Industry Overview

7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT
PROTEGE ASSOCIATES SON BHD [675767-H[ SUITE C-06-06, PLAZA MONT’ KIARA 2 JALAN KIARA, MONT’ KIARA 50480 KUALA LUMPUR, MALAYSIA GEN +603 6201 9301 FAX +603 6201 7302 www.protege.com.my ——————————–R RAN 0 I FIN A NeE I MAR K E T
1• SEP 2016 The Board of Directors, Suite 10.03, Level 10 The Gardens South Tower Mid Valley City Lingkaran Syed Putra 59200 Kuala Lumpur Dear Sirs/Madams, Executive Summary of the Strategic Analysis of the Commercial Laundry Equipment and Medical Devices Industries in Malaysia
This Executive Summary of the ‘Strategic Analysis of the Commercial Laundry Equipment and Medical Devices Industries in Malaysia’ is prepared by Protege Associates Sdn. Bhd. (“Protege Associates”) for inclusion in the Prospectus of BCM Alliance Berhad (“BCM”) in relation to its proposed listing on the ACE Market of Bursa Malaysia Securities Berhad. 1.0 Malaysia Economic Overview The Malaysian economy registered a commendable growth in 2015 against a backdrop of challenging developments such as a slowing world trade, heightened volatility in the international financial markets and the collapse of energy price. Malaysia’s real gross domestic product (“GDP”) expanded by 5.0 percent in 2015, which was slower than the 6.0 percent growth registered in 2014 but faster than the 4.7 percent growth registered in 2013. The pace of economic growth had remained within the range of 4 percent to 6 percent. The growth in 2015 was mainly driven by the continued expansion in domestic demand. Despite the positive results revealed in most of Malaysia’s key economic indicators for 2015, the Malaysian Government is mindful of the potentially sustained weak energy and commodity prices that may be a major economic headwind for the local economy. In the near future, the growth in the Malaysian economy is expected to be anchored again by domestic demand. The Malaysian economy is expected to grow by between 4.0 percent to 4.5 percent in 2016. The expected moderation in private sector consumption and investment growth in an environment of prolonged uncertainties particularly in the international economic and financial landscape is likely to weigh on the Malaysian economy in 2016, leading to a slower pace of growth. The services sector is expected to remain the largest contributor to the economy by accounting for more than half of Malaysia’s real GDP in 2016. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)

 

2.0 Commercial Laundry Equipment Industry in Malaysia 2.1 Introduction and Definition Laundry is defined as items requiring cleaning or washing, drying and/or ironing, whether within a domestic or commercial context. The items to be laundered include articles of clothing, linens and textiles. Commercial laundry is similar to domestic laundry except that its scale of operations is larger and/or it involves charges being imposed on customers for such services. Commercial laundry services typically include washing, drying and/or ironing as well as dry cleaning. Commercial laundry services may also include special services for customers such as pick-up and delivery of items. The equipment involved in both domestic and commercial laundry processes can be grouped into six types, namely washers, dryers, ironers and finishing equipment, dry cleaning equipment, laundry equipment parts and others. Commercial laundry equipment refers to appliances or equipment in a professional laundry set-up. While equipment such as washers, dryers and ironers may be used in domestic and commercial laundry, other items such as finishing equipment and dry cleaning equipment are used mainly for commercial laundry purposes. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
hHi\ND I rINr\NCL j ~3{‘BKi;1 2.2 Market Segmentation Laundry equipment are used in both consumer and commercial laundry processes.

 

Figure 1: Laundry Equipment Industry Segmentation Laundry Equipment

Self-Service On-Premise Multi-Housing Other Laundries Launderettes Laundries Laundries

 

J W~lk4h ][ Customers —,I _ IL Participation by BCM Group Source: IMR Report 2.2.1 Consumer Laundry Equipment Consumer laundry equipment refers to the laundry equipment used at home. This type of laundry equipment is typically designed with more consideration towards the external appearance and the provision of different features. Generally, consumer laundry equipment has more features as compared to commercial laundry equipment in terms of wash types and wash cycles, as well as having a child-lock safety feature. Furthermore, the former is also less expensive and involves lesser procedures than the latter.
2.2.2 Commercial Laundry Equipment Commercial laundry equipment is built for large volume washing and heavy-duty usage at businesses and institutions. There is lesser focus on appearance but more emphasis on its construction to boost its durability for long term and more frequent usage. Commercial laundry equipment is typically set up in long rows and access is needed at the back of 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
machine for repair and maintenance works. The features for commercial laundry equipment are more limited than for consumer laundry equipment. However, commercial laundry equipment may include features that are not available in consumer laundry equipment. For instance, the automatic chemical injection system found in commercial laundry equipment allows for the measurement of detergent, fabric softener products and other washing chemicals. Commercial laundry equipment is generally used in four different customer segments namely self-service launderettes, on-premise laundries, multi-housing laundries and other laundries. 1) Self-Service Launderettes Self-service launderette as it is known in the United Kingdom and Malaysia, is also known as laundromat in the United States of America (“US”), Canada and New Zealand. Self-service launderettes are commercial establishments typically for walk­in, washing and drying. The commercial laundry equipment used in self-service launderettes includes top load washers, washer-extractors and tumble dryers. Generally, the commercial laundry equipment in self-service launderettes is operated using payment systems such as coin or card payment systems added into them. 2) On-Premise Laundries On-premise laundries are generally located at businesses that wash or process significantly larger loads of textiles and garments in relatively shorter time. These businesses include but are not limited to hotels, hospitals, nursing homes, correctional institutions, sport facilities, car washes, gyms and fire stations. Common commercial laundry eqUipment used for on-premise laundries includes washer­extractors, tumble dryers and flatwork finishers. 3) Multi-Housing Laundries This segment includes common laundry facilities in multi-dwelling units such as apartments and condominiums, universities and military installations. The commercial laundry equipment that are suitable for multi-housing laundries include small chassis top load and front load washers and small-chassis dryers that are vended, equipped with different type of payment system. This type of laundry eqUipment is similar in appearance with consumer laundry equipment but has enhanced durability and 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
HHJ\NI-‘! l-!nflN{/O I l\’il\lIKC,Y­performance features. An additional feature includes the audit function, to keep track of the number of cycles and amount of money that has been collected. 4) Other Laundries Examples of other laundries include traditional non-self-service laundry shops as well as outsourced laundry service providers. They typically keep accounts for regular customers and cultivate long-term relationships with customers in particular neighbourhoods. Traditional non-self-service laundry shops also offer dry cleaning services besides the common laundry services of washing and drying. IVieanwhile, outsourced laundry service providers offer large scale laundry services to businesses and institutions. They also have the capability to undertake laundry involving large or over-sized articles of textile and apparel. CS Laundry System Sdn Bhd (\\CS Laundry”), a wholly-owned subsidiary of BCM, is principally involved in the supply, installation, testing and commissioning of commercial laundry equipment, Protege Associates will focus on the commercial laundry equipment industry for the purpose of this report.

2.3 Value Chain Figure 2: An Example of Value Chain of Commercial Laundry Equipment Industry ———,
” ‘ Product  …  After-Sales  ,  Development  ‘”  Services  ‘” ‘”  ‘”  ‘”
“,,_.;…;. …;,. .. .,;;” -_ ~ …. _-J … –,> \ Participation by BCM …. -_/ Source: IMR Report Product Development This stage typically involves research and development work to create new products or innovate eXisting products. Technology transfer can help to shorten product development leading to shorter product time to market. There may also be close collaboration with customers and education institutions at this stage. 141
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
Suppliers Alignment and Sourcing Suppliers are identified during the sourcing process. Raw materials and machineries to support the production of commercial laundry equipment are obtained from the identified suppliers. Production The large-scale production of commercial laundry equipment is performed at this stage. Various other processes are also involved at this stage including testing and packaging. The finished products are then ready to be distributed and sold. Sales and Marketing Efforts are made at this stage to promote and push commercial laundry equipment to the end-users. There are various stakeholders that can be involved at this stage including import agents, distributors and the marketing arm of the manufacturers. After-Sales Services After-sales services generally include repair and maintenance of equipment as well as support and training for customers performed after a successful sales transaction. After-sales services may also include the handling of warranty claims. 2.4 Market Dynamics Scorecard for the Commercial Laundry Equipment Industry in Malaysia 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)

2016 Demand Conditions l-“llf\NP i J-IN …. l\\rE I Mi\lfKC·’ • Fundamental Societal Changes Driving Demand for Commercial Laundry Services
• The Commercial Appeal of Self-Service Launderettes Driving Investment in Vended Commercial Laundry Equipment
• Increasing Demand from the Hospitality Industry
• Increasing Demand from the Healthcare Sector
• Steady Population Growth
• Automation Innovation
• Replacement of Aging Commercial Laundry Equipment
• Changes in Fabric Materials and Textile

Source: IMR Report 2.5 Historical Performance and Growth Forecast The commercial laundry equipment industry in Malaysia expanded by 8.6 percent from RM185.1 million in 2014 to RM201.1 million in 2015. It is estimated to expand to RM216.5 million in 2016 in line with growing demand for commercial laundry equipment in the self­service launderettes segment. Figure 3 depicts the historical and forecast market size of the commercial laundry equipment industry in Malaysia from 2014 to 2020. Figure 3: Historical Market Size and Growth Forecast for the Commercial Laundry Equipment Industry in Malaysia, 2014-2020
Note: CAGR (2016-2020) (base year of2015): 4.3percent Source: IMR Report The local commercial laundry equipment industry is likely to experience moderating growth from 2016 to 2020 despite lower growth rate in self-service launderettes segment. The forecast CAGR for the commercial laundry equipment industry in Malaysia from 2016 to 2020 7
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
IJHf\ND I FINANe!;: I :,1/\ftt,[-Y is 4.3 percent. The growth is expected to be driven by growth in vended commercial laundry equipment market. The size of the industry is projected to reach RM271.3 million in 2020. CS Laundry has achieved encouraging growth in the sales of coin-operated commercial laundry equipment. Coin-operated commercial laundry equipment is a type of vended commercial laundry equipment which can be mostly found at self-service launderettes. The vended commercial laundry equipment market in Malaysia increased by 46.2 percent from RM65.0 million in 2014 to RM95.0 million in 2015. Figure 4 depicts the historical and forecast market size of the vended commercial laundry equipment market in Malaysia from 2014 to 2020. Figure 4: Historical Market Size and Growth Forecast for the Vended Commercial Laundry Equipment Market in Malaysia, 2014-2020
Note: CAGR (2016-2020) (base year of2015): 9.0percent Source: IMR Report It is estimated to expand by 11.7 percent to RM106.1 million in 2016. The growth is largely due to surge in the popularity of self-service launderettes in major cities across the country. The mushrooming of self-service launderettes has drawn the attention of investors who are receptive of their commercial appeal and wanted to ride on this latest trend. It is estimated that the number of self-service launderettes increased from less than 150 in 2013 to around 900 in 2015. It is estimated that 70 percent of the total self-service launderettes in 2015 are located in the Klang Valley. It is estimated about 200 self-service launderettes (operated by CS Laundry’s customers) in Klang Valley which uses Speed Queen’s commercial laundry equipment in 2015. The other major brands of commercial laundry equipment known to be used in self-service launderettes are Electrolux1 Primus and Huebsch. 8
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
nnANU I f-IN fI.N(I: I M t\ II t, ( \ During this period, two brands of self-service launderettes have made significant inroads into the local vended commercial laundry equipment market namely ‘LaundryBar’ and ‘Cleanpro Express’. However, the pace of growth in the market is expected to trend downward from 2016 to 2020 in line with moderating demand for coin-operated commercial laundry equipment. The forecast CAGR from 2016 to 2020 is 9.0 percent. The size of the market is projected to reach RI”1146.3 million in 2020.

 

2.6 Competitive Analysis 2.6.1 Competitive Landscape The commercial laundry equipment industry in Malaysia is mature and is estimated to consist of less than 50 participants who are mainly distributors, authorised representatives/ retailers or importers. Some of these industry players are originally involved in industries related to the laundry business such as supplying laundry chemical products. They may also be involved in distributing other types of equipment like kitchen equipment. Prior to the expansive growth of the self-service launderettes segment in Malaysia, local established industry players are mostly involved in the distribution of commercial laundry equipment to on-premise laundries, multi-housing laundries and other laundries customer segments. Although the industry as a whole is mature, the self-service launderettes segment is considered to be relatively new in Malaysia unlike in other developed countries such as the US, Australia and Japan. However, there has been an increasing number of industry players involved in the distribution of vended commercial laundry equipment for the self-service launderettes segment since 2012. This development has coincided with the emerging trend of self-service launderette owners operating at multiple locations via strategies like purchasing existing stores, opening brand new stores, as well as converting traditional laundry shops to self-service launderettes. It is estimated that less than 20 industry players are involved in the distribution of vended commercial laundry equipment for the self-service launderettes segment. Industry players that distribute vended commercial laundry equipment can further broaden their revenue stream by owning and operating self-service launderettes themselves. They can also expand this business by embarking on various different business models including franchising and non-franchising programmes such as licensing for interested entrepreneurs who want to own or invest in self-service launderettes. These industry players generally help to set up the self-service launderettes and provide the necessary supporting services such as 9 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
after-sales services. They also stand to benefit from the increasing visibility of the brands of commercial laundry equipment distributed by them. Self-service launderettes owned and operated by existing industry players can act as a concept store that drives brand promotional efforts. The vended commercial laundry equipment used at self-service launderettes in Malaysia is mostly coin-operated. Coin-operated commercial laundry equipment is prevalent and popular in Malaysia due to its low start-up cost as compared to card-operated commercial laundry equipment. The commercial laundry equipment industry in Malaysia has been dominated by foreign brands from Germany, United Kingdom (“UK”), US and Japan. Examples of the foreign brands are IPSO, Speed Queen, Huebsch, Maytag, ADC, Renzacci, Girbau and Powerline. These brands are well received in Malaysia due to their high-quality equipment which brings about better washing performance. However, in recent years, commercial laundry equipment brands from China and South Korea such as Sea-lion and LG have been making inroads into the local market due to competitive pricing. In terms of Malaysian brands, these local brands are mostly manufactured by original equipment manufacturers (“OEM”) located outside of Malaysia. On another note, the distributorship for each brand of commercial laundry equipment mayor may not be on an exclusive basis. 2.6.2 Barriers to Entry The commercial laundry equipment industry in Malaysia has relatively high barriers to entry. Factors that need to be considered by potential market entrants are as follows: 1) Capital Requirement -Potential entrants need to be mindful of the capital requirement to participate in the commercial laundry equipment industry. For potential manufacturers, sizeable capital needs to be invested to build a manufacturing facility including the necessary machinery and equipment as well as manpower. They may opt to outsource the production works but this also incur significant capital outlay due to the need to place a sizeable orders to meet the minimum order requirement imposed by their chosen outsourced partners. As for potential distributors, there are less demanding capital needs as they do not have to invest in a manufacturing facility or hire production workers. The extent of their capital needs is mostly dependent on their intended scale of operations. They may need to invest in a warehouse and be reqUired to purchase a large amount of stocks. 10
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
2) Established Industry Players -Potential entrants are somewhat at a disadvantaged position as established industry players typically have established long-term relationships with their respective customers. Building a viable and strong business relationship requires a significant amount of time to establish and once the business relationship is sufficiently strong, potential new entrants may find it harder to break up such an existing relationship. As customers usually prefer those that are reliable and have a long operating track record, this is one of the common barriers to entry for potential entrants. 3) Technical Knowledge -Potential entrants need to possess sufficient technological knowledge and technical know-how in order to be able to compete effectively in the long run. Potential manufacturers need to undertake research and development activities to innovate and/or create new products that can appeal to consumers and to avoid their products from being rendered obsolete. Besides that, potential distributors should be able to provide all the required installation, maintenance, repair and other related supporting services to customers. 4) Exclusivity in Distribution Rights -Another barrier to entry to the industry for potential distributors is the presence of exclusivity in the distribution of certain brands of commercial laundry equipment. Existing distributors may have already gotten the exclusive rights to distribute a certain brand(s) of commercial laundry equipment. As a result, potential distributors have a smaller pool of potential brands of commercial laundry equipment that they can choose from. 2.6.3 Comparison between CS Laundry and Selected Industry Players BCM is an investment holding company, while its subsidiaries are principally involved in the distribution of equipment specialising in the commercial laundry equipment and medical devices industries. CS Laundry, a wholly-owned subsidiary of BC/VJ is principally involved in the supply, installation, testing and commissioning of commercial laundry equipment. Among the brands of commercial laundry equipment that CS Laundry carries include Speed Queen, Huebsch, Lapauw, Maxi, Forenta, Renzacci, Jensen, Senking, Domus and Sea-Lion.
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)

 

/’ /’t_ l”‘o-ege
A55()( IAT rs flU.i\Nr! I “lNJ\Ntl,! Mi\HKt.–; CS Laundry is one of the key participants in the commercial laundry equipment industry in Malaysia. For the purpose of this report, Protege Associates has used the following criteria when selecting industry players for comparison with CS Laundry: • Registered revenue of RM5.0 million and above; and
• Involved in the distribution of commercial laundry equipment in Malaysia.

After taking into consideration the above criteria, Protege Associates has selected three industry players namely Cleanpro Laundry Holdings Sdn Bhd (“Cleanpro Laundry”), Electrolux Commercial Products Sdn Bhd (“Electrolux Commercial”) and Bubblelab Laundry Sdn Bhd (“Bubblelab”). The details of the selected industry players are as follows: • Cleanpro Laundry
Cleanpro Laundry was established as a private limited company under the Companies Act, 1965 on 17 June 2008. Cleanpro Laundry is the supplier of laundry machinery, equipment, detergent, chemical and related accessories.
• Electrolux Commercial
Electrolux Commercial was established as a private limited company under the Companies Act, 1965 on 22 November 1985. Its nature of business is trading in industrial and commercial laundry equipment.
• Bubblelab

Bubblelab was established as a private limited company under the Companies Act, 1965 on 12 April 2013. It is principally involved as launderers for laundering, dry­cleaning and pressing. Bubblelab is distributing commercial laundry equipment of the brand name, Primus. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
Figure 5: Comparison between CS Laundry and Selected Industry Players in the Commercial Laundry Equipment Industry in Malaysia I (r~at r’ clea~liro ‘ Electrolu.x ,” B bblelab CS Laund n I 0 “”‘” Laundry ,Commercial u ry , ” .–/C ~ /< ,,””‘ .-­Information from 31/12/2014 31/12/2015 the Financial Year Ended 31/12/2014 31/12/2013
Notes: 1) The list ofselected industry players above is not exhaustive. 2) The above figures provide an indication of industry players’ performance and the data is not directly comparable due to the following reasons: (a) Not all industry players have the same financial year end;
(b) Not all companies carry out activities that are completely similar to each other or in the same geographical area.

Sources: Companies Commission ofMalaysia and Protege Associates 2.7 Market Share Analysis For the financial year ended 31 December 2015, CS Laundry generated revenue of RM39.4 million, equivalent to a 19.6 percent share of the commercial laundry equipment industry in Malaysia in 2015. This is based on CS Laundry’s revenue of RM39.4 million against total 13
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT

(Cont’d)
market size (revenue) of the commercial laundry equipment industry in Malaysia of RM201.1 million in 2015. Figure 6: CS Laundry’s Estimated Market Share of Commercial Laundry Equipment Industry in Malaysia, 2015 res Laundry, 19.6% Source: IMR Report CS Laundry generated revenue of RM38.1 million from the sales of vended commercial laundry equipment, equivalent to a 40.1 percent share of the vended commercial laundry equipment market in 2015. This is based on CS Laundry’s revenue of RM38.1 million generated from the sales of vended commercial laundry equipment against total market size (revenue) of the vended commercial laundry equipment market in Malaysia of RM95.0 million in 2015. Figure 7: CS Laundry’s Estimated Market Share of Vended Commercial Laundry Equipment Market in Malaysia, 2015
Source: IMR Report

7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
1l[~l”N() I (-INnwcf l MftHI(f’-1 2.8 Demand and Supply Conditions Figure 8: Demand and Supply Conditions Affecting the Commercial Laundry Equipment Industry in Malaysia, 2016 The Push for Greener Commercial Laundry Equipment Source: IMR Report 2.8.1 Demand Conditions Fundamental Societal Changes Driving Demand for Commercial Laundry Services Urbanisation is a societal change that has led to increase usage of commercial laundry equipment. Rural communities are increasingly moving into cities to live and work. The high cost of living in cities has resulted in many urbanites seeking ways to minimise their expenditures as much as possible including spending on discretionary items such as home electrical products which include washing machines and dryers. In addition, urbanites lead an increasingly busy and time-poor lifestyle. These developments have prOVided the impetus for growth in the demand for commercial laundry services. This has indirectly led to a rising demand for commercial laundry equipment. These developments have also led to the increasing popularity of self-service launderettes in major cities across Malaysia. Self-service launderettes offer a convenient and low entry cost for their customers’ laundry needs. In addition, the vended commercial laundry equipment can handle higher load of laundry and offer a relatively faster laundry cleaning. The Commercial Appeal of Self-Service Launderettes Driving Investment in Vended Commercial Laundry Equipment Investors seem to be increasingly optimistic about the commercial viability of the self-service launderette businesses. Their stands are understandable given that a self-service launderette business can offer various favourable investment propositions. A self-service launderette can 15 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)

 

 

ro egeASS()CIAT[ S l-l H f\ N l.’ i 1-In”N (I: I M 1\ II P. t: \’ be fully operational on a 24/7 basis without requiring a lot of management time. The presence of controls that facilitate easy remote monitoring can result in less frequent visits to the self-service launderettes. This proposition is particularly appealing to investors looking to undertake a business venture on a part-time basis. It helps that manpower cost incurred is low as customers are performing their own laundry while attendant may not necessarily be required. Investors can also look forward to a stable cash flow as it is an all cash business and as such, they need not worry about having any receivables and non-payments. Furthermore, the demand for laundry cleaning services is not conSidered to be cyclical and likely to be consistent throughout the year. All these can translate into a business with the prospect of a high return on investment. Increasing Demand from the Hospitality Industry The hospitality industry covers lodging and accommodation, food services as well as other tourism related businesses such as travel services and recreational amenities. While the large amount of linens to be laundered are mainly from providers or owners of lodging and accommodation services, food services like restaurants and cafes, recreational amenities such as spa centres and gyms also require the use of commercial laundry equipment. Industry players in the local commercial laundry equipment industry in Malaysia stand to derive revenue from the sales of new commercial laundry equipment to existing and new prOViders or owners of hospitality premises as well as from the supporting services such as maintenance and repair works rendered to existing hospitality premises. The hospitality industry is closely linked to the tourism industry in Malaysia, as the arrivals of both international and domestic travellers can lead to the increase in demand for hospitality services which in turn, spur further demand for the use of commercial laundry equipment. The tourism industry is the sixth-largest Gross National Income (“GNI”) contributing sector of the local economy, and is expected to generate annual tourist arrivals of 36 million by 2020. The local commercial laundry equipment industry is poised to ride on the growth of the tourism industry in Malaysia. Increasing Demand from the Healthcare Sector Commercial laundry eqUipment for the healthcare sedor is important for hygiene purpose and to mitigate the risk of spreading infections. As with the hospitality industry, industry players in the local commercial laundry eqUipment industry in Malaysia stand to derive revenue from the sales of new commercial laundry equipment to existing and new healthcare facilities as well as from the supporting services such as maintenance and repair works rendered to existing healthcare facilities. The demand for commercial laundry equipment is 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) PreJtege
ASS0 C: IA1 r 5 expected to increase in tandem with the projected increase in the number of institutionalised healthcare facilities. The increasing number in institutionalised healthcare facilities can be translated to the increasing number of beds and the hospital linens to be laundered. This is expected to provide further impetus for commercial laundry management and services, as well as commercial laundry equipment. Steady Population Growth The steady population growth is expected to spur the continued demand for commercial laundry equipment moving forward as laundry services are needed for everyone. Although households in Malaysia may have their own washing machines with some even owning dryers as well, there are still households that do not own washing machines or dryers due to the cost and proper space needed. In this regard, those without their own washing machines need to seek laundry cleaning services from business establishments that house commercial laundry equipment to meet and efficiently manage their laundry needs. The steady growth of the Malaysian population is likely to lead to further demand for commercial laundry services such as washing, drying and/or ironing as well as dry cleaning that require the support of commercial laundry equipment. Automation Innovation There are some automation innovations that have increased the demand for and reliance on commercial laundry equipment, while reducing reliance on manual labour in the provision of laundry cleaning services. For example, the introduction of tunnel or continuous batch washers has led to the increase in productivity as well as reduction in the usage of water and energy by two-thirds as compared with old-style batch washers. Besides that, the introduction of the automatic injection system of liquid laundry detergents and chemicals has also proved to be a good innovation as it provides consistency and reliability as compared to the use of powdered detergent and the hand-fed method. l”1odern commercial laundry equipment may also be equipped with networking capabilities. This can facilitate the programming, monitoring and diagnostic analysis on the commercial laundry equipment from any Internet-connected device(s). These innovations in the automation of commercial laundry equipment are expected to spur more demand for commercial laundry equipment. Replacement of Aging Commercial Laundry Equipment Demand for commercial laundry equipment is also driven by the need to replace aged equipment. Over time, commercial laundry equipment needs to be replaced due to normal wear and tear. The high repair cost for the parts required may drive the demand for new 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
Il l[ J\ N.’ I t-1 NAN (I:: I foIl;\ II ~; (, -,­commercial laundry equipment. In addition, the traditional non-self-service laundry shops may want to convert their existing premises to self-service launderettes to ride on the growing receptiveness of this concept by consumers. Besides that, newer commercial laundry equipment is likely designed to be greener or more energy efficient, thus enabling more loads to be washed while saving more on utility bills. The improved performance of new equipment is also a factor that may be considered in replacing aging commercial laundry equipment with newer ones. This augurs well for the industry as it can provide recurring sales of commercial laundry equipment. Changes in Fabric Materials and Textile Technology In terms of fabrics and textiles, the ‘Synthetic Revolution’ emerged in the 1970s, where polyester-blended fabrics were introduced to the market. Polyester started being used to replace cotton in the production of many textiles. This drove a major change in the laundry process. The changes in the types of fabrics or textiles used reqUired adequate changes the supply of different types of laundry equipment and the programmes available in these laundry eqUipment. In addition, it also reduced dependency on ironing eqUipment. Another revolutionary technology that has impacted the commercial laundry eqUipment industry is the introduction of nanotechnology enhanced textiles which has reduced the reliance on the laundry eqUipment. Besides being lightweight, easy to clean, water and stain repellent, nanotechnology enhanced textiles are capable of filtering out viruses, bacteria and hazardous particles -making them suitable to be used as antibacterial sheets in hospitals. These textiles can also be used for doilies, seat cushions, or wall hangings in airplanes as they are able to absorb particles, gases or other airborne biohazards. Although nanotechnology enhanced textiles are not widely adopted at present due to reasons such as cost factors and complex manufacturing processes amongst others, it may continue to reduce the reliance on commercial laundry eqUipment in the future, especially for the cleaning of hospital linen. 2.8.2 Supply Conditions The Push for Greener Commercial Laundry Equipment Industry players seem to be more mindful of the need to supply greener commercial laundry equipment as part of the latest green efforts to reduce energy consumption, water use and waste materials, as well as limit toxins and chemicals that go through the clothing and water system. Other than enabling users to save costs through reduced energy consumption, greener commercial laundry eqUipment will also appeal to modern consumers who are more 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
inclined to adopt environmentally friendly practices, while also patronising businesses that boast eco-friendly products and services. There will likely be an increase in the supply of greener commercial laundry equipment as the industry players in Malaysia introduce the greener commercial laundry equipment into the local market. 2.9 Substitute Products or Services Instead of opting for commercial laundry services that require the use of commercial laundry equipment, consumers can choose to perform laundry cleaning themselves either by buying the required consumer laundry equipment for internal use or washing manually by hand if possible. Among the factors that are normally taken into consideration by consumers are ease of convenience, the price of consumer laundry equipment, price of laundry cleaning services, load capacity reqUired, duration of cleaning process, type of material involved and the need for special cleaning services such as dry cleaning. There are also instances where laundry cleaning is not reqUired due to the use of disposables. Commercial laundry equipment can offer a more comprehensive range of services and suitable for large scale and frequent laundry cleaning.
2.10 Reliance On and Vulnerability to Imports The commercial laundry equipment industry in Malaysia depends on imports. Malaysia’s imports of commercial laundry equipment stood at around RI”1215.1 million in 2015. Figure 9 depicts Malaysia’s total imports of commercial laundry equipment from selected countries in 2015. Figure 9: Malaysia’s Total Imports of Commercial Laundry Equipment from Selected Countries, 2015
Source: Department ofStatistics, Malaysia The distributors for commercial laundry equipment, who are dependent on the imports of equipment, are affected by the fluctuation in the foreign exchange rates. Generally, when the currencies in the exporters’ country are high, imported products become more expensive and the additional cost may be imposed on the purchasers. In addition, the local commercial 19 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
laundry equipment industry is also subject to external factors for the availability of the required commercial laundry equipment and spare parts. However, the commercial laundry equipment can be sourced from various countries depending on availability and prices involved. 2.11 Relevant Laws and Regulations Governing the Industrv and Peculiarities of the Industry 2.11.1 Ouality Standards Compliance to national and international standards is gaining prominence among commercial laundry equipment industry players in Malaysia against the backdrop of a globalisation trend. Besides meeting the requisite requirements set by various governments, if any, any voluntary compliance can also go a long way towards boosting the confidence of potential end-user markets. It reinforces an industry player’s commitment in providing acceptable quality products to the end-users. Some of the standards that industry players in the commercial laundry equipment industry in Malaysia should focus on achieving include: 1) ISO ICS 97.060 ISO ICS 97 is a family of standards related to safety requirement and specifications for domestic and commercial equipment, including those for entertainment and sports. Specifically, ISO ICS 97.060 is the standards for laundry appliances, including washing machines, dry cleaners, driers, ironing and pressing appliances, etc. 2) ISO 9000 ISO 9000 is a family of standards that is maintained by the International Organisation for Standardisation and catered for quality management systems. 3) ISO 14000 ISO 14000 is the standard for environment management system. Compliance with this standard helps a company to fulfil its social responsibility in safeguarding the environment. 4) OHSAS 18000 OHSAS 18000 is a standard related to occupational health and safety management system and comprises of two parts namely 18001 and 18002. 20 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
H 11AND I T-IN r; N <:” I “, (~ !l KL ‘{ 5) Eco-IVlanagement and Audit Scheme (“EMAS”) EMAS is an environmental standard that was developed by the European Commission in 1995 to help participating organisations to identify and manage their impact on the environment. Additionally, ENERGY STAR™ is a voluntary programme established by the US Environmental Protection Agency (“EPA”) in 1992. It helps businesses and individuals to save money and protect the climate through superior energy efficiency. Products, homes and commercial facilities can be certified under the programme. Third-party certification requirements and testing are required under the programme in order to maintain consumer trust and improve product oversight. To earn the EI\IERGY STAR™ label for products, the products must be based on testing in EPA-recognised laboratories. A percentage of the ENERGY STAR™ labelled products are subject to “off-the-shelf” verification testing by these laboratories each year. This is to ensure that changes or variation in the manufacturing process comply with ENERGY STAR™ requirements. 2.11.2 Government Regulations and Policies Customs In Malaysia, the Royal Malaysian Customs Department (“RIVlCD”) is the government agency that is responsible for administrating the nation’s indirect tax policy. Exporters, importers or custom agents are allowed to clear goods through the Customs offices at exit or entry points in Malaysia under the Customs Act, 1967. Health and Safety Regulations All legislations related to occupational safety and health in IVlalaysia are administrated and enforced by the Department of Occupational Safety and Health (“DOSH”) under the Ministry of Human Resources, Malaysia. The major legislations governing the enforcement activities on occupational safety and health are the Occupational Safety and Health Act (“OSHA”) 1994 and the Factories and Machinery Act (“FMA”) 1967. Laundry equipment industry players in Malaysia need to comply with occupational safety and health regulations particularly the OSHA 1994. Franchise Act 1998 The Franchise Act 1998 was gazetted on 31 December 1998 and its main objective is to govern and regulate the franchise industry in Malaysia. The Act includes the standardisation of operations and regulations of the franchise industry, and offer protection within the
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) t ‘” ‘”
r(J -egeAS~’;C<Cli\TI:5 II n f’. NlJ I r-t r-J ., N (I, t :.~” II …(. \ Malaysian franchise fraternity. The commercial laundry equipment distributors who are involved in the franchise of self-service launderettes are governed by this Act. The Franchise Act 1998 applies to the sale and operation of any franchise in Malaysia. The sale of a franchise in Malaysia is deemed to be where an offer to sell or buy a franchise, is made in Malaysia and accepted within or outside Malaysia; or; is made outside Malaysia and accepted within or outside Malaysia; and the franchised business is operated or will be operating in Malaysia. 2.12 Prospects and outlook of the Commercial Laundry Equipment Industry in Malaysia The size (revenue) of the commercial laundry equipment industry in expanded by 8.6 percent from RM185.1 million in 2014 to RM201.1 million in 2015. It is estimated to expand to RM216.5 million in 2016 in line with demand for commercial laundry equipment in the self­service launderettes segment. The local commercial laundry equipment industry is likely to experience moderating growth from 2016 to 2020 despite lower growth rate in self-service launderettes segment. Figure 10: The Forecast Market Size (Revenue) of the Commercial Laundry Equipment Industry in Malaysia, 2016-2020 260.0 § == 250.0’E ~ 240.0 ~ 230.0 ­c g::J. 220.0 . Q/ ~ 210.0 ­~ 200.0 ­IV 2 2019 2020
Source: IMR Report The positive outlook on the demand for commercial laundry equipment in Malaysia is mainly attributed to the fundamental societal changes that drive demand for commercial laundry services. The commercial appeal of self-service launderettes also drives investment in vended 22 2016 2017 2018 Year 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’dj
commercial laundry equipment. In addition, the increasing demand from the hospitality industry and healthcare sector also contributes to the growth of this industry. Besides that, the steady population growth, automation innovation and replacement of aging commercial laundry equipment are also expected to drive the future growth of the commercial laundry equipment industry. However, the changes in fabric materials and textile technology may dampen the growth of commercial laundry equipment industry. On the supply side, the push for greener commercial laundry equipment is also expected to have a positive impact on the commercial laundry equipment industry as it will appeal to modern consumers who are more inclined to adopt environmentally friendly practices, while also patronising businesses that boast eco-friendly products and services. The size (revenue) of the commercial laundry equipment industry in lV1alaysia is expected to reach RIV1271.3 million in 2020. The forecast CAGR for the commercial laundry equipment industry in Malaysia from 2016 to 2020 is 4.3 percent. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) ” ./,/’
r(‘) ege!\SSOCI:\TF’::~ l>HAN’J I IINAN(E’ I N;I\’II¥.(‘·, 3.0 Medical Devices Industry in Malaysia 3.1 Definition and Description of Medical Devices Briefly, medical devices include all the medical technologies, supplies and equipment except for drugs that are used in the diagnosis, prevention, monitoring or treatment of illnesses or diseases. Figure 11 depicts the types of medical devices. Figure 11: Types of Medical Devices Medical Devices ” -,. Y~'”, ,., ­
Surgical, Implants
Othersand Clinical Devices Note:­Denotes the type of medical devices that BCM Group distribute.
Source: IMR Report 1) Consumables Consumables are usually disposable, non-durable and cannot be repeatedly used by more than one individual (sometimes consumables are also called single use devices (“SUD”)). Consumables consist of wound care products such as bandages, dressings and cotton swabs, gloves and protective products such as medical gloves and condoms, fluids and irrigation products such as needles and syringes, incontinence products such as catheters and bowel care products, as well as miscellaneous products such as sanitisers, oral care and eye care products. Other consumables that may be included are imaging films used in diagnostic imaging equipment, instrument cleaning chemistries and disinfectants used for cleaning, decontamination and sterilisation of surgical instruments as well as consumables for sterile assurance products for sterilisation monitoring purpose. Additionally, in-vitro diagnostics (“IVD”) are also classified as consumables. IVD is a method of performing a diagnostic test outside of a living body such as checking blood for signs of infection or urine for the presence of glucose. An example of an IVD is the pregnancy test kit. 24 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
MHJ\;lJl} I 1-1N1\Ntl: I MI,l/I·:(‘ 2) Surgical, Implants and Clinical Devices Surgical instruments are used to perform the removal or modification of tissue during surgery. Examples of surgical instruments are scissors, forceps, retractors, scalpels, clamps and mechanical cutters. Implants and clinical devices are usually electronic, portable and easily replaceable in its form, for diagnosis, monitoring, treatment, replacement or enhancement of body parts. Examples of medical implants are artificial pacemakers, cochlear implants, breast implants and orthopaedic implants. Meanwhile, clinical devices may include home­monitoring devices such as blood pressure machines and thermometers, therapeutic appliances such as haemodialysis machines, therapeutic ultrasound machines and neuromuscular stimulation machines. 3) Healthcare eqUipment Healthcare equipment consists of machines that require calibration, maintenance, repair, user training and decommissioning. They are usually large in form and require fittings to form a system of usage. Examples of healthcare eqUipment are diagnostic imaging equipment, sterilisation and disinfection eqUipment, surgical lighting and pendant system, life support equipment, radiation eqUipment and monitoring system equipment. 4) Other related medical devices are hospital furniture and accessories such as beds, stretchers and cubical curtains, hospital support system such as medical gas, anaesthesia sets and examination tables and medical device electrodes 3.1.1 Diagnostic Imaging Eguipment Diagnostic imaging eqUipment belongs in the healthcare equipment group of medical devices. Diagnostic imaging, also commonly known as medical imaging, refers to the production of visual presentations of body parts, tissues or organs for use in clinical diagnosis. Diagnostic imaging is important in confirming, correctly assessing and documenting the course of the disease/ illness, as well as in accessing the response to treatment. The type of diagnostic imaging technology used depends on the patient’s symptoms and the part of body being examined. Some examples of diagnostic imaging include X-ray, computed tomography (“CT”), magnetic resonance imaging, ultrasonography and nuclear medicine. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) ./ ./ _ rot..-ege,\5;·,OC)!~TrS . 11 If A N I.’I {-1N ” n (I; IM f\ II I~ 1-‘j 3.1.2 Disinfection and Sterilisation Equipment Sterilisation and disinfection equipment are also included in the healthcare equipment group of medical devices. Sterilisation and disinfection are processes that are imperative components of infection control procedures, as they ensure that medical and surgical instruments do not transmit infectious pathogens to patients. Sterilisation is a process that eliminates all forms of microorganisms (i.e. bacteria, viruses, fungi and protozoa). The types of sterilisation methods used include steam sterilisation, filtration, ionising radiation and gas sterilisation. Disinfection, on the other hand, is a process that eliminates many microorganisms except for bacterial spores. The purpose of disinfection is to prevent transmission of certain microorganisms with objects, hands or skin and to prevent spreading of infection. The types of disinfection method used are, thermal or chemical disinfection and wet pasteurisation. When it comes to sterilisation and disinfection, the Centralised Sterile Supply Department (“CSSD”) is the service unit within a hospital that processes, issues and controls the sterile supplies to all departments of the hospital. The main objective of the CSSD is to distribute sterilised supplies from a central department where sterilisation is conducted, thereby contributing to a reduction in the incidence of hospital infection. The CSSD is designed for a unidirectional flow and should have three zones for a smooth workflow namely, the soiled zone where unsterile supplies are collected and cleaned, a clean zone where the cleaned supplies are dried, assembled and packaged and a sterile zone where sterilisation is conducted and stored for delivery to various departments in the hospital. 3.2 Market Segmentation The medical devices industry is considered as one of the 18 sub-sectors within the manufacturing sector. In a medical devices industry, the supply chain of medical devices moves from manufacturing to distribution to the end-users. The stakeholders who are involved in this supply chain include the manufacturer, the authorised representative, the import agent, the distributor and the end-users.
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
ff UA N tJ I ,. IN ~ l’J C~: I tv; I~ II Yo [, -. Figure 12: Stakeholders in the Malaysian Medical Devices Industry Locally-made medical devices Imported medical devices ~~ -‘” <” ~ , Eoreign Manufaeturers
,, ” ~, ,?’ l0~(\;,?’~::
, local “, ,fitanufaffturers (O’ ~;>;'” \ ~;I;’ t, ;
11 :, ” E~a~~~i’;’:”” y’ “””
, (i.e. flosgitals,’meclical centres and ” ,” “,laB~ra~orie$~’~ ,”,t, ,:,’ ~~ ‘” 3~”;; ‘”‘” ,,~x~~ ~ ~<
I,—–…. II : Participation by SCM Group ______J Source: IMR Report Local Manufacturersl Foreign Manufacturers Manufacturers are companies involved in the design, production, fabrication, assembly, processing, packaging and labelling of medical devices, and assigning to the finished medical devices under their own brand name, their intended purpose and ensuring the finished products meets the regulatory requirements. For locally made medical devices, the local manufacturers are required to register its product with the Medical Device Authority under the Ministry of Health of Malaysia (“MoH”). For foreign manufacturers that intended to market their medical devices in Malaysia, they typically appoint a local company or set up their respective marketing arm as their authorised representative, to register their medical devices with the Medical Device Authority before it can be imported, exported or placed in Malaysia. 27 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) ro egeASS() (: IATE S . Import Agents Import agents are appointed by authorised representatives to import medical devices from foreign countries into Malaysia. An importer can only import registered medical devices authorised and on behalf of the authorised representatives. Authorised Representatives Authorised representatives are appointed by foreign manufacturers to register the imported medical devices with the Medical Device Authority. An authorised representative can distribute the imported medical devices itself or to appoint other distributors to distribute the imported medical devices to the end-users. Distributors Distributors are appointed by authorised representatives (for a medical device manufactured in foreign country) or by local manufacturers (for locally made medical device) to distribute medical devices to the end-user. A distributor shall only distribute registered medical devices authorised and on behalf of the authorised representative or the local manufacturer. Authorised representatives and distributors are usually involved in two phases, namely, advertising and sale. In the case where medical devices require specialised training for proper use, after-sale services are provided for supporting and training the customer (i.e. end­users). End-users Demand for medical devices mainly comes from end-users such as hospitals and clinics, medical centres and laboratories whom are participants of the healthcare sector and life sciences industry. The type of medical devices required by the end-users varies across purpose(s) intended. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
~; II fI N l.’ i \’. l NAN C! I r,’ (\ II V.[-). 3.3 Strategic Analysis of the Medical Devices Industry in Malaysia 3.3.1 Market Dynamics Scorecard Figure 13: Market Dynamics Scorecard for the Medical Devices Industry in Malaysia
2016 Supply Conditions • Strong Government Support
• Presence of Established Supporting Industries
• Increasing Competition in the Global IVJedical Devices Market

Source: IMR Report [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
I ,-1 1′.1 1\ N(I, I NlI, II ~: (­3.3.2 Historical Market Performance and Growth Forecast The medical devices industry in Malaysia is valued at an estimated market size (revenue) of RM10.24 billion in 2015, representing a 10.1 percent growth from 2014. Figure 14: Historical Market Size and Growth Forecast for the Medical Devices Industry in Malaysia, 2014-2020
Notes: CAGR (2016-2020) (base year of2015): 11.2 percent Source: IMR Report The medical devices industry is expected to remain buoyant throughout the forecast period of 2016 to 2020. The sustainable demand for the medical devices industry in Malaysia is expected to come from the increasing need for healthcare services from its growing and ageing population, the growing prevalence of chronic lifestyle diseases, increasing healthcare expenditure on healthcare products and services, a growing healthcare travel industry and increasing number of healthcare providers. On the supply side, a strong government support and presence of established supporting industries are expected to boost the revenue of the medical devices industry in Malaysia. In view of a gradual shift from manufacturing of rubber-based and metal-based consumables to higher value added medical devices such as the orthopaedic products and diagnostic imaging equipment, producing more locally-made medical devices, and thereby, support and accelerate the growth of the medical devices industry. The availability of more medical devices in the market is expected to further support the growth of distribution segment as authorised representatives and distributor remained vital in their role as an integral link between the manufacturers and end-users. The forecast CAGR for the medical devices industry in Malaysia from 2016 to 2020 is 11.2 percent. The medical devices industry is estimated to reach RM17.41 billion in 2020. 30 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
I~HII:vn I “\I’Jl\r-.lCi’ I Mi\llv.r,Y 3.4 Competitive Analysis 3.4.1 Competitive Landscape The medical devices industry in Malaysia is huge and provides market opportunities to a large and wide range of participants. It is a mature and competitive market and is estimated to have over 2,000 industry players. Industry players consist of MNCs and local companies, which include manufacturers, authorised representatives or retailers, import agents and distributors. These market participants are regulated by the Medical Device Authority under the Ministry of Health. MNCs The MNCs in the Malaysian medical devices market comprise mainly of authorised representatives or retailers that import and distribute medical devices, mostly patented or branded name products. They are generally subsidiaries of large, global research-based companies that focus on developing new or improved medical devices and products. A minority of these MNCs have manufacturing arrangements or production operations in Malaysia. Examples of these MNCs which have manufacturing and sales and marketing presences in Malaysia are B. Braun Industries Sdn Bhd and B. Braun Medical Supplies Sdn Bhd, subsidiaries of B. Braun Melsungen AG, Germany and St. Jude Medical Operation Sdn Bhd and St. Jude Medical (M) Sdn Bhd, subsidiaries of St. Jude Medical Inc. United States of America. Local Companies Local companies in the medical devices industry in Malaysia comprise of manufacturers, import agents and distributor of medical devices. Local manufacturers include companies involved in the design, manufacturing and assembly of medical devices. The local manufacturers of medical devices in Malaysia focus primarily on the production of consumables such catheters, medical gloves, needles and syringes. The majority of local manufacturers focus on the production of consumables due to the availability of raw materials such as rubber and steel in the country. These manufacturers may either have their own house brands or may be performing contract manufacturing for other brands. Examples of local manufacturers are APS Medical Sdn Bhd that manufactures disposable medical products, Straits Orthopaedics (Mfg) Sdn Bhd that manufactures orthopaedic devices and Vigilenz Medical Devices Sdn Bhd that manufactures wound care products. 31 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) -II!rote/g/t-11 .-. ~~……..
A5:-:’O(:1}\TE$ . Import agents and distributors refer to companies involved in the importing and/or distribution of medical devices to the local public and private hospitals and medical centres, and some of these brands may be imported from foreign countries. These import agents and distributors derive their competitive edges for sales based on their service quality as well as their relationships with hospitals and medical centres. The industry players of Malaysian medical devices industry may also compete on various factors such as: • Branding;
• Design and technological capabilities and/or collaborations;
• Distribution channels or points of sales;
• Pricing;
• Product quality and reliability;
• Range of products and/or brands; and
• Targeted end-user markets namely, participants of the healthcare industry and life sciences industry.

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HHJ,>ND I ,·lNJ\Nrlo I Mf\lf!{(,Y 3.4.2 Barriers to Entry The medical device industry in Malaysia has relatively high barriers to entry. Factors that need to be considered by potential market entrants are as follows: 1) High Capital Investment -A huge capital outlay is required to enter the medical devices industry largely due to the need to invest in manufacturing facility, high-end production equipment and machinery, technology licensing, marketing and branding activities, storage facility and manpower. Given the need to drive long term productivity, medical device manufacturers need to incur high research and development expenditure for product innovation. As for potential distributors, there are less demanding capital outlays as they do not have to invest in a manufacturing and/or research and development facilities. The extent of their capital needs is mostly dependent on their intended scale of operations. They may need to invest in a warehouse and be required to purchase a large amount of stocks as well as manpower. An upfront capital is required while the returns will only materialise at a later date depending on the take-up/ sales rate and timely delivery of its products. Therefore, the industry players need to have a strong financial standing in order to have access to financing facilities given by banks and financial institutions. Therefore, potential new entrants need to have a long investment horizon as this initial layout is not likely to be recovered in the short term. This forms a strong deterrent for new industry players hoping to enter the industry, especially those without existing deep financial pockets. 2) Established Industry Players -New entrants in all segments of the Malaysian medical devices industry are likely to encounter difficulties competing with incumbent industry players. Most medical centres prefer to purchase medical devices from reliable and reputable manufacturers or suppliers that possess sound technical knowledge and established reputation. Established industry players typically have relatively long-term relationship with their respective customers and therefore, they stand to enjoy a greater goodwill. Building a viable and strong business relationship is not an easy task for any potential new entrants as relationships require a significant amount of time to establish. Once the relationship is sufficiently strong where trust and confidence are well established, it would be difficult to break this partnership. In addition, new market entrants will likely face difficulty in getting favourable financing facilities with a proven track record, thus reducing their competitiveness considerably. 33 169 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
HHAND I 11NnN(!: I “1”\1I”~(-‘ 3) Technical Skills and Expertise -A medical devices industry requires technically-skilled personnel and expertise from medicine and engineering background as well as from other related disciplines such as legal, regulatory, intellectual property and marketing. These specific expertise in relation to medical devices are required to develop a product, construct a medical facility for research and development and for use in hospitals and medical centres, to build network of suppliers and customers and to run a medical devices company. In addition, industry players need to be mindful that their customers may also require updates on the development of various medical devices products include materials used, designs and applications of the products. Thus, new market entrants would require time and financial resources to access to this pool of professional engineers, technical personnel and skilled labour with the necessary qualification and experiences in order to keep up with medical devices industry. 4) Licensing Requirement -The medical devices industry in Malaysia is regulated by the Malaysia Government, and it is mandatory for all manufacturers, authorised representatives, importers and distributors whether local or foreign to register with the Medical Devices Authority as an establishment before they can undertake activities involve manufacturing, import, distribution and/or advertising of medical devices in Malaysia. The Medical Devices Authority set out a list of requirements and procedures including compliance with good manufacturing and/or distribution practices, registration of a valid establishment licence and registration of medical devices to import, export or place a medical device for sale in Malaysia. 3.4.3 Comparison between Best Contact Sdn Bhd (“Best Contact”) and Maymedic Technology Sdn Bhd (“Maymedic”) and Selected Industry Players BCM through Best Contact and Maymedic are involved in the supply, installation, testing and commissioning of medical devices. Best Contact is involved in the provision of diagnostic imaging equipment, while IVlaymedic is involved in the distribution of disinfection, sterilisation and surgical room equipment. Given the huge number of participants and the nature of the market where market participants may focus on certain or multiple products and types, or cater to different target markets, or diversify into other related/non-related businesses, it is difficult to perform a direct or like-far-like comparison on market participants with BCM. For the purpose of this report, Protege Associates has used the following criteria when selecting other industry players in Malaysia for comparison with Best Contact and Maymedic: 34 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
HHAN1.\ I ,.l 1’1 1\ N (I–I i\1 j\ 11I{ (, ‘; • Involved in the provision of sterilisation and disinfection equipment and/or diagnostic imaging equipment; and
• Registered an annual revenue of above RM10 million.

After taking into consideration of the above criteria, Protege Associates has selected five comparable companies namely Abex Medical System Sdn Bhd, LAC Medical Supplies Sdn Bhd, IDS Medical Systems (M) Sdn Bhd, Anugerah Saintifik Sdn Bhd and Alam Medik Sdn Bhd. The details of the selected industry players are as follows: • Abex Medical System Sdn Bhd (“Abex Medical System”)
Abex Medical System was incorporated on 11 August 1981 as a private limited company. The company is involved in the sale and marketing, supply, rental installation, testing, commission, maintenance and repair of medical equipment. Abex Medical System’s product offerings are diagnostic imaging equipment including X-ray, MRI, CT, ultrasound and therapeutic radiation equipment. Abex Medical System is an authorised distributor for Toshiba Medical Systems Corporation.
• LAC Medical Supplies Sdn Bhd (“LAC Medical Supplies”) LAC Medical Supplies was incorporated on 31 December 2013 as a private limited company. The company is engaged in the business of supplying medical goods and equipment. LAC Medical Supplies’ product offerings are medical imaging equipment including digital radiography systems, ultrasound systems, CT systems, medical imaging
consumables and accessories. LAC Medical Supplies is an authorised distributor for Samsung Electronics IVledical Equipment.
• IDS Medical Systems (M) Sdn Bhd (“IDS Medical Systems”) IDS Medical Systems was incorporated on 27 June 2011 as a private limited company. The company is involved in provision of sales and maintenance of medical equipment, devices and supplies. IDS Medical Systems’ product offerings are critical care devices,
surgical workplace systems, diagnostic imaging equipment, beds and furniture, consumables, infection control equipment and products, healthcare education and IT.
• Anugerah Saintifik Sdn Bhd (“Anugerah Saintifik”) Anugerah Saintifik was incorporated on 25 June 1999 as a private limited company. The company is engaged in the business of supplying all kinds of medical equipment and

other related products and services. Anugerah Saintifik’s product offerings are patient monitoring devices and sterilisation and disinfection equipment. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
lJ H f\ N l> ! r’ lNAN(1: J Iv’; 1\ II K I· ‘i • Alam Medik Sdn Bhd (“AIam Medik”) Alam Medik is a subsidiary of Prima Group of Companies, incorporated on 11 September 1979 as a private limited company. The company is engaged in the business of trading in hospital supplies and medical equipment including pharmaceutical products on a tender and indent basis. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] ~ompany No.: 1135238-UJ 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) p[‘9:t;~ge Figure 15: Comparison between Best Contact, Maymedic and Selected Industry Players in the Medical Devices Industry for Disinfection and Sterilisation Equipment and Diagnostic Imaging Equipment in Malaysia
173 [COmpany No.: 1135238-U I 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) p;t:9~~ge
l>.f!.i\ND 1 ~;,J~\.·,;C'” M,\HK1;'”
Notes: 1) The list ofselected industry players above is not exhaustive; and 2) Theabovefiguresprovideanindication ofindustryplayers’performance andthedatais notdirectlycomparabledue tothefollowingreasons: • Not all industry players have the same financial year end; and
• Not all companies carry out activities that are completely similar to each other or in the same geographical area. Sources: Companies Commission ofMalaysia and Protege Associates

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I I·lN)\N(r I N’i(\II 1-;(-I’ 3.4.4 Best Contact and Maymedic’s Market Share Analysis For the financial year ended 2015, Best Contact and l\Ilaymedic generated revenue of RM17.3 million and RI\Il7.7 million, respectively, which is equivalent to less than one percent share of the medical devices industry in Malaysia in 2015. This is based on Best Contact and Maymedic’s revenue of RM17.3 million and RM7.7 million respectively against total market size (revenue) of the medical devices industry in Malaysia of RM10.24 billion in 2015. 3.5 Demand and Supply Conditions
Source: IMR Report 3.5.1 Demand Conditions Growing and Ageing Population The Malaysian population is expected to continue growing at a steady pace. According to the Population Projections of Malaysia, 2010-2040, the total population of Malaysia was 28.6 million in 2010 and is projected to grow steadily to reach 38.6 million in 2040. An increase in population indicates a larger pool of potential patients and end-users of medical devices. Malaysia has exhibited an ageing population trend mainly due to increasing life expectancy and/or declining birth rate. A low birth rate is mainly the result of increasing urbanisation which is associated with increased cost of living cost and a busy lifestyle which render it less conducive for family planning. Increasing life expectancy is primarily due to improved living conditions from increased wealth, access to better healthcare and sanitation as well as overall economic and political stability. An ageing population is expected to lead to an increasing likelihood of health problems, age-related diseases such as arthritis and cardiovascular 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
HHf\NI.’ I 1·1NJ\NCf-; I M,.\IfEf-\­disease, higher occurrence of chronic lifestyle diseases, which in turn an increase in demand for healthcare services. The increasing demands for healthcare services will likely drive demand for medical devices. Malaysia is anticipated to become an aging population when the population of Malaysians aged 65 and above reaches 7.0 percent of total population by 2021. By 2040, the population of Malaysians aged 65 and above is projected to increase by more than three-fold of the 2010 population from 1.4 million to 4.4 million. Therefore, the demand for medical devices is anticipated to remain strong throughout the forecast period. Growing Prevalence of Chronic Lifestyle Diseases Stressful and sedentary lifestyle with lack of regular exercise, consumption of processed foods which generally have higher saturated fat content and lower nutritional values as well as regular consumption of alcohol and tobacco have contributed to the growing prevalence of chronic lifestyle diseases. These chronic lifestyle diseases or non-communicable diseases such as obesity, heart disease, diabetes, hypertension and cancers are prevalent amongst Malaysian regardless of age, gender or race. There are expected to be many more Malaysians who suffer from these chronic lifestyle diseases that are still undiagnosed, the prevalence of such diseases is also expected to continue on a growing trend throughout the forecast period from 2016 to 2020. The consequences of chronic lifestyle diseases ranges from an adverse impact on the quality of life to an increased risk of premature death, consequently resulting in high healthcare expenditure and a greater demand for healthcare services. These chronic lifestyle diseases are difficult to be comprehensively cured and must be treated and managed over a lifetime, hence creating a sustained demand for use of medical devices, spurring the demand for medical devices throughout the forecast period from 2016 to 2020, and throughout the lifetimes of these patients, who will likely require constant treatment to manage their diseases. Increase in Expenditure on Healthcare Products and Services Driven by the increasing awareness of health and the availability of more disposal income, Malaysia has experienced a rapid expansion of healthcare expenditure over the last ten years. Total expenditure on health to GDP has elevated by 37.6 percent, from 3.30 percent of GDP in 2000 to 4.54 percent of GDP in 2014. The per capita spending on healthcare had increased by more than two-fold from RM748 in 2000 to RM1,643 in 2014. Malaysian expenditure on healthcare products and services 40 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d) 1’*0 ee””’g/AS5 0 f: \ AT l~ S i1 tt i\ N I,> I l’IN:\ I’>!(I’ I M I~ II ” i: )’ persisted on its upward growing trend as a result of increasing cost of healthcare. In response to greater awareness of health in Malaysia, and with the availability of more disposal income, the general population is expected to be more inclined to spend more on healthcare products and services including home-monitors and regular check-ups at clinics and hospitals in order to continually improve their quality of life. Given the anticipated growth in health expenditure, it is expected that the demand for medical devices in Malaysia will also increase in tandem throughout the forecast period. Expenditure on medical devices such as home blood monitors, diagnostics imaging and blood analysers are expected to gain substantially from the greater willingness to spend on healthcare products and services. These products are no longer thought of as optional, as Malaysia’s overall affluence has increased the general population’s concerns with regards to ensuring their health and quality of life. Growing Healthcare Travel Industry The Malaysian healthcare travel industry has grown steadily and continues to record double­digit growth in terms of revenue generation and number of healthcare travellers since 2010. In 2015, the healthcare travel industry generated revenue of RM901 million and registered 850,000 healthcare travellers to Malaysia. The growth in Malaysia’s healthcare travel industry creates greater demand for medical devices in Malaysia as it brings in a larger pool of potential consumers from other countries. The healthcare travel industry is poised to grow in long term with its inclusion as one of the EPP (“Entry Point Project”) under healthcare New Key Economic Area (“NKEA”) in Economic Transformation Programme C’ETP”). The number of health travellers is expected to reach 1.9 million in 2020 -spurring a higher demand for medical devices stemming from healthcare travel demand in Malaysia. Additionally, the number of Malaysia Healthcare Travel Council (“MHTC”) approved and registered hospitals and other healthcare facilities amounted to 83 as at 30 I\lovember 2015. These healthcare providers are subject to stringent evaluation by a selection committee consisting of representatives from both private and government sector before they can be approved and registered with the MHTC. Among the benefits of being a MHTC approved and registered healthcare providers are marketing and exposure through fVIHTC’s international marketing programmes, recognition and promotion as a quality provider of healthcare travel 41 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
I~H(\.Nl.’ I lIN’\r-l(t; I r”l;\!lK(:~ services for international patients, incentives given by the Government, and income tax exemption on qualifying expenditure on improving healthcare travel infrastructure. The participation of healthcare providers has underscored their continued interest in establishing footprint in the healthcare travel segment. In order to cater to a larger pool of potential incoming demand as well as further entrenching their businesses within this segment, there are expected to ramp up their capability and capacity leading to higher demand for medical devices. Given the growth in healthcare travel industry, it is expected that the demand for medical devices in Malaysia will continue to grow in tandem throughout the forecast period. Increasing Number of Healthcare Providers Healthcare in Malaysia operates under a two-tier healthcare system consisting of a government-run universal health system (public healthcare sector) and a co-existing private healthcare system (private healthcare sector). As at 31 December 2014, there were a total of 334 hospitals in Malaysia comprised of 150 public hospitals and 184 private hospitals. Public hospitals are Government-owned hospitals operated under public funding by the MoH. Majority of the private hospitals are part of the network of hospitals operated by several major private healthcare groups such as KPJ Healthcare Berhad, Columbia Asia Sdn Bhd, IHH Healthcare Berhad and Sime Darby Healthcare Sdn Bhd. Under the Eleventh Malaysia Plan (“llMP”), the Government has planned for the construction of six new hospitals in Kemaman, Bentong, Pendang, Pasir Gudang and Maran in the Peninsular Malaysia for the period of 2016 to 2020. Upgrading works are expected to be implemented for three existing hospitals, namely Hospital Tawau and Hospital Kota Marudu in Sabah and Hospital Miri in Sarawak. The IVlalaysian Government is also committed to the construction of the Sri Aman Hospital in Sarawak which is expected to be completed by 2018. Furthermore, Khazanah l\Jasional Berhad, the strategic investment fund of the Malaysian Government, also announced in September 2015, to committing a capital expenditure of RM670 million between 2015 and 2017 through IHH Healthcare Berhad, for the expansion of existing private hospitals and construction of new hospitals in Medini Iskandar Johor, Johor, Kuala Lumpur, Wilayah Persekutuan, Klang, Selangor, Malacca and Kota Kinabalu. Khazanah Nasional Berhad also announced its intention to invest approximately RM100 million in a new in-patient rehabilitation hospital over the next two years. The in-patient rehabilitation hospital business will be collaboration between Khazanah Nasional Berhad and a foreign technical 42 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
H. It II i’II l) I 1-lNn N(I; I [,”I i\ II I{ £, r operator and equity partner. Additionally, KPJ Healthcare Group has also planned to establish a minimum of two new private hospitals per annum for the next five years from 2016 to 2020, as part of their strategy for continued growth. The number of hospitals in Malaysia is expected to continue to increase steadily. The increasing number of these healthcare providers provides a steady demand for medical devices. Upgrading work on existing hospitals which includes the replacement of existing equipment is also expected to drive demand for medical devices. 3.6.2 Supply Conditions Strong Government Support The Malaysian Government has given keen attention to the potential of the local medical devices manufacturing industry. Eight EPPs under the healthcare f\lKEA of the ETP were announced for the medical devices sector by the Government. These are envisaged to contribute to a GI’lI of RMllA billion by 2020. The Malaysian Government has agreed to an Off-take Agreement (“OTA”) that encourages the production and consumption of locally-made medical devices with the possibility of supplying these locally-made medical devices products to the Malaysian Government. The implementation of the OTA is also expected to result in more local production of medical devices with MNCs partnering with local manufacturers to manufacture their products in Malaysia for the local as well as the international markets. This can help to raise the standard of locally produced medical devices in line with internationally accepted standards, as well as introduce new technology to local manufacturers, thus enhancing their capability. Additionally, the Malaysian Government has also brought forward the implementation of the Medical Devices Act 2012 in a further effort to control product quality and safety aspect in the medical devices industry. It was decided that all new placements of medical devices must be registered in accordance with this standard set forth in the Medical Devices Act 2012 by July 2015. This is a crucial development and could potentially aid Malaysian medical device manufacturers towards gaining more market share in the ASEAN region. In addition to the ETP and the implementation of the Medical Devices Act 2012, the Third Industrial Master Plan (“IMP3″) implemented from 2006 to 2020 spells out four thrusts to develop the Malaysian medical devices industry. A total of RM19A billion has been targeted for investment into the medical devices industry in Malaysia. Export of medical devices and 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
~nflNl.’ I l’lNflN\I: I M!\llHL–‘­products is also estimated to achieve an 8.6 percent growth from 2006 to 2020, reaching RM18.4 billion by 2020. With these initiatives in place, government support is expected to continue bearing positively on the medical devices industry throughout the forecast period. Presence of Established Supporting Industries The medical devices industry is supported by a growing network of suppliers from various supporting industries. The supporting industries capable of meeting the needs of the medical devices industry are the machinery and equipment C’M&E”) industry, the engineering supporting industry and the electronic manufacturing services (“EIII1S”) market. The M&E industry in Malaysia is driven by high technological advancement and process specialisation and customer requirements. It offers industrial automation processes, and the conceptualisation and building of specialised automation equipment. Hence, the M&E industry has the capabilities to meet the stringent requirements of the medical devices industry. The M&E that can be produced are packaging machineries, labelling equipment, heat sealing machines, assembly systems and other specialised M&E for medical purposes. The engineering supporting industry in Malaysia has achieved international recognition in terms of capability and quality in a diverse range of products namely, mould and dies, metal casting and machining, surface engineering and metal fabrication. The engineering supporting industry has the capability to produce components and sub-assemblies, and to provide solutions to meet the stringent requirements of medical devices industry. The products and services that can be offered for medical devices industry are precision machining, die casting parts, metal injection mouldings and instrumentation control and quality control. Lastly, the rapid development of the electronic and electrical industry has encouraged the growth of the EMS market in Malaysia. The EMS market offers manufacturing of products and parts for OEM and original design manufacturers (“ODM”). As such, the EMS market players can provide whole manufacturing solutions from product design, manufacturing to distribution services. The sterilisation service is an example of EMS that can be offered to the medical devices industry. Overall, the availability of these established supporting industries has positioned Malaysia as an ideal location for the manufacture of medical devices products and global supplier of parts and components, with the potential to be developed into a medical devices hub for both manufacturing and R&D in ASEAN region. 44 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
I J-lN 1\ 1’1 (I: t :,., (\ If I, {­Increasing Competition in the Global Medical Devices Market The Malaysian medical devices industry is facing competition in its export of medical devices and products. Other Asian countries like China, Korea and Taiwan are recognised as leading manufacturing countries which produce and export a large quantity of medical devices. These countries are also putting efforts into expanding their presence in the global medical devices market. There have been consolidations in the medical device industry where large medical device companies are merging with one another and acquiring mid-sized medical device companies. These consolidation strategies may represent a threat to Malaysia’s medical devices industry in gaining a foothold in the global market as the local medical devices industry may be lacking into terms of capital funding or design and technological capabilities which may lead to lack of interest in pursuing the business opportunity. Henceforth, it is vital for the Malaysian medical devices industry to develop a competitive edge to withstand this competition in order to retain or increase its market shares in the global medical devices market. This market restraint is likely to remain moderate throughout the forecasted period. 3.6 Reliance on and Vulnerability to Imports Despite the capability of Malaysia’s medical devices industry in manufacturing of medical devices, the domestic demand for medical devices especially high-value added products such as diagnostic imaging equipment and disinfection and sterilisation equipment are still reliant on imports. Total imports of medical devices were estimated at about RM4.15 billion in 2015. These imports constituted 40.5 percent share of the medical devices industry in Malaysia. Medical device manufacturers operating in the local industry are hence vulnerable to competition from imported products. This vulnerability stems from the lack of proprietary development capabilities to compete with imported brand names. In terms of raw materials, local production of medical devices only relies to some extent on imported raw materials such as electronics parts. In addition, the medical devices industry is reliant on high-skilled workers for their technical expertise in installation, calibration, maintenance, repair, user training and decommissioning of medical devices, and such high­skilled local workers are limited in Malaysia. 3.7 Substitute Products or Services Medical devices include all the medical technologies, supplies and equipment except for drugs that are used in the diagnosis, prevention, monitoring or treatment of illnesses or diseases. They are essential supplies to hospitals and medical centres. As such, there are currently no effective substitutes to medical devices as a whole category. 45 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
llllflND I r-INANClo , M”IfK{-‘f 3.8  Relevant Laws and Regulations Governing the Industry and Peculiarities of  the Industry  3.8.1  Relevant Laws and Regulations Governing the Industry
Medical Device Authority Act 2012 The Medical Device Authority Act 2012 came into effect on 15 IVlarch 2012, to provide for the establishment of the IVledical Device Authority, to control and regulate medical devices, the medical device industry and its activities and to enforce the MDA 2012. Medical Device Act 2012 and Medical Device Regulation 2012 The MDA 2012 and MDR 2012 came into effect on 30 June 2013 and 1 July 2013 respectively, to implement a regulatory framework for the medical devices industry in Malaysia. The following highlights the relevant provisions under the MDA 2012 and the IVIDR 2012: 1) Licensing of Establishments An establishment as defined under the MDA 2012 refers to manufacturers, importers, distributors and local authorised representatives excluding retailers. An establishment must obtain a valid establishment licence to import, export or place a medical device for sale in Malaysia. 2) Registration of IVledical Devices The MDA 2012 introduces a mandatory requirement for medical devices to be registered with the Medical Device Authority through an online, web-based system called the Medical Device Centralised Online Application System (“MEDCAST”) before it can be imported, exported or placed in the market. Section 80(1) of the MDA 2012 states that a person who has imported, exported or placed any medical devices in the market prior to 30 June 2013, shall apply for the registration of the medical devices within 24 months from 30 June 2013 to 30 June 2015. Subsequently, pursuant to the Medical Device (Exemption) Order 2015 issued on 26 June 2015 by the MoH, any person who has submitted an application for registration of a medical device between 1 July 2015 until 30 June 2016 is allowed to continue import, export or place in the market pending determination of the application. 182 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
I .’ tNJlN(t: I Good Distribution Practice for Medical Devices (“GDPMD”) The GDPMD came into operation on 1 July 2013, specifying the requirements for a quality management system (“QMS”) to be established, implemented and maintained by an establishment carrying out activities in the medical device supply chain to comply with regulatory requirements stipulated in the IVIDA 2012 and the MDR 2012. The GfVlPD requires an establishment to demonstrate its ability to maintain the quality, safety and performance of medical devices in compliance with the regulatory requirements throughout the supply chain. Atomic Energy Licensing Act 1984 The Atomic Energy Licensing Act 1984 C’Atomic Energy Licensing Act”) proVides for the regulation and control of atomic energy, the establishment of standards on liability for nuclear damage and other related matters. The Atomic Energy Licensing Board C’AELB”) was then established to ensure the safety, security and safeguarding nuclear activities. In particular, the Atomic Energy Licensing (Basic Safety Radiation Protection) Regulations 2010 promulgated under the Act describe the principles of radiation protection and safety such as system of dose limitation, medical exposure, operational radiation protection and role of licensee and radiation worker. Quality and Safety Standard The following highlights the standards that the industry players in the medical devices industry in lV1alaysia should take into consideration: 1) ISO 9000 ISO 9000 is a family of standards that is maintained by the International Organisation for Standardisation and catered for QMS. 2) ISO 13485 ISO 13485 is the standard for QMS where a company needs to demonstrate its ability to provide medical devices and related services that consistently meet customer requirements and regulatory requirements applicable to medical devices and related services. 3) ISO 14000 ISO 14000 is the standard for environment management system. Compliance with this standard helps a company to fulfil its social responsibility in safeguarding the environment. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
II II 1\ .”\1 f.> I lIN n I’l (I: 1M;, It ~; .’ ” 4) ISO 14971 ISO 14971 is the standard for risk management in the medical device design, development, and manufacture as well as for monitoring of safety and performance of the medical device after sale. 5) ISO/ICS 11 ISO/ICS 11 is the standard for health care technology. It offers documentation for terminology, concept, safety and performance for health care technology. Particularly, ISO/ICS 11.040 is related to medical equipment such as surgical instruments, diagnostic equipment, syringes, needles and catheters, the ISO/ICS 11.080 is related to sterilisation and disinfection and ISO/ICS 11.140 is for hospital equipment such as hospital bed, surgical table, medical garment and medical glove. 6) IEC/TC 62 IEC/TC 62 is a standard maintained by the International Electrotechnical Commission in relation to terminology, concept, safety and performance for electrical equipment used in medical practice. 3.8.2 Industry-related Government Policies Third Industrial Master Plan (“IMP3”) (2006~2020) The HVlP3 spells out four thrusts for the development of medical devices industry in Malaysia, including: • Broadening the range of products towards the higher-end category such as orthopaedic devices, diagnostic equipment, medical imaging equipment and hospital and laboratory equipment;
• Promoting foreign direct investments and domestics investments in the industry such as through development of an integrated cluster of manufacturers of medical devices and medical technology companies, participation of SMEs as sub-vendors to the main suppliers of the MNCs and strategic alliances or joint venture between local companies and IVINCs;
• Expanding the range of support industries and services for the industry such as precision engineering, electronics, tool and die making, automation support, contract moulding and assembly as well as metal and plastic sheet fabrication; and

48 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
P.Hi\ND I ‘-!NJ\rJCE I ,,/,!\H!-:£,”( • Strengthening the institutional support for enhancing human resource development, R&D and compliance to international standards and regulations such as through fostering collaboration between the industry, universities and research institutes, strengthening the registration of medical devices, and provision of support to manufacturers for compliance with local and international standards. Malaysian Investment Development Authority (“MIDA”) Incentives The manufacturing of medical devices and related products is categorised as promoted activities or promoted products. Environmental Regulations Manufacturing companies, including those involved in manufacturing medical devices also need to comply with the Environmental Quality Act, 1974 and other relevant environmental­protection related legislations. They need to be mindful of adhering to these regulations particularly on the disposal of sewage and industrial effluents. Regional Scheme Locally manufactured medical devices are expected to face competition from imported products from ASEAN member countries in line with the implementation of the ASEAN Free Trade Agreement (“AFTA”). As part of the AFTA, intra-regional tariffs are reduced to 0 to 5 percent through the Common Effective Preferential Tariff (“CEPT”). Hence, imported products from ASEAN member countries are competing on the same platform with minimal or no import duties. 3.9 Prospects and Outlook of the Medical Devices Industry in Malaysia The medical devices industry in Malaysia was valued at RM10.24 billion in 2015, having expanded with a 10.1 percent growth from the previous year. The growth trend is expected to continue during the forecast period, with the market experiencing steady growth. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
.fHf\NU I f,!N1′.N(!c: i N!i\I!’~(( Figure 17: The Forecast Market Size (Revenue) of the Medical Devices Industry in Malaysia, 2016-2020 20.00 ­18.00 ~ ~ 16.00­c ~~ 14.00 ­GI Ca=: 0 12.00 …….=
GI:S 10.00 N  ~  ~  8.00  ~ …….  6.00  I­ ~  4.00  2.00  0.00  2016 2017  20192018  2020

Source: IMR Report The positive outlook on the demand for medical devices in Malaysia stems mainly from Malaysia’s growing and ageing population, the growing prevalence of chronic lifestyle diseases and increasing healthcare expenditure on healthcare services, leading to greater demand for use of medical devices, the increasing number of healthcare providers and a growing healthcare travel industry. On the supply side, although the industry is expected to be boosted by strong government support and presences of established supporting industries, it faces the competition from other Asian countries such as India, China, Korea and Taiwan in the global medical devices market. Stiff competition within an increasingly lucrative global market is expected to persist into the long run future. Henceforth, it is vital for Malaysian medical devices industry to develop forms of competitive edge to withstand this competition in order to increase its market share and penetration in the global medical devices market, evidenced by the gradual shifts from manufacturing of rubber-based medical devices to non-rubber based higher value­added medical devices. The availability of more medical devices in the market is expected to further support the growth of distribution segment as authorised representatives and distributor remained vital in their role as an integral link between the manufacturers and end-users. 50 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH RERORT (Cont’d)
!JUAN”.’ I rC1NANC!’ t MlI.lIl’;t-y Moving forward, the forecast CAGR for the medical devices industry from 2016 to 2020 is 11.2 percent. The size (revenue) of the industry is expected to reach RM17.41 billion in 2020. Protege Associates has prepared this report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the report. We believe that this report presents a true and fair view of the industry within the boundaries and limitations of secondary statistics, primary research and continued industry movements. Our research has been conducted to present a view of the overall industry and may not necessarily reflect the performance of individual companies in this industry. We are not responsible for the decisions and/ or actions of the readers of this report. This report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies. Thank you.
Managing Director Protege Associates Sdn. Bhd.

 

 

 

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