It has been said many a time along the path to attain success in business is to have a long-standing history and a proven track record.
In the Malaysian building materials industry, many will shy away from the mention of Unitrade Industries Berhad (Unitrade) as the key market player has garnered competitive strength with its extensive inventory comprising of over 6,000 stock-keeping units (SKUs) of building materials that has well-positioned the company to meet diverse demands of customers promptly and efficiently.
Founded in 1979, Unitrade raised RM100 million from its listing in June 2022 and established itself as one of the largest homegrown wholesalers and distributors of building materials in Malaysia by revenue (RM 1.4 billion in FYE March 23).
Unitrade Managing Director Nomis Sim Siang Leng discussed the issues faced by the company in moving forwards exclusively with BusinessToday recently saying: “In setting our priorities right, we ensure a seamless customer experience with our strong inventory. For our wholesale and distribution business, the lead time between the confirmation of a purchase order and the delivery of goods can be as short as couple of hours, emphasising speed and efficiency in our operations. Speedy delivery is of utmost importance to our clients as time is of essence when it comes to construction progress.’
Sim said Unitrade takes pride in their ability to cater to a wide spectrum of customers, including building contractors, mechanical and electrical (M&E) contractors, steel traders, downstream steel products manufacturers, and hardware retailers and traders. Unitrade’s expansive customer base boasts over 1,300 active customers, reflecting the trust and confidence they place in the company.
“In addition to our core business of wholesaling and distributing building materials, we are involved in the manufacturing and sale of pre-insulated pipes, as well as the provision of rental services for modular housing and temporary structural support equipment for building construction activities. This enhances over overall service comprehensiveness, positioning Unitrade as a one-stop solution provider for its customers.
Navigating Volatility
Unitrade navigated commodity price volatility, especially in the steel market, amid the supply chain disruptions posed by the Covid-19 pandemic and Russia-Ukraine geopolitical tensions. Drawing upon its long-established four-decade history and experience in navigating various business cycles, Unitrade not only survived adversities but emerged with a commitment to growing stronger after each crisis.
Sim explained that during FY23, Unitrade encountered steel price fluctuations, with downward trends in the second and third quarters. This impacted its performance as they incurred higher cost of sales and impairment loss for our inventory.
“We leveraged on business acumen where we recognised the critical importance of strong inventory management in the building materials wholesale and distribution business, where our hands-on management approach also allowed us to better adapt to the evolving market dynamics.
“We exercised greater caution in our inventory procurement activities, dedicated to maintaining lean operating cost, and focused on collections to ensure healthy operating cashflow and sustainability of the business.”
Sim added the company focussed on a strategy which involves purchasing lower-margin products on a back-to-back order basis, minimising the need to hold large inventories of these products. This allowed them to better manage inventory levels and focus on keeping higher-margin steel-based products in stock. With that, Unitrade managed to sustain a healthy performance with a profit after tax and non-controlling interests (“PATNCI”) of RM15.4 million in FY23.
The business is exposed to price fluctuations of steel-based products, which could impact our cost of sale and the carrying cost of inventory. In FY22, we recorded a PATNCI of RM43.2 million, benefiting from higher average selling prices of our products in tandem with the increased steel prices during that period.
However, in FY23, the downward trend in steel prices impacted our performance as we incurred higher inventory impairment loss for steel-based products. As such, the stabilising steel prices, aligned with the global stabilisation of commodity prices for iron ore, scrap metal and coking coal present a positive shift. It reduces the risks associated with inventory impairment and provides more predictability for us to assess the suitability of different product types for stockkeeping.
Nonetheless, while price fluctuations are beyond our control, we closely monitor trends to make informed decisions regarding inventory management to stock up or destock our inventory accordingly, Sim said.
Milestones Achieved After Going Public
Asked on key milestones achieved after listing in June 2022, Sim said in Aug 2022, Unitrade expanded our rental services division with the addition of modular housing solutions. Before this, the Group’s rental division mainly entails temporary structural support equipment such as scaffolding, steel plates, and hollow sections.
The introduction of modular housing solutions was aimed at addressing the workers’ accommodation challenges faced by industrial employers. Our modular housing solutions comply with the national housing standards for workers outlined in the amended Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446).
Modular houses offer advantages such as portability, durability, and easy assembly, making them an ideal choice as Centralised Labour Quarters (CLQs) for workers’ accommodations in various industries, including construction, manufacturing, and plantation, to name a few.
This led to Unitrade to Aug 2023 where the management acquired 60.0% equity interest in Winnson Marketing Sdn Bhd (Winnson) to enhance our offerings comprehensiveness. Winnson specialises in the sales and distribution of hydraulic hoses, couplings, engineering hardware and related parts, which widens Unitrade’s product portfolio.
Furthermore, Winnson’s distribution of Molok®, a renowned brand of semi-underground waste management products from Europe also opens new doors for Unitrade’s entrance into the eco-friendly waste management business.
In January of 2024, we ventured into the metal recycling business through the completion of acquisition of a 51% equity interest in Intergreen Metals Sdn Bhd (Intergreen) and signed an MoU with Huawei Technologies (Malaysia) Sdn Bhd and JJ-LAPP (M) Sdn Bhd.
Under the collaboration, Unitrade will serve as the distribution partner in facilitating broader market access for Huawei’s cutting-edge Digital Power-Smart Photovoltaic (PV) systems across residential as well as commercial and industrial (C&I) sectors.
Unitrade’s primary objectives centre around positioning ourselves as the leading supplier and distributor of construction materials. We are committed to delivering products that meet industry standards, emphasising reliability and quality of our offerings.
M&A Ventures – Key Competencies
Combining forces under an enlarged entity can enhance our overall capacity and operational efficiency. Further supported by our professional management and strong financial backing, we are confident in our ability to deliver significantly greater value to Intergreen Metals and Winnson.
Besides, our network of industry contacts overlaps with that of Intergreen Metals. We participate in a circular economy by procuring products from steel manufacturers, while Intergreen Metals provide metal waste as raw materials to these mills. This integrated approach ensures efficiency and a seamless flow within the supply chain.
Through the M&A initiatives, Sim said, we are able to broaden the Group’s earnings base and reinforce our growth strategy by offering a more comprehensive suite of products and services to customers.
These M&A initiatives also contribute to Unitrade’s increased involvement in environmentally responsible businesses as part of our ESG agenda.
Additionally, the acquisition of Intergreen Metals entails a profit guarantee. This is expected to strengthen Unitrade’s bottom-line, providing a positive prospect for continued growth.
We view competition, pricing fluctuations, and supply challenges as part and parcel of the business landscape. By extending our reach in our value chain on both ends, we are fostering synergy advantages through collaborations with Intergreen Metals and Winnson.
Additionally, the inclusion of Intergreen Metals and Winnson brings a wealth of experience, with each entity boasting over 20 and 30 years of established presence respectively. At Unitrade, where management has been involved in the trade for more than 40 years, we have consistently demonstrated resilience and adaptability over time.
Importantly, our long-standing industry experience, coupled with the extensive industry background of Intergreen Metals and Winnson, it enables us to create synergistic values without the need for a gestation period, which is typically required when establishing businesses from the ground up.
At Unitrade, we also adopted sustainability as a core pillar in our business and integrated ESG practices into our daily operations. We are dedicated to fostering green and sustainable practices, making environmental preservation an integral aspect of our corporate responsibility.
2024 Industry Outlook
The sentiment is particularly bullish for the construction sector, as supported by the removal of political uncertainties and the government’s commitment to project rollouts.
Anticipated mega projects include the RM45 billion MRT3 Circle Line, with tenders to be finalised by March, and the RM9.5 billion Bayan Lepas LRT in Penang, receiving federal financial backing. Besides, the Budget 2024 also reiterated the revival of five LRT3 stations.
Catalysts for the property sector in 2024 include signals from Bank Negara Malaysia to maintain its key policy rate at 3.00%, as well as favourable government initiatives in encouraging homeownership. Besides, the rollouts of major infrastructure projects present opportunities for developers to launch transit-oriented developments.
All in all, the strong pipeline of infrastructure and development projects sets a favourable environment for a building materials wholesaler and distributor like us, as increased construction activities will generate demand for our product offerings.
Unitrade’s key initiatives, plans and targets
Establishing a new pipe fabrication centre: We allocated RM5.0 million from our IPO proceeds to set up a pipe fabrication centre that provides end-to-end pipe services to our customers, including pipe cutting, grooving, threading, welding, painting, and assembly.
Furthermore, we are introducing a powder coating line as an additional feature, an off-site metal finishing process designed to impart high-quality and durable finishes to the pipes, with an estimated cost of RM8.0 million.
By delivering these ready-to-install pipes to our customers’ construction sites, we eliminate the need for on-site pipe fabrication. This will expedite our customers’ overall construction process, optimise space usage, and enhance safety by reducing the number of workers, equipment, and materials on-site.
In essence, we aim to streamline the execution of our customers’ construction projects seamlessly and enhance the comprehensiveness of our service offerings. This also underscores our forward-thinking approach in meeting the evolving needs of the construction industry.
This is done through the expansion of the rental division. We are currently exploring further merger and acquisition (“M&A”) opportunities that complement our core business to expand our services comprehensiveness, all while promoting sustainability and providing sustainable solutions for our customers.
Overall, in keeping with the strategic initiatives, the aim is to double the net profit within the next five years.
Rental division expansion
Unitrade’s Modular house rental business – The modular housing solution operates on a rental model, thereby creating a recurring income base and establishing financial stability over the long term. As far as we know, we are among the few providers of modular houses in the market and even fewer that provide a rental model.
Our rental proposition is attractive to mid and small contractors, as it eliminates the need for substantial capital expenditure on building and installing workers’ accommodation. Besides, our modular houses boast a lifespan of over 5 years, providing a durable and reliable solution for extended use.
In addition, we are also actively planning for further expansion. We intend to rent a piece of land in Kampung Baru Subang, Shah Alam to develop a CLQ. This strategic move aligns with the high concentration of factories in the area, providing a viable accommodation option for employers to house their workers.
Unitrade reallocated RM4.6 million of IPO proceeds from working capital to capital expenditure for temporary structural equipment, especially for the acquisition of heavy-duty shoring systems. Such a system is used primarily in construction and engineering projects, providing temporary support to structures under higher load conditions during construction phase.
This investment will further enhance the capabilities of our rental division in providing comprehensive equipment for construction-related needs that aligns with industry standards and safety protocols. The rental demand for the heavy-duty shoring systems is promising, doubling its sales contribution from less than 7% to its current share of around 14% in our rental division as of December 2023.
As we source our heavy-duty shoring system directly from manufacturers, the equipment will be ready for rental, minimising the need for additional labour in the equipment preparation process.
IR 4.0 criteria
Unitrade’s wholesale and distribution business places stronger emphasis on inventory management rather than advanced manufacturing technologies. With that, the company employs an Enterprise Resource Planning (ERP) system aligned with Industry 4.0 (IR 4.0) principles in streamlining and enhancing inventory management. The ERP system acts as a centralised platform, facilitating real-time tracking, monitoring, and analysis of inventory levels.
“As we maintain a sizable inventory to ensure the smooth operation of our business, the ERP is crucial in evaluating the overall value of the inventory, enabling Unitrade to identify slow-moving goods and stocks with a net realisable value below cost.
ESG Initiatives
Unitrade advocates carbon reduction and have taken proactive initiatives that contribute to a sustainable future.
In our manufacturing process of pre-insulated pipes, we have eliminated the use of hydrofluorocarbons (HCFC) materials, which is a component that contributes to the depletion of the protective ozone layer.
To foster the adoption of eco-friendly transportation, we have installed electric vehicle (“EV”) charging stations within our industrial complex. Simultaneously, we are progressively transitioning our company vehicles and forklifts to electrified models to further reduce carbon emissions.
A notable achievement in our sustainability journey is the installation of solar energy systems on our industrial complex. This has resulted in the production of 333,084 kWh of clean energy, contributing significantly to the offsetting of 332 tonnes of carbon dioxide emissions in FY23.
Additionally, we have installed a rainwater harvesting system as water conservation measures. The system serves as an alternative non-potable water source for commercial and industrial applications at our Group’s facilities.
Beyond environmental preservation, Unitrade is also committed to promoting diversity and inclusion within the Group. In June 2023, we welcomed the appointment of Datin Shivajini A/P Sathya Seelan as an Independent Director for the Group, resulting in a 37.5% women representation on the Board.
