This article first appeared in The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

TEMPORARY works equipment supplier Plytec Holding Bhd’s (KL:PLYTEC) next growth phase will be driven by the storage and refurbishment hub and new factory that is being set up on its 18.41-acre Olak Lempit site in Kuala Langat, Selangor.

During a recent visit to the site, founder and group managing director Yang Kian Lock explains that the new manufacturing facility will enable better supply chain management and product quality control, as “customers usually place orders last minute, so this factory will allow us to have ample amounts of inventory available and quality [is] ensured”.

Yang says although manufacturing the products in-house will cost 10% more than its current practice of sourcing from China, it will support Plytec’s aspiration to tap the export market. The key raw material for the manufacturing operations is steel pipes.

As at early August, the steel frame structure of the new factory was already up and Yang says the manufacturing of equipment is expected to start by December. The storage and refurbishment hub has been in use since 2019.

The new factory will increase Plytec’s shoring system capacity of 4,887 tonnes to 10,000 tonnes, although management says this will be paced according to market demand. In terms of immediate revenue potential, based on current demand, the factory can immediately accommodate an extra 10% of its total sales.

The refurbishment hub, meanwhile, involves cleaning, repairing and repainting rental equipment that will extend the life cycle of its products.

Plytec was founded in 1999 and made its ACE Market debut last November. It considers itself a construction method engineering (CME) solutions provider that offers a holistic and tailor-made approach to clients’ temporary work structure needs prior to the start of tall-buildings construction.

For starters, temporary works such as falsework, formwork and access solutions are parts of a construction project that enable the permanent works to be built. In other words, the temporary works support and protect existing structures or permanent works during the construction process.

Yang says Plytec and its team of engineers offer the most complete range of formwork products that cater to a customer’s needs throughout the construction life cycle.

The company’s main products are customised formworks such as the self-climbing platform (SCP) as well as aluminium formworks; and easy assembly modular formworks such as deck formworks that are paired with its heavy-duty shoring systems.

Plytec has a 50% market share of Malaysia’s SCP market. SCP is a more intensively designed system compared to scaffolding and other falsework systems and requires only one-time installation from a low level. The SCPs prevent workers and objects from falling when working at height and achieve an efficient building progress.

Yang likens the SCP system to moving a small factory to the high-rise construction site. Workers typically feel safer inside the enclosed environment and, as such, construction productivity is greatly increased.

“Compared to the conventional method, SCP build progress can be two to three months faster and thus developers can claim their money sooner,” says Yang in explaining SCP’s value proposition.

Some of Plytec’s main competitors for SCP in Malaysia are Masboh Group, MFE Formwork Technology, Peri Formwork Malaysia and Doka GmbH. Despite having one of the most expensive offerings, Yang remains unperturbed about competition because he is confident about Plytec’s complete range of formwork products and competent team. “Customers do appreciate if you can guide them throughout the process, with more than 500 job references done in the past 11 years, we are confident about our expertise and capabilities.”

Plytec’s customers include IJM Land, Crest Builder Holdings Bhd (KL:CRESBLD), Inta Bina Group Bhd (KL:INTA), FajarBaru Builder Group Bhd (KL:FAJAR), UOA Development Bhd (KL:UOADEV), Nestcon Bhd (KL:NESTCON), Eng Han Group and Parkland Group. 

Up to 90% of its customers’ project sites are in the Klang Valley. While a majority of its products cater to high-rise residential and office towers, the group also serves industrial properties, particularly high-rise warehouses.

One of the industry tailwinds Plytec is benefiting from is the stricter compliance standards set by the Construction Industry Development Board regarding safe use of falsework in construction, especially on load-taking, and the stringent enforcement by the regulatory body.

On top of that, one of the key changes in the construction industry has been the preference to rent equipment over owning it outright, because of the high costs of buying and upkeeping equipment as well as warehousing and the high labour costs involved.

Nevertheless, the inflationary environment has benefited Plytec as it pivoted to the renting model a few years ago. Currently, 60% of its revenue from the CME division, which contributes about 45% to the group’s total revenue, is based on the rental model. “Especially in 2023, most contractors faced price fluctuation issues, as such they didn’t want to commit their asset investments as they still needed to worry about space and personnel costs, they would rather go for rental. In a way, it opened up more opportunities for us,” Yang says.

So far, Plytec has invested about RM80 million in equipment.

Its CME solutions business is the biggest profit contributor for the financial year ended Dec 31, 2023 (FY2023), followed by trading of building materials, prefabricated construction solutions, and digital design and engineering solutions.

In terms of industry outlook, the 30-year building materials veteran says he is optimistic about impending new property launches given that developers had held back on their launches in the last three years.

As at early August, Plytec’s total order book stood at RM116 million, with about 66% of it attributed to its CME segment.

In terms of financials, revenue grew at a three-year compound annual growth rate of 13.1% to RM164.77 million in FY2023, from RM113.79 million in FY2020. Gross profit margin dipped slightly to 24% in FY2023, largely due to strong demand during the year and because of inventory issues, the company had to rent certain equipment from its peers to cater for two large-scale jobs.

Additionally, the huge amount of RM38 million invested in 2023 for the purchase of equipment resulted in higher depreciation charges. Typically, its temporary works equipment are depreciated over five to eight years.

A cursory check of Plytec’s financials in the past four years shows that cash generated from operating activities consistently exceeded its profit after tax, suggesting healthy cash collection aside from high accounting charges.

For the coming financial year, Yang sees the group posting double-digit top-line growth underpinned by underlying business momentum. “With the amount of financial resources we invested, and our competence in engineering services, it’s not easy for our peers to compete. Given the right resources, the winning of the war is always.”

Since its listing, Plytec’s shares have fallen 10% from the IPO price of 35 sen apiece. Closing at 31.5 sen last Wednesday, it is valued at RM191 million. 

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