Economic And Industry Overview
We foresee year 2022 as another challenging but also hugely rewarding year for the construction industry. Over the past year, our sector has reached significant recovery from the 2020 recession resulting from the COVID-19 outbreak. On 15 June 2021, the Malaysian Government instigated the National Recovery Plan (“NRP”), which aims to alleviate the country from the economic fallout brought about by the COVID-19 pandemic. The successful rollout of the country’s COVID-19 vaccination programme further expedited the resumption of business activities and economic recovery.
Malaysia’s Gross Domestic Product (“GDP”) grew by 3.1% in 2021 from a contraction of 5.6% in the previous year because of the intensive efforts to normalise business operations and public lifestyle(1). The construction sector displayed a 2.4% growth in Q1 of 2022 - its first positive growth since Q2 of 2021(2).
Nevertheless, the construction industry has also faced a number of headwinds that are expected to persist. These include a worsening labor shortage, hostile cost environment, supply chain disruption, lower outstanding order book, etc.
Operating Environment Overview
Similar to most companies, the Group’s business operations were affected by the COVID-19 outbreak during the first half of this financial year. Most construction works either halted or limited their operations to restrain the spread of the virus in pursuant to the Movement Control Order (“MCO”). Even after the MCO was lifted, we continued to encounter disruptions, such as having to abide by stringent standard operating procedures (“SOPs”) for the health and safety of our construction sites. These obstructions have impeded the progress of our projects as originally and normally envisaged. Additional costs were incurred whenever a COVID-19 case was detected, as all personnel at our sites had to undergo COVID-19 testing and the entire project site must be sanitized before any work is resumed.
We are delighted that for the financial year ended 2022 (“FYE 2022”), the government has refocused on continuing existing projects and reiterating previously planned infrastructure projects. However, the global inflation and the escalated tensions between Ukraine and Russia have impacted the global supply prices of necessary commodities, such as crude oil, coal, natural gas, aluminum and steel. As a result, project tenders have become trickier as most contracts are typically executed on a fixed price basis. Nonetheless, with the reopening of global borders and the transition towards endemicity, we can foresee a clear path where the Group can proceed in executing backlog projects as well as new projects.
MGB registered a favourable financial performance in FYE 2022 primarily by regaining momentum in revenue as the country transitions to COVID-19 endemicity. There were also no operational interferences in the second half of FYE 2022. MGB’s revenue was increased by RM10.12 million or 34.3% to RM39.59 million from last year’s reported revenue of RM29.47 million. The Group’s net loss from continuing operations was significantly decreased by RM14.76 million from last year’s RM22.12 million to RM7.36 million in FYE 2022. This tremendous improvement is mainly due to a higher revenue coupled with lower expenses as a result of the reversal of impairment losses on assets amounting to RM2.52 million in FYE 2022 as compared to impairment losses on assets amounting to RM8.77 million in the previous financial year.
Malaysia’s Construction Market is expected to grow at a Compound Annual Growth Rate (“CAGR”) of approximately 6% during the forecast period of 2022-2027(3). The projected boom will be driven by improved economic conditions, the government’s focus on completing largescale infrastructure projects, and increased investment in energy projects. In September 2021, the government announced its plan to establish the Public Private Partnership (“PPP”) 3.0 model, a specialized mechanism to fund infrastructure projects in the 12th Malaysia Plan (“12MP”) between 2021 and 2025. Targeted to capture growth opportunities, this will greatly benefit the construction industry in the future.
Observing increased global demand and expenditure in the private sector, Bank Negara Malaysia (“BNM”) projects Malaysia’s GDP to expand between 5.3% and 6.3% 2022(4). After movement restrictions were eased in Malaysia in April 2022, economic recovery is expected to accelerate as all sectors are now permitted to recommence full operations.
Additionally, mega projects, such as the Mass Rapid Transit (“MRT”) Sungai Buloh-Serdang-Putrajaya (“SPP”) Line (“MRT2”), can be constructed in full swing to meet the target completion date by end of the year. The East Coast Rail Link (“ECL”) project, which has been delayed due to the lockdown, has now been resumed. We are optimistic that our proven and reliable track record in rail and other construction projects proves that we can attain future prospective projects, including the Johor Bahru - Singapore Rapid Transit System (“RTS”) and the Mass Rapid Transit 3 (“MRT3”).
As part of our earning diversification strategy, we have ventured into the Solar Energy Business (“SEB”). With this approach, the Group can create new revenue streams that will produce prolonged, consistent and stable cash flows. This will expand our earnings feasibility, allowing us to eventually provide returns to our shareholders.
The Group will also continue to apply different measures that will enhance our operational efficiency and effective cost management in order to improve our performance.
Appreciation and Acknowledgement
I would like to take this opportunity to express my sincerest gratitude to the management team and the entire group for their unwavering commitment and enthusiasm towards MGB’s growth.
To my fellow Board members, I give you my cordial appreciation for being a great pleasure to work with, especially during these unprecedented times.
We would like to express our sincere gratitude to our former Chairman, Y.Bhg Tan Sri Dato’ Sri Appandi Bin Ali and Deputy Chairman, Datuk Seri Tan Chun Hwa for their guidance and thoughtful leadership which were indeed very valuable and immensely benefited the company.
My appreciation also goes to the shareholders, customers, suppliers, business associates, financial institutions, consultancies and other stakeholders for your loyal and continued support.
(1) Bank Negara Malaysia (2022) Quarterly Bulletin VOL.36 No.4
(2) Bank Negara Malaysia (2022) Quarterly Bulletin VOL.37 No.2
(4) Bank Negara Malaysia (2022) Economic and Monetary Review 2021