ASIA PACIFIC MARKET OUTLOOK HEATING ...reciprocus.com/sites/default/files/2018 Heating...overall market share, and will contribute 54.84% of the incremental growth in the foreseeable

ASIA PACIFIC MARKET OUTLOOK

HEATING, VENTILATION AND AIR CONDITIONING (HVAC)

February 2018

www.reciprocus.com

| Reciprocus International

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Table of Content

2

Market Overview

Key Market Trends

Industry analysis (Porter’s five forces)

Executive Summary

Strategic priorities

Contact


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Executive summary

3SOURCE: Technavio; Euromonitor; Mckinsey Global Institute; Deloitte; Reciprocus;

Strong growth drivers in the APAC industryThe HVAC industry is generally driven by the demand of construction, which has been rapidly growing in APAC

due to the increasing population growth and urbanization. Specific growth drivers in APAC for the HVAC industry

are the climate changes and increasing awareness in energy consumption of the HVAC systems.

Challenging but attractive opportunities in APACGlobal HVAC industry has been steadily increasing with a CAGR of 5.24%. APAC accounts for 51.24% of the

overall market share, and will contribute 54.84% of the incremental growth in the foreseeable future, making the

APAC region an attractive opportunity to explore. Firms with the right pool of technical expertise will excel despite

the challenging regulations and standards.

Favourable market conditions for expansion and successionThe industry in general continues to consolidate on the basis of a strong global economy and parent construction

industry. Larger industry players continue to seek value and win contracts by improving their core capabilities and

expanding their service offerings. Smaller companies can find themselves well-positioned to sell their assets as

the competitive landscape intensifies.


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Market Overview

Key Market Trends


Executive Summary


Contact


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APAC owns the largest industry market share of HVAC systems and the demand is

expected to increase even more, creating more opportunities for business expansion.

5SOURCE: Technavio; BIS Research; BCC Research; Euromonitor; Reciprocus

-

50.00

100.00

2016 2017 2018 (F) 2020 (F)

APAC Americas EMEA

HVAC Market Size by Region in US$ bn

Asia Pacific (APAC) has been, and will continue to be the

largest market for HVAC systems due to the growing

population, climatic conditions, increasing urbanization, and

demographic changes in the region.

APAC Rest of the world

HVAC Market Share

(E) CAGR

5.7%

The two economic giants of Asia, China and India experience the largest demand for

HVAC systems because of its enormous population, even by global benchmarks

Following close behind are countries like Indonesia, Malaysia, Thailand and

Philippines where the population are already collectively larger than that of the E.U.

CAGR

5.1%

2016

2017


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Demand for HVAC systems will create opportunity for the individual sub-categories,

but specific conditions and requirements will impact each sub-category differently.

6SOURCE: Technavio; BCC Research; Reciprocus

0%

50%

100%

2017 APAC HVAC Market Share

by Equipment and Service in %

Services

Equipment

APAC Ductwork Market Size

in US$ bn

-

0.50

1.00

1.50

2.00

2.50

2017 2020

Sheet metalFlexible non-metallicFibreglass

Chiller

Pump

Cooling tower

AHU

FCU

MV Fan

Ductwork

Pipework

Control panels

Electrical

Other eqp.

Accessories

Market for ductwork is expected to move in tandem with

the increasing demand for HVAC systems, which in turn is

attributed to the high level of construction activities.

Growth in the air duct market is expected as demand for

HVAC systems increase. However, the opportunity is

diminishing with the increasing sheet metal prices.

Vendors are looking to alternative materials that are lower

costs and easier to manufacture such as pre-insulated

duct systems.

Sheet metal ducts will still be the most used material for

HVAC ducting due to its robustness and low maintenance

costs. Fibreglass ducts are not expected to retain its

market share due to its poor thermal performance and

potential mold problems, especially in a humid climate.

Increasing general demand for HVAC systems will be experienced even in

the sub-categories of the industry. However, demands for cooling efficiency

will affect specific sub-categories that have greater influence on the

efficiency of the system.


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Market Overview

Key Market Trends


Executive Summary


Contact


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Key trends portray a challenging outlook for the HVAC industry.

8SOURCE: Technavio; PWC; McKinsey Global Institute; Reciprocus;

1

Asia Pacific has been observed as the most active region for mergers and acquisition. The volume of E&C

transactions accounts for more than 50% of the total volume of APAC transactions, mostly due to the broad span of

industry classifications and the increasing need to provide technical expertise in the different areas.

Market consolidation

will continue

2

Larger firms have been steadily building up cash reserves and their internal expertise and have been observed to be

expanding outward from their home markets to compete against established global players. These expansion efforts

are driving them to buy up assets to build up critical capabilities and also for the purpose of new market entry.

Competition will continue to

grow with globalization

3

With the growing awareness of energy consumption and greenhouse gas emissions, governments have

implemented new standards for energy efficiency which impact the HVAC industry the most. The stringent standards

will create more complex projects and demand more effective optimization on the load size of the HVAC system.

Building standards will

become more stringent

4

Consumers are becoming more informed, tech-savvy, and environmentally-aware. There is a growing need of

consumers wanting to be monitor the HVAC systems in real-time and able to control the systems remotely. This

change in behavior will result in an increase demand for high-end HVAC products with increased connectivity.

Changing customer

behavior


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Table of Content

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Market Overview

Key Market Trends


Executive Summary


Contact


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Despite the lack of substitutes for HVAC systems, the industry will continues to face

intense competition and experience cost pressures from suppliers.

10SOURCE: Reciprocus

0

1

2

3

Bargaining powerof suppliers

Bargaining powerof buyers

Threat of newentrants

Threat ofsubstitutes

Threat of rivalry

Bargaining power of suppliers: HIGH

Vendors are highly dependent on raw material

manufacturers for the production of HVAC systems.

Bargaining power of buyers: MODERATE

Customers have the option of sourcing at competitive

prices from regional or domestic vendors.

Threat of new entrants: MODERATE

Regional vendors are entering the every growing

industry. However, the capital-intensive industry is

difficult to enter.

Threat of substitutes: LOW

There is no direct substitute available for HVAC

systems.

Threat of rivalry: HIGH

Competition is very high due to the presence of large

global players and emerging regional and local players.


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Table of Content

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Market Overview

Key Market Trends


Executive Summary


Contact


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In response to these trends and challenges, firms should evaluate their position in the

market and emphasize on their strategic priorities.

12SOURCE: Reciprocus;

To maximize on the benefits of change, your

business requires a plan for every stage of the

business life cycle. With strategies in place and

careful planning, you will be able to maneuver

through the cycle and embrace new possibilities and

opportunities.

HOW RECIPROCUS CAN HELP

Market research to help you better understand

the market opportunity, your potential customers,

and strategic positions you can take

Business plan advisory to work with you to

identify hidden areas of value within your

business and develop strategic activities for the

expansion or succession of your business

Scouting efforts for strategic partners that can

benefit your business and are in line with your

objectives

Deal advisory and execution to secure and

deliver the best value you can get in a

transaction, whether as a buyer or a seller

Entry

Management dilemma:

Who are my customers and how

do I reach them?

Strategic priority:

Market research to keep in pace

with the market demand

Mature

Management dilemma:

Expansion or succession?

Strategic priority:

Securing the value of the

business in preparation of either

direction

Growth

Management dilemma:

Where and how should I expand?

Strategic priority:

Reviewing your corporate strategy

and develop action plans to

achieve your objectives

Established

Management dilemma:

What areas can I improve and be

more productive?

Strategic priority:

Strategic partnerships that can

boost your margins

Early stages

Later stages

Business

life cycle


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Table of Content

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Market Overview

Key Market Trends


Executive Summary


Contact


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Contact

14

Reciprocus InternationalInternational Plaza10 Anson Road #10-22Singapore 079903

Tel: +65-6225-9986Fax: +65-6225-8223

Reciprocus AmericasEmpire State Building350 5th Ave, Suite 7610New York, NY 10118

Tel: +1-212-565-0600Fax: +1-646-349-3532

Reciprocus EuropeTaefernstrasse 22a5405 Baden-DaettwilSwitzerland

Tel: +41 56 470 42 70Fax: +41 56 470 42 72

Goh KX, JasonVP, Business [email protected]

David [email protected]

For more information on our advisory practice, please visit www.reciprocus.com

Documents

ASIA PACIFIC MARKET OUTLOOK HEATING ...reciprocus.com/sites/default/files/2018 Heating...overall market share, and will contribute 54.84% of the incremental growth in the foreseeable