Issues and Challenges in Plant, Machinery & Equipments in Malaysia

ISSUES AND CHALLENGES

IN PLANT AND
MACHINERY
EQUIPMENTS(PME)
VALUATION IN MALAYSIA
Module 3: How to Write A
Report for PME Valuation
By
Sr Hj. Hamidon Haron
Registered Valuer
(Subject Matter Expert in Plant Machinery & Equipment
Valuation)
Fadzilah & Fikri Sdn Bhd

Sr Hj. Hamidon Haron

 Registered Valuer at Fadzilah & Fikri, Johor.
 Ex-Timbalan Ketua Pengarah Penilaian, Operasi (Deputy Director General “Operation”)
Jabatan Penilaian dan Perkhidmatan Harta(JPPH)
 37 years working experience with JPPH as Valuation Officer
 State Director Valuation at Kelantan, Sabah, Kedah and Johore.
 PME attachment at Henry Butcher, Birmingham, England for three (3) months.
 Division Director of Plant and Machinery at Headquarters JPPH in Putrajaya
 Developed the First Edition of Manual Loji dan Jentera for JPPH
 Appointed as Chairman for Second Edition named as Manual Loji, Jentera dan
Peralatan, JPPH.
 Team Leader in preparing one PME Valuation Training Programme
 Lead a collaboration between JPPH and TAQEEM or Saudi Authority for Accredited
Valuers
 Main contribution included securing PME valuation for insurance purpose periodically for
all airports in Malaysia owned and operated by Malaysia Airport Holdings Berhad
 Extensive knowledge in PME, Sr Hamidon has actively started giving lectures on PME
since 1995 until now.

HOW TO WRITE A REPORT FOR PME

VALUATIONS.
Definition of valuation report:

a) MVS Sixth Edition 2019(page 32-33) – the Valuation Report (VR)

must convey to the reader a clear understanding of the opinion
expressed by the Valuer, the basis of the valuation used and the
assumptions and information on which it is based. The VR must state
the purpose of the valuation, the basis of the valuation and the
assumptions on which it is based. It must also provide sufficient
information for those who read and rely on the report.

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Issues and Challenges in Plant, Machinery & Equipments in Malaysia

b) European Plant, Machinery And Equipment Valuation Standards 2022 (EPMEVS) (First Edition) (page 94) - the
Valuation Report (VR) is a document detailing the scope, key assumptions, valuation methods, and conclusions of
an assignment, providing a professional opinion of value supported by a recognised basis or bases of valuation
within the framework of the Valuation Report (VR). A VR must be in writing, prepared and presented in a reliable
and comprehensible manner for the users and clients. This is appropriate for a report providing a Market value and
also for reports concerning all other bases of valuation, as it gives certainty between valuer and client.

However sometimes Valuation Review must also be required as an attachment to the original VR. Valuation
Review is an independent party whose job are to provide an assessment of the compliance of the valuation work
under review with EPMEVS. He also will examine the documents relied on and assess their proper and accurate
use. Last but not least, he will also identify any mistakes and their impact on the conclusions. The reviewing valuer
must be a qualified valuer, independent from the valuer who originally performed the valuation and in possession
of all the facts and information relevant to the PME on the date of valuation on which the first valuer relied. If
the reviewing valuer does not have this information, or has it only partially, this must be clearly stated.

Conclusions, the valuation report will be used as follows:

• Acts as a legal document in defending a valuation done.
• May be a comparable for future valuations.
• As a source of future reference in update valuations.

c) Basic Requirements of a Quality Report

01 Clear and logical relay of all relevant information 07 Use of language that is readily understood by the client
and reasoning; and intended users of the report

Clear from of any misrepresentations, omission of

02 Short, concise and simple sentences 08 importance facts and hearsay evidences

03 Readability and comprehensiveness 09 Numbered (indexed) paragraph for easy reference

Clear reference to the facts and assumptions set out within

04 10 Availability of a table of contents for easy reference
the report, which lead to the value conclusion

Use of appropriate words, summaries and illustrations Fair and reasonable opinion of value that is
05 (plans, photographs etc.) 11 supported by sound evidences

Thorough research that is convincingly and accurately Valuer/Appraiser’s CV which is evidence that the
06 presented and summarised
12 individual is capable of performing the appraisal

d) The contents of valuation report depend on the type of property

valued and the purpose of valuation. The minimum requirements to be
contained in a valuation report should contain the followings:

1. Instructions to value - The report should clearly state the instructions,

establish client’s needs and requirements, confirm services to be provided and
also must state in the report that it is confidential to the client for the specific
purpose to which it refers.

2. Purpose of valuation - The report must state clearly the purpose of the
valuation such as loan security, insurance, management purpose, etc. The
purpose of valuation is important because it will determine the basis of
valuation.

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Issues and Challenges in Plant, Machinery & Equipments in Malaysia

3. Date of valuation - The material date of valuation of the plant & machinery
equipment should be the date of the inspection. However, where this is not, the
date of valuation must be clearly stated.

4. Inspection - The report must contain the date on which the plant & machinery
equipment was inspected by the Valuer or his Designated Assistant. The valuer
must inspect and identify the plant & machinery equipment by reference to plant &
machinery inventory listing or fixed asset register, provided by the owner. If the list
is not provided, the valuer shall inspect and make new listing based on process
flow at the plant. The details of plant & machinery equipment will be abstract by
valuers from visual inspection and accurately described in inspection notes. (Please
refer to MVS Standard 15 – Valuation of PME, page 48-51)

5. Description of Plant Machinery & Equipment

a. Macro Description
The macro description of the plant machinery & equipment should cover such items as the business operation
and identify the roles and functions of plant and machinery as a whole. It includes the key components that
contribute to the design and capabilities of the plant along with its capability to of product output and
finished goods.

It should include:
vName and address of the company, details of the company’s
vThe production process (line of production), materials used,
maximum capacity, actual production and additional output
(if any).
vThe capacity of Plant and Machinery and the actual and
maximum production quantities, sources of raw materials,
quality and quantity of production and timeline of refinery
operations.
vThe level of maintenance and scheduling made.
vOptimum space utilization rate compared with the latest
plant technology.
vSuitability of plant and machinery on site
vPlant & Machinery maintenance cost during the three (3)
years leading up to the valuation
vWhether the plant is the most modern equipment or
outdated or obsolete (out dated).
vThe plant & machinery equip and in conformace with
current standards of electrical wiring.
vCompliance with the provisions of existing legislation such as
the Environmental, Occupational Health and Safety Act and
others.

b. Micro Description
Micro description is a detailed description of each piece of plant and machinery equipment
that is inspected. To meet these criteria, the specific features of the machine which must be
identified as follows:

01 02 03 04 05
Brands Model Type / Capacity Size
functions

06 07 08 09 10
Seriel The maker/ Year of Country of
number Accessories manufacturer origin
manufacturing

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Issues and Challenges in Plant, Machinery & Equipments in Malaysia

c. Work Flow Process

The detailed description of the process flow of plant and machinery which is being
valued. This must be clearly stated, explaining the process plant and machinery to
operation from beginning to end. Disclosures should cover every major part of the
plant. Example of work flow process:

6. Assumption
There may be instances where the Valuer would be instructed to carry out valuations
based on certain Assumptions, which have not been realized at the time of valuation.
Assumption in Plant and Machinery Valuation is slightly different with property
valuation (land and building). In Plant and Machinery Valuation, the purpose and basis
of valuation will determine the assumption will be use in valuation.
Examples of assumption stated in valuation report for Going Concern Value:

“The Valuation assumes continuation of the business and accordingly all assets are
valued as a whole and in situ and where appropriate, connected to the power supply
and any other necessary services. We have included in our valuation those building
which form an item that can regarded as Plant and Machinery. The valuation excludes
stocks and any value attributable to goodwill, technical drawing, patterns, patents,
software, work-in progress and all other items not specifically referred to in this report.”

“In arriving at our valuation, we have assumed that each item is in good working
condition and is free from defect.”

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Issues and Challenges in Plant, Machinery & Equipments in Malaysia

7. Basis of Valuation
Valuation of plant and machinery needed for various purposes. However, it can be
categorized into three (3) main basics of valuation, namely market value, and
insurable value (reinstatement/indemnity) and going concern value (financial value).

i. Market Value

There are 3 types basis of valuation on Market Value are as follows:

vMarket value without displacement (remain in-situ). Overall for use on existing sites.

vMarket value of the transferred. (Ex-situ). Overall it was transferred from the existing site.
The new site where all the costs involved in the transfer borne by the buyer.

vThe market value as a separate item to be moved (Ex-situ as individual items). As an

individual item to be transferred from the existing site. The new site where all the costs
involved in the transfer borne by the buyer.

ii. Insurable Value

If the valuation will be carried out for the purposes of insurance, then the valuation base is
based on the replacement (reinstatement) or compensation for damage/injury (indemnity).

The replacement cost refers to replacement of a plant and equipment based on the new prices
in the market. Compensation for damage/injury (indemnity) refers to the cost to replace a plant
and equipment based on the market value depreciated.

iii. Going Concern Value

Valuers carry out a valuation of plant and machinery owned by businesses that are operate for
the purpose of transfer of ownership, the basis of valuation adopted is the going concern.

8. Method of Valuation - The method of valuation used must be clearly

stated. The method explains by which a valuer arrives at valuation.
Common methods always use by valuer are comparison method, cost
method, investment method and profits method.
9. Information on Cost/Value - Valuers have to explain the source of
the data is obtained and used. For examples, sources of data such as
price provided by suppliers.
10. Opinion of Value - This is the final part of the report and a summary
valuation. Statements about the need must be clear and conspicuous.
Recommendation on value is an important factor to take into
consideration all that has been stated in the report.

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Issues and Challenges in Plant, Machinery & Equipments in Malaysia

11. Valuer’s Qualification - Name and signature of the Valuer – the

report should be signed by the Valuer and the registration number must
be stated.

11. Appendices
a. Plans
The report shall include location plans, site plans, process plan workflow, and other plans where
appropriate.

b. Photos
The report shall include relevant photo especially the photo of the plant and machinery.

c. Machinery Description
The report shall include details and description of all machinery to be valued.

THANK YOU

Malaysian Real Estate Institute (MyREI)