The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a report said the CITP is a framework for the development of the construction sector that will put Malaysia comparable with the construction industry standards of developed countries such as the UK.
The research firm recalled that the government of UK launched its construction industry’s strategy Construction 2025 in 2013 in order to increase industrial productivity though construction cost reduction and whole life-cost of built assets.
It noted the UK construction policy showed a steadfast commitment in applying building information modeling (BIM) in construction measures as opposed to traditional construction methods.
Thus, MIDF Research believed CITP which promotes efficiency in construction methodology and reduction of cost through technology such Industrialised Building System (IBS) and building information modeling (BIM) will help to lift growth of Malaysia’s construction industry.
The research firm observed that Malaysia’s construction sector is expected to grow at nine per cent annually taking into account factors such as current order book levels and infrastructure construction projects which are yet to be rolled out such as the Light Rail Transit Line 3 (LRT3).
Besides, it noted under the Eleventh Malaysia Plan (11MP), the construction industry will contribute up to 5.5 per cent of gross domestic product (GDP) to the economy by 2020 and has two times multiplier effects with more than 120 industries depending on construction sector for their growth.
Additionally, MIDF Research opined that the construction sector cycle has yet to reach its end stage relative to the schedule of project roll-outs in the 11MP such as LRT3, Klang Valley Mass Rapid Transit Line 2 (KVMRT2), Pengerang Intergrated Petroleum Complex (PIPC) in Johor and the High Speed Railway (HSR) project.
Meanwhile, the research firm noted the main objectives of CITP are to streamline and modernise Malaysia’s construction industry against the backdrop of Economic Transformation Programme (ETP), Government Transformation Programme (GTP 3.0) as well as the 11MP.
MIDF Research noted CITP introduced four strategic thrusts, namely quality, safety and professionalism, environmental sustainability, productivity and internationalisation to strengthen the development of the construction sector.
The research firm added under one of the strategic thrusts for instance, quality, safety and professionalism, a system that measures the quality of workmanship of a building based on the construction industry standard known as Quality Assessment System in Construction (QLASSIC) was formulated
It observed the stringent requirements of QLASSIC scores were not going to be easily achieved by construction players through the conventional method of construction.
Hence, to encourage industry players to achieve high QLASSIC scores, the research firm noted the CITP provides incentive to construction players which adopt technology and modern methods of construction such as IBS.
However, MIDF Research emphasised that the relevancy of CITP to its stock coverage is through marginal profiles.
The research firm explained that CITP, which encourages the use of technology such as IBS and BIM will enable construction firms to improve their profit before tax (PBT), operating and net profit margin as the cost savings would be reflected in the financial performance.
MIDF Research pointed out that Gamuda Bhd (Gamuda) employed the Variable Density Tunnel Boring Machine (TBM) for the Klang Valley Mass Rapid Transit (KVMRT) project and other TBMs in SMART Tunnel projects.
The research firm noted the technology applied was unique as the variable density TBM was made by German-Herrenknecht AG to cater for Kuala Lumpur soil profiles of karstic lime and Kenny Hill rock formation.
Having said that, the research firm noted the impact of Gamuda’s technology application was evidential through the company’s 10-year average net and operating profit margin of 17.7 per cent and 33.5 per cent respectively.
Furthermore, MIDF Research observed Gamuda’s KVMRT project package were mostly constructed using IBS system and hence, reducing construction waste and increasing work quality.
Therefore, the research firm believed construction companies such as Gamuda which is led by wide technology content will potentially produce higher (net and operating) profit margins as compared to its peer’s median of seven per cent and 12.2 per cent profit margin respectively.
In the meantime, MIDF Research maintained its positive stance on the construction sector with players such as Gamuda Bhd, Muhibbah Engineering (M) Bhd, and Vivocom International Holdings Bhd as its preferred stocks for investments.
The research firm reckoned that the current risk-aversion mode for the equity market is intermittent and hence recommended investors to take a long term view towards their investment as the risk-reward for construction players remained compelling.
As a whole, the research firm was positive on the launching of CITP which could help to boost the prospects of the construction sector and enable the sector to achieve nine per cent growth annually.
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