A strategic spot within the Belt and Road Initiatives - Malaysia

Malaysia’s infrastructure is developing rapidly with its location at a strategic spot under the China One Belt One Road initiative. China is continuously making significant investments to the infrastructure in Malaysia, simultaneously enhancing its business relationship and the technology exchange between the two countries. Furthermore, continued government interest and investment to expand power distribution, telecommunication, civil infrastructures coupled with the development of new commercial, industrial, and residential areas is creating new opportunities for the construction related industries in Malaysia. 

Among all related industries, the precast concrete utilities structures manufacturing industry in Malaysia is largely dependent on construction works for utilities infrastructure and new development area construction. The most common precast concrete utility structures include pipes, tanks, manholes, telecommunication junction boxes, electrical junction boxes, and vaults. Precast concrete telecommunication junction box and electrical junction box are mainly designated for conjunction use of telecommunication and electrical cabling.

1.The Industry in Malaysia

Precast concrete telecommunication junction box and electrical junction box are mainly designated for conjunction use of telecommunication and electrical cabling. A concrete junction box is structured to protect cables and wires of telecommunication and power utility industries from weather conditions, changing elevation in underground conditions, and provides easy access for maintenance. These products are typically installed by the construction and property development industry to provide access and distribution of telecommunication and power supplies at new property or area developments, and infrastructure upgrades commissioned by utility companies.

The precast concrete telecommunication junction box and electrical junction box manufacturing industry in Malaysia is heavily reliant on the development of the construction industry, telecommunication and electrical distribution upgrade and expansion works. Due to this nature, there is no standard or fixed price for precast concrete telecommunication junction boxes or electrical junction boxes. The price of junction boxes is dependent on the construction project needs, materials and specifications required for the junction box, the order quantity, and the price of key raw materials – concrete and steel rebar – for the manufacturing of precast concrete junction boxes.

As Malaysia continues to development, new telecommunication and electrical infrastructure needs to be constructed by the utilities companies to ensure the existing electrical infrastructure and telecommunication networks can cope with rising demand as well as meet future capacity needs. Typically, more telecommunication junction boxes and electrical junction boxes are required during construction and upgrading works if the location has higher electricity and telecommunication usage because of higher density of underground cabling and maintenance access points, or longer distance for connectivity.

Total revenue of the industry

The precast concrete electrical junction box and telecommunications junction box manufacturing industry grew from approximately RM96.1 million to RM117.6 million from 2012 to 2015 at a CAGR of approximately 7%, driven by the expansion of power distribution and high-speed telecommunications throughout Malaysia, to service key transportation developments, upgrade of infrastructure facilities, and new development areas.

In conjunction with the construction industry and national strategies laid out in the Tenth Malaysia Plan for key infrastructure projects and electricity and broadband connectivity, the regional revenue reflected by key construction activities throughout Malaysia, where the states of Selangor, Johor, and the Federal Territories of Kuala Lumpur and Putrajaya drove demand for junction boxes for railway expansion, business and property development projects, as well as national plans to upgrade the reliability and expand broadband and electricity distribution to more remote and rural areas in the country.

The precast concrete electrical junction box and telecommunications junction box manufacturing industry is expected to continue growing at a CAGR of approximately 8.1% between 2016 and 2019 from approximately RM129.7 million to RM163.7 million based on the analysis of Ipsos Business Consulting. This is expected to be driven by power supply distribution, fixed-line, and fibre optic cable network expansion into newly-developed economic areas and rural areas in Malaysia.

2.Competitive Analysis 

Competitive landscape

The market for precast concrete telecommunication junction box and electrical junction boxes is competitive and consolidated,serviced by two main types of players (general precast concrete players who also manufacture precast utilities structures, and specialized precast concrete utilities structure manufacturers) in the precast concrete manufacturing industry.

Players typically establish their market position through their product and service offering, and are largely dependent on major utilities and utility related construction projects.

Entry barriers

1、High capital costs and technical expertise required

The precast concrete telecommunication junction box and electrical junction box manufacturing industry requires a high level of capital and technical expertise to set up a manufacturing plant and to enter the market. In precast concrete manufacturing, floor space, casting molds, industrial equipment, inspection, quality control, inventory management, and transportation incurred high costs require sufficient scale of production to be cost effective.

Furthermore, a high level of expertise is required to ensure the quality, specifications, and structural strength is achieved during manufacturing, and for the products to align with the construction project requirements and meet the safety standards for telecommunication and electrical utility supply lines.

2、Established supplier and contractor relationship

The manufacturing of precast concrete electrical junction box and telecommunication junction box is reliant on the demand for products from construction contractors servicing the supply of telecommunication and electrical utility construction projects. To avoid project delays and manage costs effectively, utility project construction contractors typically work with manufacturers they have worked with successfully in the past who can provide quality products at suitable pricing and with reliable product delivery to construction sites.

For new players entering the market, the established supplier and contractor relationship by existing players in the market sets a high entry barrier to obtain business opportunities, particularly, at a scale that is economical for manufacturing production.

3、Become an approved supplier

To enter the precast concrete junction box industry, manufacturers need to meet specific supplier requirements for each individual end-customer prior to being awarded an approved supplier certification to tender for the end-customer’s construction project. Typically, manufacturers also need to have a certification on product quality and management system quality to apply to become a registered supplier.

These registrations, and the requirement for certification, differ between Malaysian public government projects, and between telecommunication companies for private utilities construction works. Registration with specific companies also dictate which customers can tender projects for, and is an entry barrier between competitors to become suppliers to non-existing customers, and a high entry barrier for new entrants in this industry.

Examples of these include:

Malaysian government projects:

  • As the suppliers of contractors or other corporations, registration as a supplier and valid certification from Ministry of Finance is needed.
  • Suppliers to Tenaga Nasional Berhad (TNB), Malaysia’s national electric utility company need a certificate of registration as a vendor.
  • Certification of Registration of product is also required. 

Telecommunication Projects:

Certification of registration as a telecommunication materials and equipment or junction box cover and accessories vendor for specific telecommunication companies; such as: Telekom, Maxis, DiGi Telecom, TIME dotCom Berhad to name a few.

Product testing:

Product test report to show compliance with requirements according to corporations’ appointed Quality Assurance Inspector and its standard and technical specification. Such as: Malaysia Standard Test Reports accredited under Department of Standards of Malaysia for Load Tests (MS:1293).

Production management systems:

Certifications such as ISO 9001 for the quality management system for the design and manufacturing process.

3. Key drivers and opportunities 

Ipsos Business Consulting IPO team has identified the key drivers for this industry as below:

1、Infrastructures development in Southern Malaysia

Further developments in the southern peninsular region of Malaysia – such as building approximately 60,000 new housing units in Johor by 2020, providing free WiFi services through a three-year installation period, and Telekom extending their Unifi broadband service coverage to Batu Pahat, Taman Perling and Ulu Tiram in Johor towards the end of 2016 and subsequent addition of 10 exchange areas for Unifi services which included Skudai, Johor, Gelang Patah, Senai, Permas, Kulaijaya and Pasir Gudang are examples of key future development driving the growth of the precast concrete junction box industry in the country.

Further, new development areas such as the Johor Affordable Housing Project (RMMJ) with the Malaysian state government targeting to build 60,000 units of affordable houses by 2020, and key infrastructure projects such as the Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah Alam Highway, the RM9.0 billion light rail transit Line 3 and RM13.0 billion Pan Borneo Highway (Sabah stretch), and the RM28.0 billion 52.2-km KVMRT Line 2 (US$6.9 billion) was commenced in the second quarter of 2016 and be completed by the second quarter of 2022 with 11 underground stations will also give rise to the precast concrete junction box industry.

The Johor Affordable Housing Project (RMMJ) and key infrastructure projects could also give rise to the precast concrete junction box industry.

2、Advantage as compared to cast-in-situ concrete structures

In Malaysia, the use of precast junction boxes has become more prevalent in construction projects, replacing traditional cast-in-situ concrete construction practices due to the following factors: 

Time effectiveness:The production of precast concrete junction boxes is completed at the factory off-site and does not require construction, casting and curing at the construction site, reducing the overall construction time.

Cost efficiency:The adoption of precast concrete junction boxes decreases the need for huge manpower resources since most of the production is centrally managed at the factory off-site. Labor cost can be reduced at least by 25% to 50% compared to conventional cast-in-situ practices.

Consistent quality and structural specification:

Compared to conventional cast-in-situ practices, precast concrete junction boxes are manufactured with consistent specifications which allow for longer use durability of the product and higher consistency in the quality of the concrete structure. Precast concrete junction boxes can be given different desired shapes by different construction requirements. It allows for a variety of designs and

shapes and is manufactured with consistency.

3、Government led telecommunication and electricity distribution infrastructure developments

This is also echoed in the recently announced Budget Malaysia 2017 speech, where housing supply will be increased through Perumahan Rakyat 1 Malaysia housing program and under the new National Blue Ocean Strategy initiatives。Major and ancillary infrastructure projects will have developed in conjunction with the major construction projects and government led developments to ensure continued accessibility, affordability and quality of living for the general public. 

The growing demand for reliable telecommunication and electricity distribution will provide opportunities for growth in the telecommunication and energy supply industries and the precast concrete junction box industry.

Malaysia’s infrastructure is developing rapidly with its location at a strategic spot under the China OBOR initiatives. China is continuously making significant investments to the infrastructure in Malaysia, simultaneously enhancing its business relationship and technology exchange between the two countries. In November 2016, Malaysia and China signed 14 business-to-business agreements and memorandums totaling to approximately RM144 billion.

Nine out of the 14 business-to-business agreements and memorandums are partnership and financing arrangements focusing on construction, infrastructure, and area developments in line with Malaysia’s 2020 national strategy plan. Construction activities related to these agreements will also require ancillary construction and development of infrastructure, such as electricity and telecommunications network distribution.

These government led business agreements will further drive the demand for telecommunications and electricity distribution infrastructure construction projects, providing opportunity for the precast concrete junction box industry to supply to the construction projects to be completed in a safe, time effective, and cost efficient process. 

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