7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT PROTEGE ASSOCIATES SON BHD ~,UIT[ (-Oe;,-06, “LAZA MONT’ KIARA ‘:! 11\’ AN KIARA, MONT’ l’!:lARA 5u41’10 KUALA LUMPUR, MALAYSIA liEl’! .GO) 6201 9301 FAX … 603 62017302 “” ww .protp.9 e. (om. my
1 8 JUl 2012 The Board of Directors Datasonic Group Berhad Level 6, Bangunan 5etia I, No.iS, Lorong Dungun, Damansara Heights, S0490 Kuaia Lumpur.
Dear Sirs, Executive Summary of the Smart Cards Market in Malaysia This Executive Summary of the Smart Cards Market in Malaysia is prepared by Protege Associates Sdn. Bhd. (“Protege Associates”) for inclusion in the Prospectus of Datasonic Group Berhad (“Datasonic” or “the Group”) in relation to the proposed listing of and quotation for the entire issued and paid-Up share capital of Datasonic on the Main Market of Bursa Malaysia securities Berhad.
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Global and MalaYSian Economic Overview Global economic conditions suffered a setback in 2011, attributable mainly to a highly volatile fourth quarter due to economic and financial instability in the Euro area. Prior to the fourth quarter of 2011, advanced economies as a whole grew at a slow but steady rate, led by rebound momentum from 2010. Based on the latest economic indicators released by the International Monetary Fund C’IMF”), the world’s output expanded by an estimated 3.9 percent in 2011. Following major economic setbacks in advanced economies particularly in the final quarter of 2011, as well as the moderating momentum of growth in emerging economies, global economic prospects for 2012 and beyond are once again strengthening, although growth trajectory remains fairly fragile with a number of downside risks pertaining to persistent volatilities in the Euro area. The global economy is expected to grow by 3.5 percent in 2012. After rebounding strongly In 2010, the Malaysian economy grew at a more moderate pace in 2011. Real GDP during the year expanded by 5.1 percent to RM558.3 billion, supported by the strength of domestic economic activity and spending, as well as firm regional export demand attributable to strong domestic demand across emerging Asia’s economies. Nevertheless, growth momentum was weighed down by the continued structural weakness and financial volatility in advanced economies, political uprisings in the Middle East, and natural disasters headlined by the Japanese earthquakes during the first half of 2011. Moving into 2012, projects and initiatives launched by the Economic Transformation Programme C’ETP”) (initiated 26 October 2010) are expected to begin taking effect. Strong capital inflows encouraged through the ETP, which seeks to propel Malaysia towards becoming a high-income developed nation with a RM1.7 trillion gross national income C’GNI”) economy by 2020, are expected to eventuate and now have more visible and pronounced effects on the local economy, and consumer income. Under the ETP, private-sector driven projects with an investment value of RM1.3 trillion are to be undertaken to spearhead Malaysia’s economic growth over the next ten years. In 2012, the Malaysian economy is projected to continue in a vein of steady, moderate growth. Domestic demand is expected to remain in high momentum, and is a likely anchor of growth for the economy. Private investment is expected to increase as a direct result of ETP measures, while the public sector will also remain supportive of economic growth through higher capital expenditure. The economy is expected to remain fairly resilient despite uncertain economic times globally. The structural and fiscal fallades in developed economies 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Coni ‘d)
….. 0 I ~’N ….. C. ,,,,,.,,,, such as the EU and US continue to loom, posing a risk to local consumer and investor confidence, as well as external demand. Malaysia is also not completely insulated from losses in foreign direct investments as the result of these uncertainties. However, the confounding strength of emerging economies similar to Malaysia’s own especially in Asia -is proving to be a reliable support system for the local economy. Malaysia can look forward to firm regional demand from rising economies within ASEAN as well as China to bolster external demand uncertainties stemming from Westem advanced economies. The Malaysian economy is expected to expand of between 4-5 percent In 2012.
The Information. Communications and Technology (ftICT”) Industry in Malaysia ICT is an umbrella of technology that envelopes all types of computer and electronics-based technoiogies used for the creation, storage, retrievai, analysis and dissemination of information. ICT encompasses the deveiopment, usage and management of computer-related electronics and hardware, application software, wired and wireless communication peripherals and appilcations, as well as the Intemet, among others. According to the Multimedia Development Corporation (“MDeC”), Malaysia’s ICT industry can be segmented into 5 technoiogy dusters as foilows: 1) Application software -The application software cluster is made up of companies undertaking the design, development, maintenance and marketing of software products. 2) Creative meda creation -The creative media creation duster invoives the creation, processing, packaging and delivery of creative multimedia content, which indudes movies, animation, video games, music or mobile content. 3) Internet-based businesses -The Internet-based businesses duster is made up of businesses that utilise the Internet as its main platform for its business activities, such as product marketing and sales, procurement and customer support. 4) Mobility, embedded software or hardware -This duster is a wide category encompassing the following activities, products and services e.g. the development, manufacture and marketing of embedded/ built-in software for electronic devices such as Intelligent Controllers, Radio Frequency Identification (“RFID”) devices, smart cards and the deveiopment of wireless and fixed telecommunications technology, security and biometrics development and hardware design. I 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Coni ‘d)
….. 0 I ~’N ….. C. ,,,,,.,,,, 5) Shared services outsourcing -Shared services and outsourcing are business solltions where common ICT-related processes are provided by a single external organisation, either local or abroad.
Figure 1: ICT Industry Technology Clusters in Malaysia ICT
I Generalised ISpeCIalisedBusiness ISoftwareSoftware I I induding I I customised I I ICT solutions JIL • Note: Denotes the dusters where Datasonic Gro~ Berhad (ViJti15Onic GroLfJ “) is operatingin Source: MDeC, Protege Associates The ICT industry in Malaysia first gained prominence with the launch of the MSC initiative by the Government in 1996. The MSC’s establishment was aimed at harnessing the global growth trends In ICT as a profitable production sector in order to fuel local economic growth. The industry has since experienced exponential growth, and according to the Malaysia External Trade Development Corporation (“MATRADE’1, the period from 2005 to 2010 saw ICT expenditure in the country growing at a Compound Annual Growth Rate (“CAGR’1 of 10.0 percent to RM22.0 billion. Significant growth of the ICT industry thus far is largely credited to the MSC initiative and pro-ICT Government policies. Overall, the Malaysian ICT industry is expected to continue to see positive prospects into 2012 and the long term future with the growth in 2011 expected at just below 10 percent. Continued growth is expected due to the Government-led focus, contribution from strong industry players from the IT and communications sectors (among which are global brand names like Intel Corporation, Microsoft Corporation, Dell Inc., Axiata Group Berhad and others), an increasing number of successful ICT start-ups and SMEs, and also from the 115 4
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
general demand for leT products and services from increasingly tech-savvy Malaysian consumers. The Smart Cards Market in Malaysia The smart cards market is a part of the mobility, embedded software/ hardware cluster of the Malaysian leT industry, as identified by MDeC. The smart cards market fits into this cluster as it performs the development, manufacturing and marketing of smart cards, and also security design and development. This market essentially involves the sale of smart cards (a plastic card embedded with a memory chip or a microprocessor/ computer chip that has memory and is ‘programmable’) and processes/ activities related to smart cards. Also called a chip card or an integrated circuit card, the smart card is typically used for personal identification (identity cards or passports), financial purposes (bank cards, debit! credit cards and automated teller machine CATM”) cards), data storage (records information of the holder) and also for security purposes (authentication of holder’s access authority). The main reason for the growth of the smart cards market in Malaysia and globally is due to the security prOVided by smart cards as they are not easily forged.
Market ParticiPants in the Smart Cards Market The various market players in the smart cards market playa role in ensuring that relevant products and services enable the entire market to operate. • Chip Supplier/ Manufacturer -Manufacture and supply the integrated circuit chips used in smart cards. Among them are Infineon Technologies AG, KEB Technology CO., Ltd. and NXP semiconductors, among others.
• Card Machine Supplier/ Manufacturer -Produce and supply card production machines and equipment to enable the manufacture of smart cards. Among the machines supplied may include those which cater to the process of milling, embedding (of chips), embossing, card printing, lamination, micro-module and inlay testing. Some of the companies involved in this facet of the market include Datacard COrporation USA, NBS Technologies Inc. and Zebra Technologies Corporation.
• Smart Card Supplier/ Manufacturer -Manufactures and supplies smart cards, whether contact or contactless, dual interface or hybrids. Includes international companies like Gemalto N.V., Giesecke & Devrient GmbH, Oberthur Technologies Group and safran Morpho (merger of sagem and Snecma Groups) among others. Locally, IRIS Corporation Berhad CIRIS”), Asia Pacific Card & System Sdn Bhd CAPCS”) also act as market players in this category.
7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
• Reader! Terminal Supplier! Manufacturer -Produces and supplies smart card readers or terminals which enable access to the data and information on the smart cards and allows for transaction processing. Market players in this category include giobal leader Ingenico, and also Malaysian companies e.g. Tricubes Berhad, GHL Berhad, Nera
(Malaysia) Sdn Bhd, Yasmin Teknologi Sdn Bhd and Rhythm Consolidated Berhad.
• Smart Card Solution Providers -Smart card soiution providers may offer card personalisation services, hardware and software solutions and other services e.g. maintenance, training, consulting etc. Card personallsation services include input of the cardhoider’s information onto the smart card, printing, embossing and other processes. Some smart card solution providers are aiso abie to prOVide card technology piatforms and software that enables a smart card to operate. These may come in the form of operating systems \,OS”) and other applications. MULTOS Umited is among the global market players in the provision of smart card OS while Datacard Corporation USA and Datasonic Group Berhad \,Datasonic Group”) are both recognised smart card solution providers, globally and in Malaysia respectively. Whiie Datacard Corporation USA has more than 35 years of giobal experience with its presence in more than 120 countries, Datasonic Group provides services as to a majority of financial institutions as well as the
Government of Malaysia. Other Malaysian market players who are smart card solUtion providers are Gemalto Sdn Bhd C’Gemalto”), Asia Smart Card Centre Sdn Bhd \,ASCC”), DZ card (M) Sdn Bhd \,DZ”), CASSIS services Sdn Bhd \,CASSIS”), IRIS. • System Integrators! Value Added Resellers -Provides additional services or value by way of enabling the integration between systems required for smart cards to operate, by acting as deaiers/ resellers and at times providing implementation and after sales support. These market players may provide other ICT integration work in addition to smart card solution integration, and will not be discussed extensively in this report. Among the above market participants, their roles are sometimes interconnected and not mutually exclusive. For instance, a particular market participant may prOVide products or services of another market participant e.g. certain smart card solution providers also act as system integrators While some smart card suppliers also prOVide solutions to the card issuers.
Market Dynamics Analvsis: Demand and SUPPly Conditions for the Smart Cards Market The follOWing demand conditions for the smart cards market in Malaysia proVide an overall positive impact on the market -prOViding drive and impetus for growth. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d) 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
1) COntinued Demand from Existing Smart Card Applications -Continued demand for smart cards arising from the established applications of GMPC/ MyKad, PMPC/ bankcards, e-Passports, Touch ‘n Go and SIM cards. Conditions in Malaysia today which include the increasing population, increasing use of financial selVices, increase in international and local travel, as well as the increase in mobile phone usage dictate that there will be sustained demand for smart cards via the main pillars of identification, bankcards, e-Passports, transit and SIM cards. 2) Adoption of Smart Cards in New Market Areas -New market areas which may soon see greater adoption in the use of smart cards include loyalty cards, ticketing, access control (for corporate and even residential use) and employee/ student! membership identification cards. With rising global awareness on the need for higher security in the immigration and travel sectors, smart cards have been coupled with the use of biometrics whereby biometric information of the cardholder is stored and easily verifiable. While Malaysia has started using smart cards and biometrics in the e-Passport, applications could potentially be expanded upon. 3) New Technology/ Improvements Driving More Creative Uses -Among some of the new technology which have already been launched and is awaiting even higher usage/ transaction patterns include the contactless technology for payment (e.g. Visa Wave and MasterCard PayPass). Other potential new technology include smart card and NFC technology merger to increase payment options for consumers, or even smart cards which enabie the storing of passwords and key data for use on computers or online payments. 4) New Applications to Increase Usage by Existing cardholders -The Malaysian Government has been supportive in increasing new applications for the MyKad and newer applications are expected to be developed for the MyKad from the medium to long term. Other than the Government, the corporate sector may also enhance applications available to existing smart cardholders. For instance, bank cards could also be used to enable a loyalty programme or e-wallet for the bank’s cardholders. Moderate Interest from Existing cardholders for Newer Applications 5) Moderate Interest from Existing Cardholders for Newer Applications -Interest in newer applications are expected to be driven by the corporate sector when greater use of smart cards arise in newer forms of payment technology, for loyalty, or physical! logical access and other uses. 118 7
The supply conditions in the market are mostiy positive with minimai restraints on growth, as foilows: 1) Established Market Players Capable of Providing Sufficient Products and Service -The smart cards market in Malaysia is considered a high technology sector with established market players enabiing a stable and sufficient flow of products and services to ensure a smooth supply. Established market players also positively impact the supply for the smart cards market due to their proven track record in provision and quaiity of products and services, technicai expertise to enable effective operations, estabiished relationships and partnerships with globai smart card vendors/ technoiogy ieaders to ensure constant uninterrupted suppiies and ability to provide iocal expertise and support for Malaysian clients. 2) Continued Support by the Government and Financial Sector -The smart cards market in Malaysia has been given the biggest impetus for growth at the initial stages due to Government support via the GMPC and the financial sector support in the PMPC initiative. The continued support by both the Government and financial sectors have ensured that Government policies are positive towards the market and that there are sufficient financial resources to drive the market, ieading to market players actively participating in a vibrant and growing marketplace to supply the needed products and services -whether in the form of smart cards, readers and terminais, solutions, services and others. 3) Reliable and COnstant Supply of IC Chips for Smart Card Manufacturers According to industry sources, smart card Ie chip manufacturers are based in Europe, South Korea, China, Taiwan and even Singapore, hence reducing the risk of over-reliance on any particular country/ region in supply of chips. 4) Competition from Cheaper Alternatives -One of the supply conditions which moderately impedes the smart cards market in Malaysia is the competition from cheaper alternatives -which indude magnetic stripe cards (for loyalty and basic identification cards) as weil as proximity cards (for access). These are the two main aiternatives being used where security is not of concern for the card issuers or cardhoiders. However, with the cost per unit of smart cards expected to reduce over the years, the impact of this competition is expected to decrease. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Key Issues and Trends for the Smart Cards Market The following are the key issues and trends in the smart cards market in Malaysia: 1) Substitute Products -The features of smart cards enable them to be a secure, durable and effective product. There are no direct substitutes which can match these features today -however, there are certain alternatives to smart cards which are able to meet some of these features on a lower or more cost effective scale. These include magnetic stripe cards, proximity cards, biometrics (but these are usually coupled with smart cards) and security tokens (usually only used for password/ authorisation verification). 2) Reliance on Imports -The smart cards market in Malaysia imports supplies like smart cards, machinery (for smart card manufacturing, personalisation activities or even desktop smart card printers), readers/ terminals and also consumables. The risk brought about from the reliance on imports may be reduced or mitigated for market players who have a strong working partnership with their vendors. For instance, Datasonlc Group has a long term working relationship with their vendor, Datacard Corporation Group Umited from the USA and also have been acting as their sole distributor in Malaysia for Central Issuance Systems and Solutions. In this respect, the reliance on import has minimal downside as being the sole distributor, supplies are guaranteed and prices are favourable. 3) Government Policies, Initiatives and Regulations -In the smart cards market of Malaysia, the Government Is the driving force for the GMPC -hence, anything related to the identity cards (MyKad, MyKid and MyPR) are subject to standards as laid out by the Government. A renewed MyKad with more sophisticated features is currently slated to be issued from January 2012. In addition, for the PMPC initiative, the Government also played a substantial role by mandating the migration to Europay, MasterCard and Visa CEMV”) compliance. Thus, smart cards in the financial sector for the purposes of payment processing had to meet PMPC standards in terms of the cards and the ATMs. In addition EMV compliance also meant that there was an additional standard which all banks had to meet in the rolling out of the use of smart cards as credit! debit cards and bankf ATM cards. Other international standards may also be adopted by market players, and these include -International Standards Organisation (‘ISO”) standards 7816, 14443, 15693, EMV standards and PC/SC standards. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Market Dynamics Indicators for the Smart Cards Market The smart cards market in Malaysia was estimated to have reached RM482.6 million in 2011. Growth in the market is further expected to continue with a CAGR of 3.7 percent from 2012 to 2016, bringing the total market to reach a size of RM576.3 million. Figure 2: Market Dynamics SCorecard for the Smart Cards Market in Malaysia
2011 Market Size (RM million) 2011 Market Growth Rate (%) 2016 Forecast Market Size (RM million) Forecast Period Market CAGR (2012 -2016) Pricing Trends Types of Market Players 2012 Demand Conditions 4826 3.5 S76.3 3.7 Expected higher margins for new smart card technology but decreaSing margins for established technology Stable pool of established market players who have the necessary technical capabilities, experience and know-how in each area of the smart card market Larger and more well-known market players are usually within the smart card manufactUring, smart card solutions and smart card reader supplier categories Medium-sized market players include some smart card solution providers Smaller market players include the systems Integrators and value added resellers (these may provide other ICT Integration work in addition to smart card solution integration, and will not be discussed extensively in this report) Overall postively impacting the market -providing drive and impetus for growth Stable increase Stable Increasing
2012 Supply Conditions Threat of Substitution Reliance on Imports Government Policy and Regulatory Stance Mostly positive impact on the market with minimal restraints on growth Nil Medium but not exposed to vulnerability Pro-Industry (Expansive) With a focus on further development domestically and regionally Stable Stable Stable Stable Source: Protege Associates 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Market Size and Growth Forecast for the Smart Cards Market The market size and growth forecast for the smart cards market in Malaysia from 2008 to 2016 is shown below. Figure 3: Industry Size and Growth Forecast for the Smart Cards Market in Malaysia : ‘,……… ~.(.” •.•\,: ·,;,;’~~)~!I!~~l~~i~~~).:!;.7;·i·~~~~~~¢!~};J OJ 2008 438.3 2009 451.2 2.9 2010 3.3 2011
466.2 482.6 3.5 2012 498.9 3.4 2013 516.5 3.5 2014 536.1 3.8 2015 556.8 3.9 2016 576.3 3.5 CAGR (2012 -2016): 3.7percent Note: 1) All figures are rounded; the base year is 2011. 2) The smart cards market in Malaysia includes revenues from smart card suppliers! manufacturer~ readers! terminal supplier~ smart card solution providers and systems integrators! value added resellers. It does not include smart card Ie chip manufacturers or smart card machine manufacturers. Source: Protege Associates
Market Share of Key Categories of Smart Card Market Players The key market players in the Malaysian smart cards market compnse mainly of smart card suppliers/ manufacturers, readers/ terminal suppliers and smart card solution prOViders.. Of these three categories of market players,lt is estimated that smart card solution prOViders have the largest market share, accounting for approximately 54 percent of the smart cards market in Malaysia. This IS followed by the readers/ terminals suppliers which have approximately 24 percent of the market, then smart card suppliers/ manufacturers with approximately 22 percent of the market.. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Figure 4: Market Share of Main Categories of Smart Card Market Players, 2010 Smart card suppliers/ ,””,-manufacturers approx.22% ‘S!ilartcard sllbtti011 providers approx.54%
;/ Terminal ~suppliers
approx.24% Note: The above market share pie chart excludes the category of systems integrators! value added rese/lers. Source: Protege ASSOCIates Smart card solution providers have a significant market share due the numerous types of products and solutions offered by providers as well as the value-added activities they conduct, which accounts for a larger market share. High value-added activities include solutions development and customisation, as well as technology development and implementation. Due to the predominance of these players, the following section will provide further details on the smart card solutions market. The Smart Card Solutions Market in Malaysia Smart card solution proViders are among one of the main market players in the smart cards market in Malaysia. These solution providers may offer card personalisation services, hardware and software solutions and other services e.g. project management, technical support, maintenance, training, consulting etc. I 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Market Dynamics Indicators for the Smart Card Solutions Market The smart card solutions market in Malaysia was estimated to have reached RM258.7 million In 2011. Growth in the market IS further expected to continue with a CAGR of 4.5 percent from 2012 to 2016, bringing the total market to reach a size of RM319.3 million. Figure 5: Market Dynamics Scorecard for the Smart Card Solutions Market in Malaysia
2011 Ma rket Size (RM million) 2S87 Stable increase 2011 Market Rate (%) Growth 3.8 Stable 2016 Forecast Market Size (RM mliIJon) 319.3 Increasing Forecast Penod Market CAGR (2012 -2016) 4.S Pricing Trends Consistent margins with vaiue added services a higher potential for Stable Types Players of Market Stable pool of established market players who have the necessary technical capabilities, experience and know-how in each area of the smart card solutions market Stable
Source: Protege ASSOCIates 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Market Size and Growth Forecast for the Smart Card Solutions Market The market size and growth forecast for the smart card solutions market in Malaysia from 2008 to 2016 is shown in Figure 6 below. Figure 6: Market Size and Growth Forecast for the Smart Card Solutions Market in Malaysia :>.··..,5. .,fic·;.~o i:”?~~~i’.l~iilfr41!ililItEiilij;.C.’ “;i\~~”‘1~~~L9}i ,,,,~. :__:_”,,~,_’ ,~;<_’~”_ ‘c<.;; -:’,.;;’, .:’ t ,;” ,’, ‘., -‘,,’ ,,/_ ,c,’__ .”: .,’: “>’..\y,,: 0.••, 2008 231.6 2009 240.1 3.7 2010 249.2 3.8 2011 258.7 3.8 2012 267.8 3.5 2013 278.5 4.0 2014 291.3 4.6 2015 305.3 4.8 2016 319.3 4.6
CAGR (2012 -2016): 4.Spercent Note: All figures are rounded; the base year is 2011. Source: Protege Associates
Market Dynamics Analysis: Demand and SUPPly Conditions for the Smart Card Solutions Market Due to the fact that the smart card solutions market in Malaysia is a subset of the larger smart cards market in the country, the demand and supply conditions which impact the smart cards market will also impact the smart card solutions market. There is however an additional positive supply condition for the smart card solutions market in Malaysia and this is elaborated as follows: 1) Availability of Human Resources Providing the Necessary Expertise and Technological Know-How -The smart card solutions market, due to its nature of prOViding professional services (as opposed to the more manufacturing and sales/ trading nature of the other types of smart cards market players) relies on availability of human resources with the necessary expertise and technological know-how in order to ensure quality services and continued development and innovation in solutions. In addition to the present availability, the Government plans to further boost the number of skilled workers in the country by allocated RM500 million for the upgrading of workers’ skills under the lOMP, further targeting the amount of skilled workers to reach 37 percent of the total 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
workforce by 2015. In addition, the MSC Malaysia’s Knowledge Workers Development Initiative C’KDI”) has also been developed. The KDI aims to facilitate the current and future demands of industry-relevant talent by the local ICT industry and it offers various programmes encompassing career awareness, skills training, industrial attachments, curriculum alignment at Institutions of Higher Learning C’IHLs”), as well as demandsupply projection. The positive supply condition on the availability of skilled workers in Malaysia to meet the demands of the smart card solutions market is expected to provide a medium impact throughout the forecast penod. Key Market Players in the Smart Card Solutions Market The following list details the key market players in the smart card solutions market in Malaysia.
ASCC is a Joint venture between Modular Corp (M) including chip encoding, • Smart card personallsation Sdn Bhd and Boustead Information Technology Sdn magnetic stripe encoding and Bhd. laser engraving
The former specialises in smart card technology and other smart card related application development as ASCC well as systems training and consultancy services ASCC is involved primarily in the finanCial services sector for its personalisation business. The latter IS a wholly-owned subsidiary of Boustead Holdings Berhad, a Malaysian public listed company. Revenue: RM2.7 million, PBT: -RM3,881 (2010) CASSIS was founded in 2002 and headquartered in Singapore. The company serves many leading banks, • Smart card personalisation
• NFC and remote management
telecommunications industry players and transittechnology operators in Asia PacifiC, Europe and USA. CASSIS • Builds customised solutions
Revenue: RM84 million, PBT: -RMI4 million (2010) • Develops digital de\Oces
and services Datasonlc Group through Datasonic Corporation Sdn Bhd, began its operations In 1980 with the proviSion • Smart card personallsation
• Digital identity systems and
of smart card secure ID and personallsatlon services.smart card solutions The Group continues to expand the boundaries of ItS• Selling and distribution of smart card solutions and offerings by conducting R&DDatacard® systems to diverSify Into the area of being a total smart card Datasonic • Design, implementation, software and system proVider (i.e. expand into chip Group Installation, training, technical platforms/ OS).support for personallsatlon The Group is also expanding Into the arena of ICTsystems solutions via its subsidiary Datasonlc Technologies• Selling, distribution and Sdn Bhd. This subsidiary is responSible for the Group’s maintenance of consumables continued expansion Into the ICT industry via the and equipment for the card lar e scale customised software and hardware 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Note: 1) Market players listed alphabet/cally. 2) InformatIOn on the market players have been obtained from the companies’ websites, annual reports and Suruhanjaya Syarikat Malaysia (”SSM’; reports. Source: Protege Associates 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
Market Share Analysis for the Smart Card Solutions Market The smart card solutions market in Malaysia comprises of about 10 to 14 market players. The following illustrates the market share Datasonlc Group in the smart card solutions market in 2011. Figure 7: Market Share of Datasonic Group in the Malaysian Smart Card Solutions Market, 2011
oth.ers 82;8&/~ Note: 1) Market share of Datasonic Group is based on revenues derived tram smart card related projects, products andservicesonlyand nottromitsother lCTproject!! solutions 2) Marketshare ofotherplayers ISnotobtainabledue tv the lack ofSImIlar revenue segmentation or latest official financial mformation Source: Protege Associates In 2011, Datasonic Group generated RM44.5 millIon from its smartcard related projects, products and services. Based on this revenue, and a smart card solutions market size of RM258.7 millIon, Datasonlc Group held a market share of 17.2 percent. Datasonic Group is a well-establIshed market player with a long history of participation in the market.
Datasonic Group’s ComPetitive Advantages Datasonic Group is one of the main market players in the Malaysian smart card solutions market. Two of the Group’s subsidiaries -Datasonic Corporation Sdn Bhd and Datasonic Technologies Sdn Bhd are active in the market with the former providing smart card personallsation services, sale ci consumables, and also maintenance, support, training and consultancy for smart card projects, while the latter manages projects and implements smart 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Cont’d)
…. ND I …….. e. I …… “‘ ••
card software and hardware customisation for smart card and other large scale customised ICT projects. Datasonic Group Is a market player that stands out in the smart card solutions market as they have a proven track record and an established presence. This comes from its more than 20 years of experience in the market, as well as its role as the sole distributor of Datacard® central Issuance Systems and Solutions in Malaysia. Having a lengthy track record and an early presence in the market has enabled Datasonic Group to be one cJ the incumbents in the market. This is benefidal as the Group will not be faced with the barriers to entry that other newer competitors are likely to face. These barriers may include the high initial investment and capital expenditure required to set up personalisation centres, the ability in meeting stringent standards of certification body/ compliance regulations (e.g. for EMV cards) and also competing with established market players like Datasonic Group. Another advantage that Datasonic Group holds in being one of the key market players is that with the extensive market knowledge and experience in smart cards, Datasonlc Group Is now able to branch out into the larger ICT industry -and its plans to diversify Into other software and hardware customisation projects and be a preferred ICT solutions provider will likely strengthen the Group’s capabilities and market presence.
Barriers to Entry High Initial Invesbnent and Capital Expenditure The setup of smart card personalisation centres to provide competitive smart card solutions requires a sizable initial investment that can prove prohibitive to new market entrants. Initial set up costs Involve high capital expenditure costs arising from the purchase of large-scale smart card personalisation machines to meet the intended scale cJ production, the Investment In software solutions (whether through internal development or external procurement) for smart cards, and the acquisition of other requisite equipment and technologies. New and potential market entrants may find diffiCUlty in harnessing the financial resources for such expenditure to a scale comparable to that of existing market players.
Meeting Stringent Standards of Certification Bodies! Compliance Regulations Smart cards are often applied for the storage of personal data of individuals, including sensitive biodata, financial and security information (e.g. for EMV cards). Given the criticality of the information stored on smart cards, advocates of smartcard usage, including EMV, the Malaysian Government and mobile telecommunications service providers hold stringent standards of compliance in relation to the quality and security standards of smart cards. The IB7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Coni ‘d)
….. 0 I ~, ……. c. ,,,,,.,,,, stringency of these standards can prove a barrier to entry for new market entrants with little experience or knowledge of these regulatory and certification requirements.
Competing with Established Market Incumbents Potential market entrants will have to compete directly against market incumbents who have already built a significant market presence and reputation. Market players such as IRIS and Datasonic Group have had the first mover advantage, which is likely to hold as a major competitive strength among smart card customers, With whom quality and security of smart cards are absolutely paramount. New market entrants will need to convince the existing market to switch suppliers; this may prove difficult as market incumbents are likely to already possess the technological experience, business relationships and efficiencies to continue dominating the smart card solutions market.
Market outlook: Future ProsPects The smart cards market in Malaysia was estimated to have reached RM482.6 million in 2011. Growth in the market is further expected to continue with a CAGR of 3.7 percent from 2012 to 2016, bringing the total market to reach a size ci RMS76.3 million. In contrast, the smart card solutions market in Malaysia was estimated to have reached RM258.7 million in 201lo Growth in the market is further expected to continue with a CAGR of 4.5 percent from 2012 to 2016, bringing the total market to reach a size of RM319.3 million. Growth rates for the smart cards market and the smart cards market in Malaysia from next year onwards are also expected to climb steadily, between 3.4 percent to 3.9 percent for the former; and between 3.5 percent to 4.8 percent for the latter. The market outlook for both these markets is therefore positive, W’lth demand being driven from existing applications (GMPC, PMPC and others), adoption by new market areas (loyalty, physical access and others), new technology and improvements (NFC and contactless) as well as new applications being driven by the Government and financial sectors. Demand may be minimally impacted by the moderate interest from existing cardholders towards new applications in the near term but this is not expected to contribute any significant impact on the overall market demand. In terms of supply, a stable and reliable supply of product and services in both the smart cards market and smart card solutions market can be attributed to the presence ci established market players, continued support by the Government and financial sector and a reliable supply of IC chips for smart card manufacturing. Supply is only expected to be minimally impacted by the presence of cheaper alternatives like magnetic stripe cards or 197. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
lower technology proximity cards. However, these altematives are usually used in applications which do not require high security and henoe, are not expected to pose a serious challenge to the smart cards and smart card solutions markets. With the positive market outlook for both the above markets, market piayers are expected to benefit and continue to grow during the forecast period. Among some of the factors which enable established market players with a proven track record to sustain strong growth may include their historical record of success, estabiished partnerships with vendors, proven ability to meet stringent standards and compiiance issues as well as proven financiai capacity to invest in the required machinery and equipment. In addition, market players which participate in more than one area have greater diversification and more products and services in their portfoiio to offer to their clients. These may include Datasonic Group (which is both a smart card soiution prOVider and can also act as a system integrator) and IRIS (a smart card solution prOVider and reader/ terminal suppiier). Certain market players may also have gained sufficient experience and expertise from their involvement in the smart cards market to further expand into the greater ICT industry, thus providing them with a competitive advantage breaking into a giobal growth industry. Datasonic Group has taken this route and presently has branched into becoming an ICT solutions prOVider, with some iarge scale integrated customised solutions development and implementation projects across the governmental and telecommunications sector under its beit. Market players in this vein are expected to perform even better than those who solely participate in the smart cards or smart card solutions market. Branching out into the ICT industry is expected to bring in good results for market piayers iike Datasonic Group as, according to MATRADE, the period from 2005 to 2010 saw ICT expenditure in the country growing at a CAGR of 10.0 percent to RM22.0 biliion. In addition, the Malaysian ICT industry is expected to continue to see positive prospects into the long term with the growth in 2011 expected at just below 10 percent. The Government further expects that the ICT industry will gain more momentum due to the convergenoe of digitalisation and its impact on other industries and the economy. The ICT industry has been earmarked as one of the National Key Economic Areas in the 10MP and aims to shift the country from being an average produoer of general ICT products and services to a niche produoer of selected ICT products and services, and to progress from being a net importer to a net exporter. Continued growth in the ICT industry is expected with favourable Government poiicies and plans as outlined in the 10MP and ETP. 7. EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (Conl’d)
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 shouid also not be considered as a recommendation to buy or not to buy the shares of any company or companies. Thank you. Yours sincerely,
SEOW CHEOW SENG Managing Director Protege Associates Sdn. Bhd.