posted a slight recovery in 2007, with an average growth rate of 4.5% for the first three quarters of the year,' the rating firm noted in its credit and sector perspective for 2008 released early this month.
RAM said the performance, which compared favourably against the 0.5% contraction in 2006, was spurred by a gradual pick-up in infrastructure developments under the Ninth Malaysia Plan (9MP).
However, the rating firm said the pace of implementation for the 9MP has been rather slow thus far, with only 30% of the RM200 billion development allocation having been disbursed as at end- October 2007.
`We anticipate the pace of implementation to pick up in 2008,' it added.
Zahir Ramley "Construction poser". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.
Thursday, May 8, 2008
Knock on wood
MALAYSIA HAS MANY THINGS to be proud of. Among them is definitely furniture. Over the past two decades, Malaysian-made furniture has successfully established a strong reputation of stability in product quality and good value.
The Malaysian furniture industry is export-oriented, with close to 80% of production exported. Export has been growing between 10%- 15% year-on- year over the past 15 years, with the exception of 2001, when depressed global sentiments caused a drop in export value. Furniture export was almost RM7.5 billion in 2006, and over RM8.5 billion in 2007 (see Table 2). Malaysia's export of furniture is expected to grow by 5%-10% annually to hit RM10 billion by 2010 in tandem with global growth.
According to CSIL Milano - Furniture Industry Research Institute based in Italy, the global furniture industry is expected to expand further and the world furniture trade is estimated to grow by 8.2% from US$ 97 billion in 2007 to US$ 105 billion in 2008.
It is estimated that more than 80% of wood-based (including furniture) product companies are SMEs. The industry is predominantly Malaysian-owned, and to date, more than 4,100 wood-processing mills are in operation.
There are about 2,300 Malaysian furniture companies mainly located in the West Coast of Peninsular Malaysia, with Muar, Johor, dubbed the furniture hub. According to the Malaysian Furniture Entrepreneur Association (MFEA), Muar is producing approximately 40% of the nation's total furniture export. The upholstery and leather furniture industry is strong in Selangor, while Penang is also known for its rubberwood furniture and sofa, says MFEA president Desmond Tan.
With a total membership of over 2,000 nationwide, ranging from furniture retailers, distributors, wholesalers, accessories, manufacturers and exporters, MFEA is the largest representation for the local furniture industry.
In 2006, the furniture industry was the 2nd largest exporter in the wood-based industry (after plywood) and Malaysia is among the top-ten of the world's furniture-exporting countries. In terms of export/production figures, Malaysia ranked second among the world's top-ten furniture exporters, with 77% of its production exported.
Malaysia has diversified its export markets for furniture and currently exports to more than 160 countries. The US, Japan, Australia and the UK remain the main export destinations due to the popularity of light- coloured rubberwood among developed countries (see Table 3). Besides these traditional markets, Malaysian furniture has also gained access to the markets in New Zealand, South America, Middle East, Africa and Russia.
Raw materials
Currently, about 85% of wooden furniture is made from rubberwood, while the remaining 15% is made from a combination of other wood and reconstituted panel products such as medium density fibreboard (MDF) and particleboard. Garden/outdoor furniture from tropical hardwood is mainly for the European and Australian markets.
As such, the increase of rubberwood prices is a cause for concern. Rubberwood now costs RM1,500 a tonne compared to RM400 some years back. The price hike is due to the increase of rubber trees kept for latex production in view of the present high price of natural rubber.
To ensure adequate supply of rubberwood, the export of rubberwood sawntimber was banned effective June 8, 2005 but some rules were subsequently relaxed. To encourage reforestration, the Forest Plantation Development Sdn Bhd has to date approved soft loans worth RM80.5 million to five companies to undertake forest plantation activities with a total area of 11,600 hectares. Under the Forest Plantation Programme, the government plans to develop 375,000 hectares of forest plantation with the planting of 25,000 hectares a year. The programme, implemented since 2006, will be ready for harvesting in 2021. While there are a total of eight species identified to be planted under this programme, focus will be given to two, namely, rubberwood latex timber clone for Peninsular Malaysia and Acacia Mangium for Sarawak.
The Malaysia Timber Industry Board (MTIB) is currently finalising the National Timber Policy to strengthen the development of wood- based industry especially for the furniture sector.
Meanwhile, hardwood import for furniture production is increasing, especially American hardwood.
`It's good. We're encouraging it because it conserves our forests. We sell the finished product back to America at a higher premium anyway,' says Malaysian Furniture Promotion Council (MFPC) Chairman Datuk Merlyn Kasimir.
Efforts are being made to rebrand furniture-making as a respectable career to pursue. MTIB has set up a Timber Innovation Centre in collaboration with Limkokwing University College of Creative Technology to promote the use of timber as a raw material for furniture where other materials such as oil palm trunks can be used.
MTIB and MFPC continue to seek greater market access for Malaysian furniture through FTA negotiations with its trade partners where lower import duties will make it more competitive in the partner's market.
According to Kasimir, tariffs in some countries were a crippling 30%-40% or higher.
Kasimir says the council is also stepping up promotional activities this year, including plans to start bringing local manufacturers along on its overseas trade missions. Meanwhile, it continues to support the development of the industry and help cultivate a design culture among industry players.
Moving forward
The rapid growth of the Malaysian furniture industry since 1990 can be attributed to the development of the original equipment manufacturing (OEM) market. But moving forward, especially in view of stiff competition from low-cost producers such as China and Vietnam, it has to move further up the value chain.
Malaysian furniture makers recognise the importance of value- adding, especially in the area of quality enhancement and design development. They have moved away from mass-production at low prices to more upmarket and niche products while maintaining competitive pricing.
`New directions must be taken to elevate our position in world rankings. We must now progress in a structured manner from OEM to original design manufacturing (ODM) and then achieving original brand name (OBN) status,' quips EFE Organising Chairman Quek Kheng Leng.
`Generic items have a fixed pricing - it all boils down to who's cheaper. But with ODM and OBN, the manufacturer determines the price,' Malaysian International Furniture Fair or MIFF Managing Director Datuk Tan Chin Huat says.
MIFF and Export Furniture Exhibition (EFE), two competing yet complementary furniture exhibition organisers, have been instrumental in promoting Malaysian furniture to international buyers. MIFF and EFE both held their fairs earlier this month.
Increased competition from low-cost producing countries notwithstanding, many local furniture makers are hardly fazed. The Malaysian furniture industry, backed by over 20 years of history, is well established and resilient. It will rise to the challenge, they reason. Some companies, such as Poh Huat Resources Holdings Bhd, have taken advantage of the lower costs in Vietnam by setting up factories there.
Manufacturers, consistently seeking cheaper production costs, tend to move around. China was the choice the past few years and now the focus is Vietnam, notes SJI Industries Sdn Bhd Managing Director Benny Poh. He attributes Vietnam's sudden surge in world furniture export rankings to the removal of the 13% VAT rebate in China, which caused a mass exodus of manufacturers in Vietnam The `moving around' will continue, he reasons, `next, maybe to Thailand, then Cambodia etc.'
However, Malaysia has the natural resources to fall back upon, something the regional competing furniture-producing countries have in limited quantities or none at all, he adds.
According to Poh, the cost of production in China is increasing, resulting in the narrowing of the price-gap between Chinese furniture and Malaysian furniture.
`Some seven to eight years ago, the price difference between them was about 25%. In two years, the gap is expected to drop to as low as 5%,' he says.
Another challenge facing the local furniture industry is manpower. The industry is still labour-intensive and currently, at least 25% is foreign labour. Policy changes on foreign labour policies, thus, will affect the industry directly.
`We hope the government can establish an effective and consistent labour policy to reduce uncertainties faced in furniture manufacturing,' says MFEA's Desmond Tan.
By improving technology and efficiency, local manufacturers hope to lower their dependence on foreign labour.
`Many of our factories are already well mechanised but we can still improve on efficiency by employing up-to-date technology,' SJI's Poh says.
Oursourcing is another option the industry is looking into to keep costs low. It makes more sense to import furniture components from low-cost producing countries than produce our own, notes MEICO Chipboard Bhd Managing Director Datuk Yong Seng Yeow. `The trend is now to import lots of components, keeping only higher-end production here,' he says.
However, Tan notes that while the import duty for complete furniture has been abolished, import duty on furniture parts, accessories and mechanisms still applies. `This reduces the competitiveness of supporting industries such as the furniture raw material and hardware suppliers, thus affecting manufacturers for the export market as well,' he says.
FURNITURE FAIRS GALORE
MARCH seems to be the furniture exhibition month. Besides our own Malaysian International Furniture Fair (MIFF) and the Export Furniture Exhibition Malaysia (EFE), held on March 4-8 and March 6- 10, respectively, there were no less than four other fairs in the region - one in Singapore and the rest in China. The International Furniture Fair Singapore (IFFS) was held on March 9-12; the International Famous Furniture Fair (IFFF) Guangdong, China, on March 16-20; the 21st China International Furniture Fair (Guangzhou) (CIFF) on March 18-21; and the 22nd Shenzhen International Furniture Exhibition (SIFE) on March 19-22.
Buyers were spoilt for choice as they surveyed what each fair had to offer. On the local front, MIFF and EFE consistently attract a large number of international visitors, many of them long-time supporters, faithfully returning each year.
MIFF 2008, the 14th instalment of the annual event, spanned over 80,000 sq m, with more than 500 exhibitors from 16 countries showcasing their products. Due to the large exhibition space needed, MIFF was split into two venues - Putra World Trade Centre (PWTC) and the Matrade Exhibition & Convention Centre.
According to MIFF Sdn Bhd Managing Director Datuk Tan Chin Huat, MIFF 2007 generated US$ 667 million in deals `and we hope to see a growth of at least 2%-5%'.
Tan says 25% of the exhibitors were foreign companies and MIFF aims to increase that to 50% in the future. MIFF strongly believes the presence of international exhibitors would help spur the local industry.
EFE 2008 is much smaller, slightly more than half the size of MIFF. The fourth EFE occupied 42,000 sq m of space over seven exhibition halls in the National Stadium at Bukit Jalil, with more than 150 participating exhibitors.
According to EFE Organising Chairman Quek Kheng Leong, EFE 2007 attracted international buyers from 152 countries and generated sales of RM1.8 billion. `About 30% of our previous exhibitors expanded their booth space this year, proof that they are confidant in EFE and satisfied with the results,' Quek quips.
Both organisers lament on the lack of a single exhibition area to accommodate the whole fair. Splitting the fair into two or more venues is hardly conducive, free shuttles ferrying visitors between venues notwithstanding.
`We need a venue with an exhibition space of at least 100,000 sq m,' echoes Datuk Seri Dr Lim Keng Yaik who officiated MIFF. Lim, the- then Minister of Primary Industries, was instrumental in the setting up of MIFF in 1995 and the development of the furniture industry.
`Despite having all the timber resources, Malaysia was only exporting RM40 million worth of furniture in 1986, while importing RM70 million. "What is wrong with you?" I asked the industry,' says Lim in his usual candour.
`We started by encouraging people involved in furniture manufacturing overseas to come back and build the nation's furniture industry. In 1995, we decided it was time to start our own exhibition,' he reminisces, adding proudly that furniture exports had in 2007 exceeded RM8 billion.
MIFF is today one of the ten leading furniture trade shows in the world and has won several accolades from the Ministry of Tourism and the Asia Pacific Brands Foundation. The younger EFE, likewise, has high ambitions. It aims to be the most important exhibition in Southeast Asia for international buyers to visit in next five years.
How attractive is Malaysian-made furniture to international buyers?
Malaysian Business spoke to several international buyers at the fairs and concludes that the appeal of Malaysian furniture is likely to last for a while yet. Despite Vietnam and China offering cheaper products, Malaysian furniture stands out in terms of quality.
`I would rather pay a slight premium for what I know is quality thantake a chance. Our reputation to our clients is at stake,' says Ray Rebecchi of Australia's Full House Furniture, who makes frequent trips all over the region sourcing furniture for his company's wholesale and retail operations. He has been coming to Malaysia every year for 14 years, and makes purchases each trip.
Fen Mohammed of Trinidad & Tobago is also a fan of the quality of Malaysian furniture and as such has been buying from here since eight years ago.
A couple from Kazakhstan has also made frequent buying trips to Malaysia. According to them, Kazakhstan, which only has a population of 15 million, has more than 10 companies that import furniture from Malaysia `and the number increases every year'.
International buyers tend to visit both the fairs and make comparisons. According to them, EFE has a cheaper pricing mechanism while MIFF caters more to a higher-end market.
Yvonne Chong "Knock on wood". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.
The Malaysian furniture industry is export-oriented, with close to 80% of production exported. Export has been growing between 10%- 15% year-on- year over the past 15 years, with the exception of 2001, when depressed global sentiments caused a drop in export value. Furniture export was almost RM7.5 billion in 2006, and over RM8.5 billion in 2007 (see Table 2). Malaysia's export of furniture is expected to grow by 5%-10% annually to hit RM10 billion by 2010 in tandem with global growth.
According to CSIL Milano - Furniture Industry Research Institute based in Italy, the global furniture industry is expected to expand further and the world furniture trade is estimated to grow by 8.2% from US$ 97 billion in 2007 to US$ 105 billion in 2008.
It is estimated that more than 80% of wood-based (including furniture) product companies are SMEs. The industry is predominantly Malaysian-owned, and to date, more than 4,100 wood-processing mills are in operation.
There are about 2,300 Malaysian furniture companies mainly located in the West Coast of Peninsular Malaysia, with Muar, Johor, dubbed the furniture hub. According to the Malaysian Furniture Entrepreneur Association (MFEA), Muar is producing approximately 40% of the nation's total furniture export. The upholstery and leather furniture industry is strong in Selangor, while Penang is also known for its rubberwood furniture and sofa, says MFEA president Desmond Tan.
With a total membership of over 2,000 nationwide, ranging from furniture retailers, distributors, wholesalers, accessories, manufacturers and exporters, MFEA is the largest representation for the local furniture industry.
In 2006, the furniture industry was the 2nd largest exporter in the wood-based industry (after plywood) and Malaysia is among the top-ten of the world's furniture-exporting countries. In terms of export/production figures, Malaysia ranked second among the world's top-ten furniture exporters, with 77% of its production exported.
Malaysia has diversified its export markets for furniture and currently exports to more than 160 countries. The US, Japan, Australia and the UK remain the main export destinations due to the popularity of light- coloured rubberwood among developed countries (see Table 3). Besides these traditional markets, Malaysian furniture has also gained access to the markets in New Zealand, South America, Middle East, Africa and Russia.
Raw materials
Currently, about 85% of wooden furniture is made from rubberwood, while the remaining 15% is made from a combination of other wood and reconstituted panel products such as medium density fibreboard (MDF) and particleboard. Garden/outdoor furniture from tropical hardwood is mainly for the European and Australian markets.
As such, the increase of rubberwood prices is a cause for concern. Rubberwood now costs RM1,500 a tonne compared to RM400 some years back. The price hike is due to the increase of rubber trees kept for latex production in view of the present high price of natural rubber.
To ensure adequate supply of rubberwood, the export of rubberwood sawntimber was banned effective June 8, 2005 but some rules were subsequently relaxed. To encourage reforestration, the Forest Plantation Development Sdn Bhd has to date approved soft loans worth RM80.5 million to five companies to undertake forest plantation activities with a total area of 11,600 hectares. Under the Forest Plantation Programme, the government plans to develop 375,000 hectares of forest plantation with the planting of 25,000 hectares a year. The programme, implemented since 2006, will be ready for harvesting in 2021. While there are a total of eight species identified to be planted under this programme, focus will be given to two, namely, rubberwood latex timber clone for Peninsular Malaysia and Acacia Mangium for Sarawak.
The Malaysia Timber Industry Board (MTIB) is currently finalising the National Timber Policy to strengthen the development of wood- based industry especially for the furniture sector.
Meanwhile, hardwood import for furniture production is increasing, especially American hardwood.
`It's good. We're encouraging it because it conserves our forests. We sell the finished product back to America at a higher premium anyway,' says Malaysian Furniture Promotion Council (MFPC) Chairman Datuk Merlyn Kasimir.
Efforts are being made to rebrand furniture-making as a respectable career to pursue. MTIB has set up a Timber Innovation Centre in collaboration with Limkokwing University College of Creative Technology to promote the use of timber as a raw material for furniture where other materials such as oil palm trunks can be used.
MTIB and MFPC continue to seek greater market access for Malaysian furniture through FTA negotiations with its trade partners where lower import duties will make it more competitive in the partner's market.
According to Kasimir, tariffs in some countries were a crippling 30%-40% or higher.
Kasimir says the council is also stepping up promotional activities this year, including plans to start bringing local manufacturers along on its overseas trade missions. Meanwhile, it continues to support the development of the industry and help cultivate a design culture among industry players.
Moving forward
The rapid growth of the Malaysian furniture industry since 1990 can be attributed to the development of the original equipment manufacturing (OEM) market. But moving forward, especially in view of stiff competition from low-cost producers such as China and Vietnam, it has to move further up the value chain.
Malaysian furniture makers recognise the importance of value- adding, especially in the area of quality enhancement and design development. They have moved away from mass-production at low prices to more upmarket and niche products while maintaining competitive pricing.
`New directions must be taken to elevate our position in world rankings. We must now progress in a structured manner from OEM to original design manufacturing (ODM) and then achieving original brand name (OBN) status,' quips EFE Organising Chairman Quek Kheng Leng.
`Generic items have a fixed pricing - it all boils down to who's cheaper. But with ODM and OBN, the manufacturer determines the price,' Malaysian International Furniture Fair or MIFF Managing Director Datuk Tan Chin Huat says.
MIFF and Export Furniture Exhibition (EFE), two competing yet complementary furniture exhibition organisers, have been instrumental in promoting Malaysian furniture to international buyers. MIFF and EFE both held their fairs earlier this month.
Increased competition from low-cost producing countries notwithstanding, many local furniture makers are hardly fazed. The Malaysian furniture industry, backed by over 20 years of history, is well established and resilient. It will rise to the challenge, they reason. Some companies, such as Poh Huat Resources Holdings Bhd, have taken advantage of the lower costs in Vietnam by setting up factories there.
Manufacturers, consistently seeking cheaper production costs, tend to move around. China was the choice the past few years and now the focus is Vietnam, notes SJI Industries Sdn Bhd Managing Director Benny Poh. He attributes Vietnam's sudden surge in world furniture export rankings to the removal of the 13% VAT rebate in China, which caused a mass exodus of manufacturers in Vietnam The `moving around' will continue, he reasons, `next, maybe to Thailand, then Cambodia etc.'
However, Malaysia has the natural resources to fall back upon, something the regional competing furniture-producing countries have in limited quantities or none at all, he adds.
According to Poh, the cost of production in China is increasing, resulting in the narrowing of the price-gap between Chinese furniture and Malaysian furniture.
`Some seven to eight years ago, the price difference between them was about 25%. In two years, the gap is expected to drop to as low as 5%,' he says.
Another challenge facing the local furniture industry is manpower. The industry is still labour-intensive and currently, at least 25% is foreign labour. Policy changes on foreign labour policies, thus, will affect the industry directly.
`We hope the government can establish an effective and consistent labour policy to reduce uncertainties faced in furniture manufacturing,' says MFEA's Desmond Tan.
By improving technology and efficiency, local manufacturers hope to lower their dependence on foreign labour.
`Many of our factories are already well mechanised but we can still improve on efficiency by employing up-to-date technology,' SJI's Poh says.
Oursourcing is another option the industry is looking into to keep costs low. It makes more sense to import furniture components from low-cost producing countries than produce our own, notes MEICO Chipboard Bhd Managing Director Datuk Yong Seng Yeow. `The trend is now to import lots of components, keeping only higher-end production here,' he says.
However, Tan notes that while the import duty for complete furniture has been abolished, import duty on furniture parts, accessories and mechanisms still applies. `This reduces the competitiveness of supporting industries such as the furniture raw material and hardware suppliers, thus affecting manufacturers for the export market as well,' he says.
FURNITURE FAIRS GALORE
MARCH seems to be the furniture exhibition month. Besides our own Malaysian International Furniture Fair (MIFF) and the Export Furniture Exhibition Malaysia (EFE), held on March 4-8 and March 6- 10, respectively, there were no less than four other fairs in the region - one in Singapore and the rest in China. The International Furniture Fair Singapore (IFFS) was held on March 9-12; the International Famous Furniture Fair (IFFF) Guangdong, China, on March 16-20; the 21st China International Furniture Fair (Guangzhou) (CIFF) on March 18-21; and the 22nd Shenzhen International Furniture Exhibition (SIFE) on March 19-22.
Buyers were spoilt for choice as they surveyed what each fair had to offer. On the local front, MIFF and EFE consistently attract a large number of international visitors, many of them long-time supporters, faithfully returning each year.
MIFF 2008, the 14th instalment of the annual event, spanned over 80,000 sq m, with more than 500 exhibitors from 16 countries showcasing their products. Due to the large exhibition space needed, MIFF was split into two venues - Putra World Trade Centre (PWTC) and the Matrade Exhibition & Convention Centre.
According to MIFF Sdn Bhd Managing Director Datuk Tan Chin Huat, MIFF 2007 generated US$ 667 million in deals `and we hope to see a growth of at least 2%-5%'.
Tan says 25% of the exhibitors were foreign companies and MIFF aims to increase that to 50% in the future. MIFF strongly believes the presence of international exhibitors would help spur the local industry.
EFE 2008 is much smaller, slightly more than half the size of MIFF. The fourth EFE occupied 42,000 sq m of space over seven exhibition halls in the National Stadium at Bukit Jalil, with more than 150 participating exhibitors.
According to EFE Organising Chairman Quek Kheng Leong, EFE 2007 attracted international buyers from 152 countries and generated sales of RM1.8 billion. `About 30% of our previous exhibitors expanded their booth space this year, proof that they are confidant in EFE and satisfied with the results,' Quek quips.
Both organisers lament on the lack of a single exhibition area to accommodate the whole fair. Splitting the fair into two or more venues is hardly conducive, free shuttles ferrying visitors between venues notwithstanding.
`We need a venue with an exhibition space of at least 100,000 sq m,' echoes Datuk Seri Dr Lim Keng Yaik who officiated MIFF. Lim, the- then Minister of Primary Industries, was instrumental in the setting up of MIFF in 1995 and the development of the furniture industry.
`Despite having all the timber resources, Malaysia was only exporting RM40 million worth of furniture in 1986, while importing RM70 million. "What is wrong with you?" I asked the industry,' says Lim in his usual candour.
`We started by encouraging people involved in furniture manufacturing overseas to come back and build the nation's furniture industry. In 1995, we decided it was time to start our own exhibition,' he reminisces, adding proudly that furniture exports had in 2007 exceeded RM8 billion.
MIFF is today one of the ten leading furniture trade shows in the world and has won several accolades from the Ministry of Tourism and the Asia Pacific Brands Foundation. The younger EFE, likewise, has high ambitions. It aims to be the most important exhibition in Southeast Asia for international buyers to visit in next five years.
How attractive is Malaysian-made furniture to international buyers?
Malaysian Business spoke to several international buyers at the fairs and concludes that the appeal of Malaysian furniture is likely to last for a while yet. Despite Vietnam and China offering cheaper products, Malaysian furniture stands out in terms of quality.
`I would rather pay a slight premium for what I know is quality thantake a chance. Our reputation to our clients is at stake,' says Ray Rebecchi of Australia's Full House Furniture, who makes frequent trips all over the region sourcing furniture for his company's wholesale and retail operations. He has been coming to Malaysia every year for 14 years, and makes purchases each trip.
Fen Mohammed of Trinidad & Tobago is also a fan of the quality of Malaysian furniture and as such has been buying from here since eight years ago.
A couple from Kazakhstan has also made frequent buying trips to Malaysia. According to them, Kazakhstan, which only has a population of 15 million, has more than 10 companies that import furniture from Malaysia `and the number increases every year'.
International buyers tend to visit both the fairs and make comparisons. According to them, EFE has a cheaper pricing mechanism while MIFF caters more to a higher-end market.
Yvonne Chong "Knock on wood". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.
Penang property outlook: Prospects still intact
TRANSPARENCY, accountability, economic viability and investor- friendly policies are all the positive virtues that have been promised by the Penang Government. To uplift accountability in the issuance of government contracts, Chief Minister Lim Guan Eng has insisted on an open public tender system for all projects.
Even the fate of the RM25 billion Penang Global City Centre (PGCC) project is hanging in the balance as Lim recently brushed aside the need to review the project after being informed by the Penang Municipal Council and the state Town and Country Planning Department that it has yet to be approved in the first place. As the proposal for the project was still in the processing stage, he noted the project's application would go through the normal procedures "but whether it will be approved or not is a different issue."
In January, the Federal Government had asked the developers of PGCC to revise their plans, which could delay the project, following widespread protests from residents. The revisions included such measures as scaling down its density, complying with affordable housing norms and leaving hilly land untouched.
To be undertaken by Abad Naluri Sdn Bhd, a 25%-owned by listed property developer Equine Capital Bhd, the PGCC project was to be built on the existing 104 hectares of the Penang Turf Club land, which Abad Naluri purchased for RM488 million in 2002.
To gauge what the future holds for Penang under the DAP-led Opposition State Government, Malaysian Business speaks to some prominent industry people in the state.
Datuk Jerry Chan Fook Sing, Real Estate and Housing Developers' Association Malaysia (REHDA) Penang Chairman and Managing Director, Asas Dunia Bhd
From a recent property fair officiated by Penang's Deputy Chief Minister II P. Ramasamy, I was pleasantly surprised to see development company bosses and their staff reaching out enthusiastically to him. It appears that the new DAP/PKR/PAS administration is accepted without a sense of apprehension or fear. I believe the current concern is uncertainty about pending changes in the administration of the local councils and other policy-making/ approving bodies.
Speaking for REHDA, we have outstanding issues that have been highlighted to the previous administration. Among them are a review in Penang Municipal Council (MPPP) density guidelines, price increase in low cost/low medium cost units, conditional approval of layout pending land conversion, automatic release of unsold Bumiputera units, release of unsold low-medium cost units for public sale, and the removal of back lanes.
On the whole, we believe we should see greater transparency, accountability and accessibility in decision-making as this was the platform on which the current administration used in their election campaign. The Chief Minister and exco members whose portfolios involve land, housing and local government should understand problems the property development industry faces. Then they must have short, medium and long- term plans for housing and real estate in Penang.
Most of the public and the investment community did not expect the outcome of the 12th General Elections (12GE). If public confidence is reinforced by the right policies and noises, what makes Malaysian property investable remains intact and would be further reinforced by such moves.
If the Federal Government carries out what our Prime Minister has assured the public, namely the Second Penang Bridge, the Penang Outer Ring Road and monorail projects, there will be positive spillover effect on the property sector.
Insofar as Penangites are concerned, I don't believe buyers would just hold back buying a property because of a change in the Government. The new administration has promised a "pro-business" approach and if the Pas-held Kelantan experience is any guide, there should be sufficient business and confidence momentum to carry the property sector for the next five years.
Dr Jason Teoh Poh Huat, Director, Henry Butcher Malaysia (Penang) Sdn Bhd
In the short term, real estate investors in Malaysia are expected to adopt "a wait and see" strategy on how the country's new economic landscape will unfold in the wake of the changing political climate. We have received many calls from our foreign investors, counterparts and clients anxious to get a better feel of the ground on the implications for the property market.
In the longer term, we expect Malaysia to continue being attractive as property prices are generally perceived to be still competitive and in most cases below that of its immediate neighbours. Attracting investments, tourisms and residents would indeed be a greater challenge today in view of the growing Asia Pacific real estate market offering alternative opportunities for investors in 2008.
Penang has its own peculiar challenges, which are unlike Selangor. Selangor is a much richer state with greater affluence and even population base. In order to bring further progress to the property sector in terms of creating greater demand, it is imperative to draw in more people to the state.
A survey showed that the average price of a house bought by foreign residents, which may include the Malaysia My Second Home (MM2H) programme participants, is in the region of RM1 million. Taking an average of say 10% of participants buying a house in Malaysia, the impact on the property market as a whole would be say RM1 billion on the basis of about 10,000 participants over the last eight years. This translates to an average of about RM100 million per year.
Competitive pricings of properties in Kuala Lumpur and Penang, being much lower than Hong Kong, Singapore and even Vietnam, are anticipated to continue to drive investment interest. It is also interesting to note that real property prices in Penang and KL are still below their peak levels vis-a-vis 1996 and 1997 notwithstanding their rapid price appreciation over the last six years.
Datuk Tan Chiew Piau, Group Excutive Chairman, CP Land Sdn Bhd
I expect some changes in the authority approval process for development projects and it's likely to take some time before this new state governments come out with clear guidelines. This will cause delay in some of the projects that are pending approvals.
However, I believe once these issues are ironed out and clear guidelines are made known to the developers, the approval process may well be even simplified.
Generally, property developers have no problem with transparency and accountability on the part of the government but we wish this new state government will be consistent in their policies and have forward looking guidelines that are more adaptable to the current market scenario. Unsuitable guidelines, notably lower plot ratio and density in previously classified suburban areas, should be reviewed in line with the openings of new growth areas.
The immediate action needed from both the federal and state government is to restore confidence in the market. Pessimism can be felt immediately after the 12GE and this is further aggravated by the seemingly unending financial turmoil in the US.
Penang and Selangor are among the most developed states in Malaysia. Boasting high value investments in properties from both local and foreign investors, any slowdown in demand emanated from these two states will drag down the property market.
Post-election, our property stocks are experiencing turbulence deriving from the shocking outcome of the 12GE and a volatile global financial market. Investors are already very cautious as the property prices in Malaysia have been constantly testing new heights and may have even reached its peak of this current uptrend cycle. Some may view these events as a triggering point for a downturn cycle in property prices and thus abandoning the property stocks.
I foresee the property market experiencing price consolidation in the near future. Property prices in Penang & Selangor will likely hover around current level. Rental yield based on current prices may not be too attractive to investors to commit in at this stage.
Moving forward, investment in real estate should be made based on mid-to long-term view and also ability to hold on the assets for a longer period, ie, five years and above to reap capital appreciation. Penang and Selangor will still be the choice investment destinations for real estate in Malaysia with Johor and Sabah offering alternative choices.
Dr Goh Ban Lee, Retired Academic and Urban Governance Columnist
If the new government keeps to its election promises - transparency, accountability, rule of law and all fairness - the impact will be positive on the property development sector. Doing business, including building houses, will be competitive and competition is good in a capitalist market. Hopefully, the reduction in the cost of property development and competition will ensure that the price of properties will also be competitive and affordable.
In the efforts to foster transparency and accountability, it is time to make the decision-making process more transparent, especially with regards to approvals of development projects, land conversion, excision from hill land gazette and acquisition of land for development.
It will be wise to also review all existing land and development control laws and policies. Having done that, all laws and policies must be implemented fairly and firmly.
Local plans must be gazetted so that everyone knows exactly what is being planned for the near future. There is a serious need to understand the impacts of rapid rise in property prices on the housing needs of average families. Hopefully, a more efficient and transparent administration of land by the state government and processing of land development projects by the local councils will have positive impact on the prices of properties.
For a start, it is good if the councils can list all applications for permission to undertake development (planning approval) on their main notice boards and their websites. Similarly, all applications for land use conversion, from hill land reserve or other restrictions should be displayed properly, especially on the official websites.
Cheah Chor Sooi "Penang property outlook: Prospects still intact". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.
Even the fate of the RM25 billion Penang Global City Centre (PGCC) project is hanging in the balance as Lim recently brushed aside the need to review the project after being informed by the Penang Municipal Council and the state Town and Country Planning Department that it has yet to be approved in the first place. As the proposal for the project was still in the processing stage, he noted the project's application would go through the normal procedures "but whether it will be approved or not is a different issue."
In January, the Federal Government had asked the developers of PGCC to revise their plans, which could delay the project, following widespread protests from residents. The revisions included such measures as scaling down its density, complying with affordable housing norms and leaving hilly land untouched.
To be undertaken by Abad Naluri Sdn Bhd, a 25%-owned by listed property developer Equine Capital Bhd, the PGCC project was to be built on the existing 104 hectares of the Penang Turf Club land, which Abad Naluri purchased for RM488 million in 2002.
To gauge what the future holds for Penang under the DAP-led Opposition State Government, Malaysian Business speaks to some prominent industry people in the state.
Datuk Jerry Chan Fook Sing, Real Estate and Housing Developers' Association Malaysia (REHDA) Penang Chairman and Managing Director, Asas Dunia Bhd
From a recent property fair officiated by Penang's Deputy Chief Minister II P. Ramasamy, I was pleasantly surprised to see development company bosses and their staff reaching out enthusiastically to him. It appears that the new DAP/PKR/PAS administration is accepted without a sense of apprehension or fear. I believe the current concern is uncertainty about pending changes in the administration of the local councils and other policy-making/ approving bodies.
Speaking for REHDA, we have outstanding issues that have been highlighted to the previous administration. Among them are a review in Penang Municipal Council (MPPP) density guidelines, price increase in low cost/low medium cost units, conditional approval of layout pending land conversion, automatic release of unsold Bumiputera units, release of unsold low-medium cost units for public sale, and the removal of back lanes.
On the whole, we believe we should see greater transparency, accountability and accessibility in decision-making as this was the platform on which the current administration used in their election campaign. The Chief Minister and exco members whose portfolios involve land, housing and local government should understand problems the property development industry faces. Then they must have short, medium and long- term plans for housing and real estate in Penang.
Most of the public and the investment community did not expect the outcome of the 12th General Elections (12GE). If public confidence is reinforced by the right policies and noises, what makes Malaysian property investable remains intact and would be further reinforced by such moves.
If the Federal Government carries out what our Prime Minister has assured the public, namely the Second Penang Bridge, the Penang Outer Ring Road and monorail projects, there will be positive spillover effect on the property sector.
Insofar as Penangites are concerned, I don't believe buyers would just hold back buying a property because of a change in the Government. The new administration has promised a "pro-business" approach and if the Pas-held Kelantan experience is any guide, there should be sufficient business and confidence momentum to carry the property sector for the next five years.
Dr Jason Teoh Poh Huat, Director, Henry Butcher Malaysia (Penang) Sdn Bhd
In the short term, real estate investors in Malaysia are expected to adopt "a wait and see" strategy on how the country's new economic landscape will unfold in the wake of the changing political climate. We have received many calls from our foreign investors, counterparts and clients anxious to get a better feel of the ground on the implications for the property market.
In the longer term, we expect Malaysia to continue being attractive as property prices are generally perceived to be still competitive and in most cases below that of its immediate neighbours. Attracting investments, tourisms and residents would indeed be a greater challenge today in view of the growing Asia Pacific real estate market offering alternative opportunities for investors in 2008.
Penang has its own peculiar challenges, which are unlike Selangor. Selangor is a much richer state with greater affluence and even population base. In order to bring further progress to the property sector in terms of creating greater demand, it is imperative to draw in more people to the state.
A survey showed that the average price of a house bought by foreign residents, which may include the Malaysia My Second Home (MM2H) programme participants, is in the region of RM1 million. Taking an average of say 10% of participants buying a house in Malaysia, the impact on the property market as a whole would be say RM1 billion on the basis of about 10,000 participants over the last eight years. This translates to an average of about RM100 million per year.
Competitive pricings of properties in Kuala Lumpur and Penang, being much lower than Hong Kong, Singapore and even Vietnam, are anticipated to continue to drive investment interest. It is also interesting to note that real property prices in Penang and KL are still below their peak levels vis-a-vis 1996 and 1997 notwithstanding their rapid price appreciation over the last six years.
Datuk Tan Chiew Piau, Group Excutive Chairman, CP Land Sdn Bhd
I expect some changes in the authority approval process for development projects and it's likely to take some time before this new state governments come out with clear guidelines. This will cause delay in some of the projects that are pending approvals.
However, I believe once these issues are ironed out and clear guidelines are made known to the developers, the approval process may well be even simplified.
Generally, property developers have no problem with transparency and accountability on the part of the government but we wish this new state government will be consistent in their policies and have forward looking guidelines that are more adaptable to the current market scenario. Unsuitable guidelines, notably lower plot ratio and density in previously classified suburban areas, should be reviewed in line with the openings of new growth areas.
The immediate action needed from both the federal and state government is to restore confidence in the market. Pessimism can be felt immediately after the 12GE and this is further aggravated by the seemingly unending financial turmoil in the US.
Penang and Selangor are among the most developed states in Malaysia. Boasting high value investments in properties from both local and foreign investors, any slowdown in demand emanated from these two states will drag down the property market.
Post-election, our property stocks are experiencing turbulence deriving from the shocking outcome of the 12GE and a volatile global financial market. Investors are already very cautious as the property prices in Malaysia have been constantly testing new heights and may have even reached its peak of this current uptrend cycle. Some may view these events as a triggering point for a downturn cycle in property prices and thus abandoning the property stocks.
I foresee the property market experiencing price consolidation in the near future. Property prices in Penang & Selangor will likely hover around current level. Rental yield based on current prices may not be too attractive to investors to commit in at this stage.
Moving forward, investment in real estate should be made based on mid-to long-term view and also ability to hold on the assets for a longer period, ie, five years and above to reap capital appreciation. Penang and Selangor will still be the choice investment destinations for real estate in Malaysia with Johor and Sabah offering alternative choices.
Dr Goh Ban Lee, Retired Academic and Urban Governance Columnist
If the new government keeps to its election promises - transparency, accountability, rule of law and all fairness - the impact will be positive on the property development sector. Doing business, including building houses, will be competitive and competition is good in a capitalist market. Hopefully, the reduction in the cost of property development and competition will ensure that the price of properties will also be competitive and affordable.
In the efforts to foster transparency and accountability, it is time to make the decision-making process more transparent, especially with regards to approvals of development projects, land conversion, excision from hill land gazette and acquisition of land for development.
It will be wise to also review all existing land and development control laws and policies. Having done that, all laws and policies must be implemented fairly and firmly.
Local plans must be gazetted so that everyone knows exactly what is being planned for the near future. There is a serious need to understand the impacts of rapid rise in property prices on the housing needs of average families. Hopefully, a more efficient and transparent administration of land by the state government and processing of land development projects by the local councils will have positive impact on the prices of properties.
For a start, it is good if the councils can list all applications for permission to undertake development (planning approval) on their main notice boards and their websites. Similarly, all applications for land use conversion, from hill land reserve or other restrictions should be displayed properly, especially on the official websites.
Cheah Chor Sooi "Penang property outlook: Prospects still intact". Malaysian Business. Apr 1, 2008. FindArticles.com. 08 May. 2008.
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