Industry Overview

ICompany No. 636944-U I ICompany No. 636944-U I 10,0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (Prepared for inclusion in the Prospectus Vital Factor Consulting Sdn Bhd (Company No.. 266797-no VITAL FACTOR CONSULTING 75C & 77C Jalan 5522119 Creating Winning Business Solutions Damansara Jaya 47400 PetaHng Jaya Selangor Darul Ehsan, Malaysia Tel: (603) 7728-0248 9 SEP 2005 Fax: (603) 7728-7248 Email: iofo@vitalfactorcom Website www.v.lalfactor.oom The Board of Directors IQ Group Holdings Berhad 3’d Floor, Wisma Wang 251-A, Jalan Burma 10350 Penang Malaysia
Dear SirslMadam Assessment of the Lighting Industry Focusing on Sensor Lighting The following is a summary of the Assessment of the Lighting Industry Focusing on Sensor Lighting in Malaysia prepared by Vilal Factor Consulting Sdn Bhd for inclusion in the Prospectus of IQ Group Holdings Berhad (herein together with all its subsidiaries will be referred to as IQGHB Group) In relation to its proposed listing on the Main Board of Bursa Malaysia Securities Berhad. 1. Background • The objective of the report is to provide an independent assessment of the Lighting Industry Focusing on Sensor Lighting in Malaysia.
• IQGHB Group is primarily a designer and manufacturer of Passive Infrared (PIR) motion sensor lighting and motion sensors. Other business activities include the sale, marketing and distribution ofPIR motion sensor lighting and motion sensors.
• Based on audited accounts for the financial year ended 31 March 2005, IQGIlB Group recorded total revenue of RM 138.6 million. Export revenue accounted for 99.8% ofIQGHB Group’s total revenue, while the remaining 0.2% was derived from local markets. The export markets of the Group include the United Kingdom, Japan, France, the United States, Belgium, Germany, New Zealand, Hungary, the Netherlands, Switzerland, Singapore, Mexico, Eire and China.

2. Overview of the Lighting Industry • The Lighting Industry is a sub-sector of the Consumer Electrical Products Industry, and is under the total umbrella ofthe Electrical Industry. IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 165 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The Lighting Industry can be segmented into General Lighting, Sensor Lighting. and Other Lighting. (n 2004, exports ofConsumer Electrical Products (a sub-sector of the Electrical Industry, which includes the Lighting Industry) amounted to RM5.2 billion (Source: Molaysio’1lndustrial Developmenl Authority); Export value of Electrical sound or visual signalling apparatus, other visual signalling apparatu<; (which included Security LightinglSensor Lighting, Standalone PIR Motion Sensors. and PIR Controlled Decorative Outdoor Lighting) increased at an average annual rate of 28.5% between 2000 and 2004. Expol1 value for this categol)’ amounted to RM 168.2 million in 2004; The export value of Other electric lamps and lighting fittings declined at an average annual rate of 30.9″10 between 2000 and 2004. Export value for this category reached RM8.9 million in 2004; (Source.: Department a/StatIstics) • In addition to its contribution to the nation’s foreign exchange earnings, the Consumer Electrical Prooucts Industry also contributes towards employment generation, value­added crealion and income generation. 3, Industry Structure Structure of the Eledricallndustry • The structure oflhe Electricallndustr}’ is as follows:
Consume< Eledncal “”””‘”
HousetlOkl OIMr Con”-lm’l ….ppliances
“””‘” Source: Malaysian Industrial De’l’elopmoml Aurhoriry Figure I Electritallndustry Segmentation • Electrical Industry is segmented into the following: Electrical Industrial Equipment; Elecrrical Componenls; Consumer Electrical Products. IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 166 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • Electrical Industrial Equipment comprises the manufacturing of electric motors, generators, electricity transmission or distribution equipment, switchgear, transformer or other electrical machinery and equipment.
• Electrical Components refer to components such as resistors, inductors, conductors and capacitors. cables and wires, batteries and insulators, which do not require power to operate.
• Consumer Electrical Products refer to household appliances, lighting and other consumer electrical products.
• This report focuses on the Consumer Electrical Products sector.

Structure orthe Lighting Industry • The Lighting Industry is further segmented as follows: lighting General Lighting  Sensor Lighting  Other Lighting
Figure 2 Lighting Industry Segmentation • General Lighting refers to electrically powered Eghting devices that require some fonn of direct human action to fimction, for example, the working of a switch or the setting of a timer.
• Sensor Lighting refers to electrically powered lighting devices whose function is automatically determined by the detection of external signals, for example, presence of infrared radiation or sound.
• Other Lighting refers to electrically powered lighting devices whose function is determined by instructions received from remote means, for example through instructions received via the internet or through wireless communications as found in some “smart” home applications.
• lQGHB Group is primarily involved in the manufacture of Sensor Lighting using Passive Infrared Radiation (PIR).

IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 167 ICompany No. 636944-U I 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Vertical Structure of the Lighting Industry • The vertical structure of the Lighting Industry is illustrated in the figure below: ~ Upstream -< Midslream Ma””‘a~re of Ligtl~ng{ I
I
II • OistrObulioo Retail
I III Figure 3 Vertical Structure of the Lighting Industry • The activities within the Lighting Industry incorporating Sensor Lightings can be segmented into the following categories: Upstream; Midstream; Downstream,
Upstream • Upstream activities primarily involve the supply of key components that are commonly made by third parties. These could include highly technical components like electronic components, PIR sensor heads, radio wave transceivers, filters, and lenses, and parts like plastic injected moulded parts, metal casing and parts and glass parts.
• In 2004, the ex-factory value for the manufacture of Semiconductors and other electronic components and communication equipment and apparatus amounted to RMI 10.0 billion (Source: Department a/Statistics).
Midstream
• Midstream activities include the manufacturing of General Lighting, PIR Sensor Lighting and PIR Motion Sensors.
• In 2004, there were approximately 77 manufacturers in the Consumer Electrical Products Industry in Malaysia (Source, Malaysian Industrial Development Authority).

IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 168 ICompany No. 636944-U I 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • There are currently two companies engaged in the manufacture of Sensor Lighting and Motion Sensors operating in Malaysia. (Source: Primary marke1 research conducted by Vital Factor Consulting Sdn Bhd) e lQGHB Group is actively involved in the midstream activities of design and manufacturing of PIR Sensor Lightings and PIR Motion Sensors. Downstream • Downstream activities involve distribution and retailing.
• The downstream activities of consumer-based lighting involve distribution and retailing, while downstream activity for Industrial and Commercial Lightings involve only distribution.

e IQGHB Group sells its products to both distributors as well as directly to retailers. Industry Linkages e The Lighting Industry has extensive linkages to many industries, as depicted in the diagram below:
Plash” Ini”Clion Eleclroot<: Comp””…..s Mould”‘9
lighting Induot/)’ “”rnt””,!””” BLl~<ling and Inlenor Fi\-out Pu~hc Amerlili.. C”nstruclion Dislrib\J~”nI L”9is1ics Se”urityRelailing Figure 4 Linkages to·the Lighting Industry • The wide linkages of the Lighting Industry illustrate its contributory role to many other dependent industries.
• As such, the significant role of the Lighting Industry will act as a catalyst for economic activities, employment and creation of wealth for the nation.

IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 169 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 4. Government Legislation, Policies and Incentives Covernment Regulalions • Apart from the nonnal manufacturing licence, Ihere are no material Government laws, regulations and policies thaI may impede on the performance and growth of operators within a free enterprise environment.
• According 10 Ihe Industrial Coordination Act, 1975 which mandates all manufacturing companies with shareholders’ funds of RM2.5 millioll or above, or engag.ing 75 or more filII-time employees (0 al1ain a manufacturing licence (Source: Malaysian Industrial Development AUfhoriry).

Government 1ncentives • The major incentives for companies investing in the manufacluring sector are: Pioneer Status and Investment Tax Allowance; Reinvestment Allowance; lmpon Duty Exemption; Double Tax Deduction; Operational Headquarters Status and Tax Exemption.
Pioneer Status and Inveslment Tax Allowance
• Eligibility for incentives under Pioneer Status and Investment Ta’t Allowance will be detennined according to the priorities termed as “promoted activities’ or “promoted products”. In addition, the level of value-added, technology and industrial linkages will also be taken into consideration.
• IQ Malaysia (IQM) was granted full Pioneer Slatus by the Malaysian Industrial Developmenl Authority for the manufacture of “Passive Infrared Detectors & Motion Sensor Light Controllers” on I September 1989. The incentive expired on 31 August 1994. No extension related to the manufacture of Passive Infrared Detectors & Motion Sensor Light Controllers has been sought. as IQ Malaysia no longer qualifies for the Pioneer Status and Investment Tax Allowance incentive.
• On 11 April 2005, IQM filed an application for Pioneer Status for the manufacture of Wireless (RF) Video Communication, Wireless (RF) Video Communication With Close Circuit TV (CCTV) Monitoring Capability and Video Doorphone and’ Audio Only’ Two~Way DoorPhonc. To date, the application is pending a decision from the Malaysian Industrial Development Authority.

IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 170 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Reinvestment Allowance • All manufacturing companies that have been in operation for at least 12 months and incur qualifying capital expenditure to expand production capacity, modernise and upgrade production facilities, diversify into related products, and automate its production facilities can claim a Reinvestment Allowance.
• Eligible manufacturers for Reinveshnent Allowance are entitled to the following:

The Reinvestment Allowance is 60% of qualifying capital expenditure incurred by the company, and can be offset against 70% of its statutory income for the year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised. The Reinvestment Allowance will be given for a period of 15 consecutive years beginning from the year the first reinvestment is made. Companies can only claim upon completion of the qualifying project, for example after the building is completed or when the plant/machinery is put to operational use. Assets acquired for the reinvestment cannot be disposed during two years from the time of reinveshnent. (Source: Malaysian Industria! Development Authority) • IQGHB Group is currently enjoying the Reinvestment Allowance incentive. This incentive will expire on 31 March 2012.
Import Duty Exemption
• Export-oriented manufacturers operating in Free Trade Zones may be eligible for import duty exemption on components and raw materials that are used in the manufacture ofgoods that are ultimately exported.
• As an export-oriented manufacturer operating in a Free Trade Zone, IQM is exempted from paying import duties on components and raw materials that are used in the manufacture of goods that are ultimately exported.
Double Tax Deduction
• IQGHB Group was allowed to claim double tax deduction for R&D expenses incurred on certain projects during the financial year ended 31 March 2003 under Section 34A, Income Tax Act 1967 from the Inland Revenue Board Malaysia.

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o
5.
6.

VITAL FACTOR CONSULTING Creating Winning Business Solutions
• As at I September 2005, the Group has submitted an application to the Inland Revenue Board Malaysia with respect to a double lax deduction claim under Section 34A, Income “fax Act 1967 with respect to eligible R&D expenses incurred during the financial year ended 31 March 2005. To date, the application is still pending approval from the Inland Revenue Board Malaysia. Operational Headquarters Sial us and Tax Exemption • On 29 August 2005, the Malaysian Industrial Development Authority approved IQGHB Group’s application for Operational Headquarters (OHQ) slatus and OHQ tax exemption under Section 127. Income Tax Act 1967 for a period of 10 yeaTS, from the year of assessment 2005 to the year of assessment 2014, for undertaking OHQ activities in Malaysia, which involve the provision of qualifying services to relaled companies outside Malaysia.
• An approved OHQ refers to a locally incorporated company that carries on a business in Malaysia to provide qualifying services to its offices or related companies within or outside Malaysia (Source: Malaysion Industrial Developmenl Aurhority).
• The Malaysian Industrial Development Authority granted IQGH Group approval for income tax exemption, nOl exceeding 2(W, oflhc tOlal income ofthe OHQ operations in relation (0 qualitying service provided to related companies in Malaysia,
Environmt’nhll Regulations
• Solder dross, which is generated during the course of IQM’s manufacturing activities is classified as a Scheduled Waste. hN202. Dross from soldering process” under the Environmental Quality (Scheduled Wastes) Regulations 1989 (Source: Environmmlol Quoliry Act and Regularions).
• The transport and treatment (including recycling) of scheduled waste solder dross must be undertaken by approved contractors of the Department of Environment

(DOE). • lQM has appointed an approved Contractor to transport and recycle Solder Dross.
• The approved Contractor is licensed by the Department of Envirorunent to carry out the

following activities under ~tion II of the Environmental Quality Act. 1974: OfTsite storage: coll”ction and transport of Scheduled Waste; and Offsite recyclillg facility for Scheduled Waste. Supply and Demand Dependencies • Operators in the Lighting Industry are mainly dependent on the continued availability of various raw materials and componentS used in the manufacture of finished products. IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 172 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The major raw materials and components used in the manufacture of PIR Sensor Lightings and Motion Sensors arc diverse depending on the type of products manufacrured under this category.
• However for the purpose of this assessment, the report will focus on the major raw
materials and components which includes: Electronic components in(‘.luding semiconductors, capacitors, printed circuit boards and integrated circuilS; Motion detectors, halogen lamps and halogen lamp tubes.
• One of the major raw materials for the manufacture of PJR Sensor Lightings and MOlion Sensors are electronic components, As Malaysia is a manufacturer of Semiconductors and Electronic Components, most of these raw materials can be sourced locally.
• In 2004, the ex-factory value for the manufacture of Semiconductors and Other Electronic Components and Communication Equipment and Apparatus (hereafter referred to as “Semiconductors” in this section) reached RM 110,0 billion.
• Between 2000 and 2004, the import value of Capacitors declined at an average annual rate of 18.4%. In 2004, import value of Capacitors declined by 15.1% 10 reach RM888.1 million.
• Between 2000 and 2004, the import value of Printed Circuit Board declined at an annual average rate of 5.7%. The import value of Printed Circuit Board declined by 1.8% to reach RMS.O billion in 2004.
• B”,.tween 2000 and 2004. the import value of Halogen Lamps increased at an annual average growth rate of 72.3%. In 2004, the import value of Halogen Lamps declined by 69.7% to reach RM61.0 million.
• Between 2000 and 2004, the import value of Halogen Lamp Tubes declined at an average annual rate of 31.0%. In 2004, the import value of Halogen Lamp Tubes declined by 14.1% 10 RM 111.4 million.
• Between 2000 and 2004, the import value of Integrated Circuits declined by all average annual rate of 1.4%. In 2004, the import value of Integrated Circuits declined by 12.3% to reach RM36.7 billion.
• The import value of MOlion Detectors d«lined at an average annual rale of 17.7% between 2000 and 2004. In 2004, the import value of Motion Detectors declined by 82.9% to reach RM21.1 million.

(Source: Departmenr o[SIaJiSlics) IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 173 ICompany No. 636944-U I 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 7. Demand and Demand Dependencies • The demand for PIR Sensor Lighting and MOlion Sensors is primarily dependent on the
following sectors: Industrial; Commercial, comprising Commercial Complexes and Purpose-build Offices: Residential.
• 1n addition, demand also comes from both local and overseas markets.
• Residential, Commercial and Industrial Property trends and indicators in Malaysia are as follows:

The number of residential units in Malaysia increased at an annual average growth rate of 8.7”’10 between 2000 and 2004. The number of residential units in Malaysia increased by 5.0% in 2004 to reach 3.5 million units; The number of industrial property units in Malaysia increased at an annual average growth rate of 1.3% between 2000 and 2004. TIle existing stock of industrial property units increased by 1.0% to reach 84,678 units in 2004; Tetal commercial complex space in Malaysia increased at an annual average growth rate of 6.2°;, between 2000 and 2004. The existing stock of commercial complex space increased by 4.6% 10 reach 7.1 million square meters in 2004; The number of shop-house and shop-office units in Malaysia increased at LIn annual average growth rate of4.20/0 between 200 and 2004. The existing stock of shop-house and shop-office units increased by ).4% to reach 291,723 units in 2004: Total purpose-built office space in Malaysia incrc.ased at an average annual growth rate of 2.8% between 2000 and 2004. The existing stock of purpose­built office space increased by 2.0% to reach 13.5 million square meters ill 2004. (Source: Ministry ofFinance Malaysia) • As Ihe export market accounted for 99.8% of IQGHB Group’s revenue for the financial year ended 31 March 2005, the recent economic performance of IQGHB Group’s five mosl important expo” markets in terms of revenue generalcd during the financial year ended 31 March 2005 are as follows: Real GOP of the United Kingdom grew at an average annual rate of 2.3’% between 2000 and 2004. Read GDr im:rcased by 3.1% in 2004, while Real GOP growth is projected aI2.6% f0l'”2005; IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 174 ICompany No. 636944-U I 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Real GDP of Japan grew at an average annual rate of 1.0010 belween 2000 and 2004. Real GDP growth in Japan was 2.6% in 2004, while Real GOP growth is projecled al 0.8% in 2005; Real GOP of France grew at an average annual rale of 1.5% between 2000 and 2004. Real GOP growth in France was 2.3% in 2004, white Real GOP growth is projected at 2.0% in 2005; Real GOP of the United States increased by an averag~ annual rate of 2.5% between 2000 and 2004. Read GOP growth in the United States was 4.4% in 2004, while Real GOP growth is projected at 3.6% in 2005: Real GOP of Belgium increased by an average annual rate of 1.4% between 2000 and 2004. Real GOP growth in Belgium was 2.7% in 2004, while Real GOP growth is projected at 2.1% in 2005. (.)()urce: Internatiunal Monetary FI/nd) 8. Competitive Nature and Intensit)’ Local Competitive Condilions • Operators in the Manufacture of Sensor Lighting and Motion Sensors face normal compelitive conditions.
• As with most free enterprise environments, competition is based on a number of factors,

including: Quality products and services Cos. competitiveness Prompt delivery schedules Manufacturing capabilities Global Competitive Conditions • A large proportion ofmanufacturer$ ofPIR products are in Taiwan and China.
• China’s lower cost of production could creale price pressure for PIR product manufacturtrs.
• However, a major competitive consideration is thaI PIR products are technologically

sophisticated. Thus, there are significant areas of differentiation as follows: Functionality (for example. additional dusk timer); Innovations (for example. placing PIR sensor away from the appliance and using RF for signal transmission); Quality (for example, better handling of nuisance factors). IQ Group Holdings Berhad Lighting Industry FOCI/sing on Sensor Lighting 175 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • The abilily to create tangible product differentiations would effectively mitigate the issue of low pricing.
• Demand for PIR products mainly come from more affiuent countries like US, Europe and Japan.
• In addilion, PIR products are not mass consumer goods and are commonly sold through hardware, DIY (Do-It-Yourself) and dectrical appliances stores. Many of these specialised relail stores are large chain stores.
• One of the critical success factors is marketing to penetrate as many ofthese specialised retail stores as possible,
• Thus, competition is focused on obtaining shelf space on specialised retail stores in affluent countries.

9. Players in the Industry • There are two companies engaged in the manufacture of Sensor lighting and Motion Sensors currently operating in Malaysia. They are as follows: IQGHB Group; RL Manufacturing Sdn Bhd (a subsidiary ofCooper Industries, Inc.). (Source.’ Primary market research cond/lcled hy Vital Fac:lur Consulting Sdll Bhd) • As IQGHB Group is primarily export-oriented, local competilive conditions do not have a major impact on its business.
• Some ofthe manufacturers of Sensor Lighting and Motion Sensors include: Cooper Industries. InclRegent Lighting (US) Desa Intemationallnc’!Heath ZeniTh (US) Protection Technologies Inc. (US) Matsushita Electric Works (Japan) Clipsallntegrnted Systems Pry Ltd (Australia) Sleinel Vertriebs GmbH & Co. (Gennany) Ansen Electronics Company (Hong Kong) Everspring Industry Co. Ltd (Taiwan) Aurum Electronics Corporatioo (Taiwan) Aurex Industries Inc. (Taiwan) Nuzon Technology Inc. (Taiwan) Wellmike Enlerprise (Taiwan) Class Technology Co. Ltd (Taiwan) Huaning International Technical and Trading Corpor.nion (China) Colite Enterprises Co. Ltd (China) Cixi Maste Electronic Technology Co. Ltd (China)

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions CSI Lighting Company (China) Aucan Industrial Development Corporation (China).
(Source: Primary market research undertaken by Vital Factor Consulting Sdn Bhd) 10. Industry Outlook and Lifecycle • The outlook of the Consumer Electrical Products Industry is favourable.
• The Consumer Electrical Products Industry is forecasted to grow by approximately 5% per annum for the next five years.
• The following factors and observations in local production, imports and export performances provide support for the growth forecast.

Local Production Between 2000 and 2004, the Electrical Products production index declined at an average annual rate of 6.1%. In 2004, the production index of Electrical Products decreased by 9.4% to 133.3 (Source: Bank Negara Malaysia); Exports Between 2000 and 2004, the export value of “Electric sound or visual signalling apparatus (for example, bells, sirens, indicator panels, burglar or lire alarms), other than those of heading No. 85 12 or 85.30, Other apparatus: Visual signalling” increased at an average annual rate of 28.5%. (Source. Department ojStatistic5); In 2004, exports of Electrical Products (including Consumer Electrical products) continue to be a major export earner, increasing at an annual rate of 28.4% to RM17.2 billion (.$ource: Malaysian Industrial Development Authority), In 2004, the export value of the Electric Consumer Products Industry increased at an annual rate of 52.9% to RM5.2 billion. Exports of the Electrical Consumer Products Industry accounted for 30.2% of the total Electrical Products Industry’S exports for that year. (Source Maiaysian Industrial Development Authority) IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 177 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Imports Between 2000 and 2004, the import value of “Electric ~ound or visual signalling apparatus (for exalTlple, bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No. 85.12 or 85.30, Other apparatus: Visual signalling” dedined at an average annual rate of 17.7%. In 2004, the import value of Electrical Visual Signalling Apparatus declined by 82,9% to reach RM21, I million (Source: Df!peJrlmenl oIS(atistic.~). In 2004, imports of Electrical Products (induding Consumer EICClrical products) amounted to RM J5.2 billion (Source: Malaysian Industrial Development Authority). I t. Areas of Growth and Opportunities Creation of Original Design and Brand Manufacluring • In line with the Malaysia Government’s intention to nurture the development of locally manufilctured brands, there are opportunities to Ix an Original Design and Brand Manufacturer of Consumer Electrical Products including Sensor Lighting.
• The creation of original brands will enable manufacturers to reduce dependencies on brand owners. More importantly, this strategy will help manufacturers to command premium pricing to increase their profit margins,
• IQGHB Group has begun brand development though the branding of a proportion of the Group’s products with the “IQ-group” brand.

New Expor’ Markets • Generally, the Malaysian market is too small to absorb most of the oUlputs from manufacturers. As such, exports are inevilable for manufacfUrers to expand.
• Operators that can serve various markets will have increased areas of opportunilies for growth as well as diversify risks of dependency on anyone single market.

Product Innovation • There are significant opponunilies for product innovation. This is because of the wide array of technologies thaI may be used and integrated with a variety of devices to address new markets. IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 178 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• Some of the available technologies include: PIR motion sensors; Radio frequency transminers/receivers Microwave transmitters/receivers Sonic deteclors Vibration detectors Laser.

• Some orthe innovative products that utilise a number oflechnologies include, among

many others, the following: Sensor lights with alann or door chime; Intelligent Home Security System Remote Monitoring System. 12. Threats and Risk Analysis Competition from Imports • According to Malaysian Industrial Development Authority, Malaysia is a net imponer of electrical products. However, Malaysia is a net exporter of Consumer Elcttrical Products. In 2003, impon value of Consumer Electrical Products was RM896 million, while expol1 value was RM3.4 billion. Net expons totalled approximately RM2.5 billion (Source: Malaysian Industrial Developmem Authority).
• Some of the major impon countries of Electrical visual signalling apparatus in 2004 were Japan. the United States, China, Brazil, and Taiwan (Source. Deparlmenl oj Statistics)
Mitigating Factors
• Malaysia’s position as a net exponer of Consumer Electrical Products in 2003 indicates that local manufacturers are currently competitive on a global basis. In addition, the Government has identified the Consumer Electronic Producls industry as one of the areas ofgrowth and development
• As such, electrical products that iocOfJ>Orate electronics would have significantly higher value adding.
• In addition, expon value of Consumer Electrical Products irn;reased from RJvl3.4 billion in 2003 to RM5.2 billion in 2004. This suggests that the global competitiveness of Malaysian exponers did not decrease.

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • [n recognition or the growrh opponunll1es, various incentives have been given to manufacturers of Consumer Electronic Products or Pans. including PIR Detectors and Motion Sensor Light Controllers including: Pioneer Status Investment Tax Allowance Reinvestment Allowance
In addition to the Government incentives, operators that are able to provide value­adding, undertake research and development, and customise produclS to meet the requirements ofcustomers would be in a stronger position to sustain business growth and minimise competitive threats. • IQGHB Group was granted full Pioneer Status for the manufacture Passive Infrared Detectors and Motion Sensor Light Controllers in 1989. The Group’s status has since expired. Downturn in the Local and Global Economies • [n 2003, the war in Iraq and the outbreak of the Severe Acute Respirnlot)’ Syndrome (SARS) have aggravated the global economic situation. The economy of the world and in particular, the United Stales has been increasingly volatile.
• Inadvertently, the volatile global economy will also have some impact on local economy. Hence, any downturn in the local and global economies will affect the demand for Consumer Electrical Products.
Mitigating Factor
• The Malaysian Governmem’s pro-active policies in mitigating the negative impact of a global economic downturn through stimulus packages to boost domcstic spending and demand have been successful in countering a slowdown in the local economy.

Foreign Exchange Risk • Many of the raw materials for the Lighting Industry in general and lhe sensor Lighting sector in particular rely on imports. In addition, many of the manufacturer products are exported.
• On 21 July 2005, Bank Negara Malaysia announced that with immediate effect the exchange rate of the Ringgit will b~ allowed 10 operate on a managed float, with its value detemlined by economic fundamentals (Suurce: Bank Negara Malaysia).
• As such, fluctuations in foreign exchange rates will have an impact on the prices of imported raw malerials as well as export earnings.

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions Mitigating Factors • Bank Negara Malaysia will monitor the exchange rate against trade-weighted index of Malaysia’s major trading partners. Promoting stability of the exchange rate continues to be a primary objective of policy (Source: Bank Ni!1{ara Malaysia).
• IQGHB Group places a proportion of its export proceeds in multi-currency bank accounts to facilitate payments in the corresponding foreign currency.

Implementation of Asean Free Trade Area (AFTA) • The reduction of import duties to 0% to 5% with lhe implementation of AFTA through Common Effective Preferential Tariff (CEPT) would make imports very competitive against locall)’ manufactured products within the Lighting Industry including the Sensor Lighting Sector.
• CEPT is the mechanism by which tariffs on goods traded within the Asean region, which meet a 40% Asean content requirement has been subjected to a reduction of the above-mentioned range of tariff since 2003 (2006 for Vietnam, 2008 for Laos and Myanmar).
• AFTA will have an impact on local manufacturers as imports compete at the same level with zero or minimal import duties.

Mitigating Factors • AFTA has minimum impact on IQGHB Group as almost all its products are exported,
• The following mitigating faclors apply to manufacturers thaI focus primarily on Ihe local market
• New entrants into the Malaysian market upon the implementation of AFTA need to invest significant effort and time to develop and market their products to gain acceptance from local consumers. This provides some advantages to existing local players at least in the short to medium teon.
• Local players with a strong market reputation, established track record, product development capabilities, large and diverse cUSlomer base and consistent product quality are in a bener position 10 face the increased competitive pressure trom potentially new players in the markel.

Availability of Raw Materials • Manufacturers are dependent on the availability of raw materials in the production of Consumer Electrical Products such as Sensor Lighting products. Any interruptions in supply of these raw materials may impact on the operations of manufacturers. IQ Group Holdings Berhad Lighting Industry Focusing on Sensor Lighting 181 I I
Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions
• The major raw materials used in the manufacturing of Sensor Lighting include
electronic components: motion detectors capacitors resistors printed circuit boards halogen lamps/tubes integrated circuits.

• Although Malaysia has an active electronics manufacturing industry, some of these raw materials, in particular specialised electronic components may not be readily available in Malaysia. Therefore some of the electronic components such as sensor components and Application Specific Integrated Circuits (ASIC) may have to be imported.
Miti28ting Factors
• As electronic components including components such as motion detectors, capacitors, resistors, printed circuit boards, halogen lamps/tubes, and integrated circuits can be sourced from numerous counlTies overseas., Ihe probability of shortages in these types of materials are minimised.
• Malaysia also produces a significant amount of semiconductors. The ex-factory sales value for the manufacture of Semiconductors increased by 9.6% in 2004 to reach RM 110.0 billion. Belween 2000 and 2004, the ex· factory sales value for lhe manufacture of Semiconductors declined a! an annual rate of 0.9% (Suurc;t: Deparlmem o/Srofisricsj.

13. Threat of Substitutes • Subslitutes to PIR Motion Sensor technology-enabled lighting equipment such as PIR Security Lighting and PIR Decorative QUldoor Lighting include: General Lighting; Timer Controlled Lig.hting; Lighting utilising alternative detection technology. General Lighting • General Lighting refers to light fixtures that are manually operated through on/off swilches.
• Currently the bulk of lighting for commercial and industrial applications, public amenities and households are general lighting. These are popular as that they are cost-effective, easy to install, widely available and require very little maintenance.

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions • General Lighting is not a substitute for Sensor Lighting per se, but rather the default lighting for all lighting applications.
• However, the advantages of PIR Sensor Lighting over General Lighting are as

follows: convenience to users; provides security; offers operating cost-savings where illumination is provided only when it is required. Timer Controlled Lighting • Timer controlled lighting refers to light fixtures which rely on the action of a liming device to control the fixture’s illumination function.
• Timer controlled lighting can be set so as to provide illumination at pre-detennined periods, for example during the hours of darkness.
• Although Timer controlled lighting may substitute for PIR Sensor Lighting. it loses out significantly in terms of functional ity.

Alternative Detcclion Technology • Motion sensors may employ a number of altemative detection technologies. such as Audio detection. Microwave detectors and lnfrared cameras.
• Audio detectors rely on the detection of sound to control lighting fixture function. Audio detectors are generally non-discriminatory, as a relatively loud noise originating from a relatively long distance away from the dc:tector may also trigger lighting fixture illumination.
• Microwave detectors are active detectors. in that they rely on the reflection ofsignals generated by the detector for presence detection. Microwave detectors are generally more expensive than PIR Motion Sensors of the same capability, and as such are not as suited for wide use targeted at consumer users.
• Infrared camera detectors rely on recognition of infrared images captured by an infrared camera for their function. While these systems are effective, they are currently expensive and as such are not as suited for wide use targeted at consumer users.

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Company No. 636944-U 10.0 SUMMARY INDEPENDENT BUSINESS MARKET AND RESEARCH CONSULTANTS’ REPORT (con,’d) o VITAL FACTOR CONSULTING Creating Winning Business Solutions 14. Output Share • In 2004, the estimated output value for the Manufacture of Sensor Lighting in Malaysia, based on production output is approximately RM95 million (Source. Primary market research conducted by Vital Factor Consulling Sdn Bhd).
• In 2004, the market share of IQGHB Group for the Manufacture of Sensor Lighting in Malaysia based on output value is estimated at 76%.

15. Output Ranking • Based on the Group’s estimated output share of 76% for the Manufacture of Sensor Lighting in Malaysia in 2004, IQGHB Group is ranked First among manufacturers of Sensor Lighting operating in Malaysia (Source. Primary market research conducted by Vilal Factor Consulting Sdn Bhd). Vital Factor Consulting Sdn Bhd has prepared this report in an independent and objective manner and has taken al I reasonable consideration and care to ensure the accuracy and completeness of the report. It is our opinion that the report represents a true and fair assessment of the industry within the limitations of, among others, secondary statistics and information, and primary market research. Our assessment is for the overall industry and may not necessarily reflect the indiYidual performance of any company. We do not take any responsibilities for the decisions or actions of readers of this document. This report should not be taken as a recommendation to buy or not to buy the shares of any company. Yours sincerely
Wooi Tan Managing Director Vital Factor Consulting Sdn Bhd IQ Group Holdings Berhad Lighling Induslry Focusing on Sensor Lighting 184

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