7. INDUSTRY OVERVIEW 7. INDUSTRY OVERVIEW Q VITAL FACTOR CONSULTING Vital Factor Consulting 3dn Bhd Creating Winning Business Solutions (Company No.: 266797-TJ V Square @ PJ City Centre (VSQ) Block 6, Level 6, Jalan Utara 46200 Petalin9 Jaya Selanger, Malaysia Tel (603) 79313188 Fax(603)79312188 www.vitalfactor.com23 June 2014 The Board ofDirectors Sasbadi Holdings Berhad Lot 12, Jalan Teknologi 3/4 Taman Sains Selangor I Kota Damansara 47810 Petaling Jaya Selangor Daml Ehsan Dear Sirs and Madam Independent Assessment of the Edneational Pnblishing Indnstry Foensing on National School Cnrrienlnm in Malaysia
The following is an Independent Assessment ofthe Educational Publishing Industry focusing on National School Curriculum in Malaysia prepared by Vital Factor Consulting Sdn Bhd for inclusion in the prospectus of Sasbadi Holdings Berhad (herein together with all or anyone or more of its subsidiaries will be referred to as Sasbadi Holdings Group or the Group) in relation to its proposed listing on the Main Market ofBursa Malaysia Securities Berhad. 1. BACKGROUND AND INTRODUCTION • Sasbadi Holdings Group is primarily a publisher of educational materials based on the Malaysian National School Curriculum focusing on primary and secondary education, which is the focus ofthis industry assessment.
• The National School Curriculum applies to all national and private educational institutions, but excluding international, expatriate, correspondence and some special education and religious schools.
2. ENVIRONMENTAL ANALYSIS • Businesses, including Sasbadi Holdings Group, whose main market is in Malaysia are affected by the economic well-being of the nation. This is commonly reflected in the country’s gross domestic product (GDP) performance.
• Overall, Malaysia’s key economic indicators in terms of real GDP grew at an average annual growth rate (AAGR) of 5.7% between 2009 and 2013 with the exception of 2009, when the economy contracted by 1.5% amidst the slowdown in the global
economy. Sasbadi Holdings Berhad Page 1 of41 Industry Assessment 135 7. INDUSTRY OVERVIEW (Cont’d)
VITAL FACTOR CONSULTING Creating Winning Business Solutions • In 2013, the Malaysian economy grew at 4.7% driven by continued strong growth in domestic demand, underpinned by robust private sector activity. Private consumption was mainly supported by favourable employment conditions and increase in wages while private investment was supported by capital expenditure in mining, services and manufacturing sectors.
• In 2014, the Malaysian economy is expected to remain on a steady path growing between 4.5% and
Malaysia’s Real GDP Growth 9% l .c 6% ~ C> 0g 3% ~ 0% ·3%
Notes: p ~ Prelimjnary;f~ Forecast. (Source: Bank Negara Malaysia) 5.5%. The growth will be underpinned by domestic demand, although at a moderate pace, as well as improvements in external demand. Domestic demand will remain the key driver of growth supported by robust private investment and private consumption. In tandem with the improvement in external demand, Malaysia’s export performance is expected to pick up during 2014. This is supported by the fact that for the fIrst quarter of 2014, the Malaysian economy grew by 6.2% due to stronger growth in domestic demand, as well as a turnaround in net exports. 3. INDUSTRY OVERVIEW AND STRUCTURE 3.1 Overview ofthe Publishing Industry • Generally, the Publishing Industry covers diverse areas as depicted in the fIgure below: Structure of the Publishiug Iudustry
ComputerContent’ Software lMotion Picture Gamesand Music ——-J’Content primarily includes written information, slill Images and graphicsCJSasbadi Holdings Group operates within this segment, and is the focus of the IMR report • While publishing is commonly associated with printed content or their digital equivalent, it covers other areas because the term publishing involves the process of making materials available to the masses or some special interest groups. Sasbad; Holdings Berhad Page2of41 Industry Assessment 136 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • While publishing commonly includes mass production and distribution of materials, in cases of online publications, materials may be placed in electronic depositories and access made available to the masses, subscribers or to authorised people or devices through some fonn of communications networks, for example, the internet. In this manner, online publishing may bypass the physical mass production and distribution.
• A publisher serves a vital role in transfonning creative works by authors into appealing finished products, and making them easily available to end-users or conswners. Publishing involves various steps including the following:
acquiring manuscripts from authors, either sourced from in-house or via third party authors; editing in tenns of content, syntax, style and fonnat; designing in tenns oflayout and artwork; mass production in printed, digital or online fonnat; marketing and distribution ofpublishing materials.
• In some cases, publishers may outsource some of these functions such as printing of books and other materials to external parties.
• The focus of this report is on content publishing. In Malaysia, the content publishing industry is mainly focused on print publications in terms of monetary values. As such, statistics for the publications of books and other materials mentioned in this report are mainly for print publishing, unless mentioned otherwise. Similarly, the tenn publisher is primarily used to refer to print publishing, unless mentioned otherwise.
3.2 Structure of the Content Publishing Industry • The Content Publishing Industry in Malaysia is generally segmented as follows:
Non-EducationalEducational Sasbadi Holdings Group operates within both segments. but the focus is On educational content • Educational Publishing refers to the publication of materials designed to teach or to enable the users or consumers to learn and acquire knowledge and skills through these materials. Educational publishing may focus on specific syllabus, curriculum or course work to obtain some specific learning outcome. It also includes supporting materials to facilitate the learning process or add to the users’ knowledge and skill base. Some examples of educational publishing materials include textbooks, revision guides, workbooks, reference books, sample examinations questions and other prescribed learning materials. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Non-Educational Publishing refers to publishing of general materials not including educational materials. Some examples include newspapers, periodicals, fiction, biographies, religion, hobbies, comic and other general books and materials. 3.3 Structure of Educational Publishing Industry • In Malaysia, the Educational Publishing Industry is segmented as follows:
• Educational Publishing of National School Curriculum materials refer to the publishing of materials based on the national school curriculum as prescribed by the Ministry of Education in Malaysia. These materials include textbooks, workbooks, revision guides and other reference and related materials that follow or are related to the National School Curriculum. With the exception of international, expatriate, correspondence and some special education and religious schools, the national curriculum shall be used by all schools including kindergartens, primary and secondary schools in Malaysia. The most common National School Curriculum educational materials are textbooks, workbooks, sample examination packs and other reference materials. The National School Curriculum mainly comprises: national pre-school standard curriculum (KSPK -Kurikulum Standard Prasekolah Kebangsaan) ; standard primary school curriculum (KSSR -Kurikulum Standard Sekolah Rendah); integrated curriculum for secondary schools (KBSM -Kurikulum Bersepadu Sekolah Menengah). National School Curriculum materials typically encompass many subjects covering science, mathematics, geography, history, art, music and languages such as Bahasa Malaysia, English, Chinese Language and others. Sasbadi Holdings Group is primarily involved in the business of educational publishing focusing on Malaysian National School Curriculum based materials. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Other educational publishing include, among others, materials for international schools, expatriate schools, pre-university, tertiary, and vocational education, and vocational and professional learning, certification and accreditation courses. This also includes supplementary educational materials which are mainly non-curriculum based materials for general teaching, learning as well as to facilitate the learning process.
3.4 Publishing Medium • Generally, publications are stored and distributed through three main media, as follows:
DigitalPrint Online o Sasbadi Holdings Group publishes through these media • Print Publishing refers to publication materials where the contents are printed on paper and physically distributed to end-users or consumers. The print medium may include books, broadsheets, tabloids, magazines, brochures and leaflets.
• Digital Publishing refers to publication materials where the contents are stored in digital format and may be downloaded from an electronic storage site onto another device or made available through optical discs. Digital publishing may also incorporate limited form of interactivity based on predetermined choice selections.
• Online Publishing refers to publication materials where the contents are accessible through a website. Online publishing may also incorporate interactivity based on predetermined choice selections, as well as live interactions among users and publishers.
• While there may be differences in appearance and presentation of content in print, digital or online publications, any particular set of content could appear in print, digital or online format.
• In addition, with the exception of optical discs, digital and online publications have some cost advantages as publishers do not require print production, inventory of products and physical delivery ofproducts to reach customers.
• Sasbadi Holdings Group mainly uses print medium, but has a small proportion of its contents available online.
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 3.5 National Education System in Malaysia • The National Education System in Malaysia comprises the following: pre-school education; primary education; secondary education; post-secondary education; higher education. Note: Thefocus ofthis report is on primary and secondary education. 3.6 Educational Institutions in Malaysia • In Malaysia, there are three categories of educational institutions: government educational institutions; government-aided educational institutions; private educational institutions. • The types of primary and secondary educational categorised into two major types as follows: institutions in Malaysia are
Primary Education National primary schools (SK) National·type schools (Chinese) (SJK (Cl) Nalional·type schools (Tamil) (SJK (T)) Government aided religious schools (SABK) Special education schools
Secondary Education National secondary schools (SMK) Govemment aided religious schools (SABK) National religious schools (SMKA) Special education schools Fully residential school (SBP) Arts and sports schools Technicalfvocational schools Primary Education Private academic primary schools Private religious primary schools Private special education schools International schools Expatriate schools Correspondence schools Secondary Education Private academic secondary schools Private religious secondary schools Private specialeducation schools International schools Expatriate schools Correspondence schools Chinese independent schools Notes: SK ~ Sekolah Kebangsaan; SJK (C) ~ Sekolah Jenis Kebangsaan (Cina); SJK (T) ~ Sekolah Jenis Kebangsaan (Tamil); SABK ~ Sekolah Agama Bantuan Kerajaan: SMK ~ Sekolah Menengah Kebangsaan; SMKA ~ Sekolah Menengah Kebangsaan Agama; SBP ~ Sekolah Berasrama Penuh.
Sasbadi Holdings Berhad Page6of41 Industry Assessment 140 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Primary and secondary education in national educational institutions are free or based on minimal fees. These schools are either fully government funded or government aided.
• All private educational institutions are privately funded through the charging of student fees and/or philanthropic contribution. Most of the private religious schools are run by non-profit companies or Islamic organisations.
• Currently, only primary education is compulsory for all Malaysians.
3.6.1 Usage of Curriculum • All primary and secondary schools in Malaysia uses the National School Curriculum
with the following exceptions within private educational institutions: International schools; Expatriate schools; Correspondence schools; Some special education schools; Some religious schools.
• Within private educational institutions, the types of school that utilise the National
School Curriculum are as follows: Chinese independent schools follow the National School Curriculum supplemented with additional curriculum, which represented 60 schools or 15% oftolal private schools in Malaysia as at 30 June 2013; A certain proportion of the 72 private religious primary and secondary schools follow the National School Curriculum supplemented with additional curriculum; Private academic primary and secondary schools follow the National Curriculum, which represented 136 schools or 35% of total private schools in Malaysia as at 30 June 2013.
• The curricula adopted by other private educational institutions are as follows: An estimated 86% of international schools follow the British curriculum, while the remaining 14% follows the American, Arabic, Australian, Canadian, Indian, International Baccalaureate (IB), Islamic and Singaporean curricula. As at 30 June 2013, international schools accounted for 24% of all private schools in Malaysia. Other private schools such as expatriate schools, which include among others, Japanese, Indonesian and German schools follow their respective national curriculum while correspondence schools are dependent on the respective countries where the institutions are based. Special education schools that cater to children with special needs largely follow their own specially designed programmes and curriculum. As at 30 June 2013, other private schools including expatriate, special education and correspondence schools represented a total of 27 schools or 7% of total private schools in Malaysia.
Sasbadi Holdings Berhad Page 70f41 Industry Assessment 141 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 4. SUPPLY AND DEMAND CONDITIONS 4.1 Number of Book Titles Published in Malaysia • The supply conditions of the industry can be represented by the number of book titles published in Malaysia, which is registered under the Deposit of Library Material Act 1986. Number of Book Titles Published in Malaysia AAGR 2009-2013 2009 2010 2011 2012 2013 % Adult’ …………………. 7,609 7,787 9,448 9,554 9,064 4.5 Textbook’……………. 3,969 4,218 4,638 5,550 6,241 12.0 Children’ 4,189 3,751 3,837 4,095 4,682 2.8 TOTAL 15,767 15,756 17,923 19,199 19,987 6.1 Notes: MGR ~ Average annual growth rate; (1) Includes educational and non-educational books; (2) In addition to textbooks, this category also includes other student materials including workhooks, revision guides and reference books. (Source: National Library ofMalaysia) • Between 2009 and 2013, the total number of book titles published in Malaysia increased from 15,767 to 19,987. This represented an AAGR of6.1%.
• The growth was mainly due to the increase in the number of adult and textbook titles, which grew at AAGR of 4.5% and 12.0% respectively, between 2009 and 2013. In 2013, adult and textbook titles represented 76.6% of total book titles published in Malaysia.
4.2 Gross Output Value of Publishing Services • The supply and demand conditions of the publishing industry (including educational and non-educational materials) can be assessed by the gross output value of publishing activities, as follows: Gross Output Value of Publishing Services in Malaysia AAGR 2009-2011 2009 2010 2011 % Publishing Services 741.7 1,018.0 1184.9 26.4 Note: Includes educational and non-educational publishing. All units in RM million except percentages. (Source: Department ofStatistics) • Between 2009 and 20 II, the gross output value of publishing services in Malaysia registered an AAGR of26.4% to reach RMI.2 billion. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • In 20 II, gross output value by types of publishing services is as follows: T es of Pu blishin Services 2011 Publishing of books, brochures and other publications . Publishing of newspapers, journals, magazines and periodicals in print or electronic form . .. TOTAL 1,184.9 933.4 206.3 45.2
Notes: Includes educational and non-educational publishing. All units in RM million except percentages. (Source: Department olStatisties) • In 20 II, the publishing of all types of books, brochures and other publications was the largest subsector, with a gross output value of RM933.4 million, which represented 78.8% oftolal publishing services in Malaysia. 4.3 Import and Export Value of Printed Matter • The import and export values of printed matter can also be used as a proxy to assess the supply and demand conditions for the Educational Publishing Industry. Import and Export Value of Selected Printed Matter (Malaysia) AAGR 20092009 2010 2011 2012 2013 2013 % Printed Books, Brochures, Leaflets and Similar Printed Matter! Import Value .. 524 483 493 536 487 -1.8 Export Value .. 559 528 511 502 523 -1.7 Children’s Picture, Drawing or Colouring Books Import Value .. II 16 II 14 23 21.9 Export Value .. 2 3 6 3 5 26.1 Notes: Includes educational and non-educational publishing. All units in RM million except percentages. (J) Whether or not in single sheets. (Source: Department o[Statistics) • Between 2009 and 2013, import and export values of printed books, brochures, leaflets and similar printed matter fell at average annual rates of 1.8% and 1.7% respectively.
• In 2013, the import and export values of printed books, brochures, leaflets and similar printed matter amounted to RM487 million and RM523 million respectively.
7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2009 and 2013, import value of children’s picture, drawing or colouring books grew at an AAGR of 21.9% while export value also grew at an AAGR of 26.1%. However in 2013, the import and export values of children’s pictures, drawing or colouring books represented a small proportion at RM23 million and RM5 million respectively. 4.4 Household Expenditure • The average monthly household expenditure on various publication materials will provide some indication oftheir respective demand. Average Monthly Household Expenditure (Malaysia AAGR 2004/05 -2009110 2004/05 2009/10 % Newspapers1 .. Books’.. 8.55 2.78 9.14 1.71 1.3 -9.3 Magazines and Periodicals’.. 2.02 1.53 -5.4 Notes: Includes educational and non-educational materials. All units in RM except percentages; (1) Includes daily and weekly newspapers in any language; (2) l~cludes text books, examination reference books, other school books, story books / novels and others such as dictionaries, self development books and computer books; (3) Includes local and imported magazines and periodicals and others such as comics and school magazines. (Source: Department oiStatistics) • Among the selected items above, the average Malaysian household spent the most on newspapers, which amounted to RM9.14 per month in year 2009/10. Compared to year 2004/05, this represented an AAGR of 1.3%. • Between the years of 2004/05 and 200911 0, the average household expenditure of books, and magazines and periodicals fell at an average armual rate of 9.3% and 5.4% respectively. • The 9.3% decline of household expenditure on books during the period under review may be partly attributed to the Textbook Loan Scheme whereby all students in National Schools are eligible for free loan of textbooks. This has been implemented by the Ministry of Education since 2008. • In the year 2009/10, the average Malaysian household spent RM1.71 on books and RM 1.53 on magazines and periodicals per month.
Sasbadi Holdings Berhad Page 10 of41 Industry Assessment 144 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 4.5 Household Use of Internet on Education • Based on the Household Use of Internet surveys conducted by the Malaysian Communications and Multimedia Commission (MCMC): Household Use oClnteroet 2008 2009 2011 Education (%) 64.5 46.0 63.5 (Source: Malaysian Communications and Multimedia Commission) • A significant proportion of households with internet access uses it for educational purposes. Greater use of the internet for education would indicate higher demand for online publication materials. 5. SUPPLY DEPENDENCIES • The supply of paper is one of the main raw materials for the print publishing industry in general. As such, the supply dependencies of print publications, including those for educational materials, can be assessed by the following statistics: Production quantity ofpaper; Import quantity ofpaper; Sales value of printing.
5.1 Production Quantity of Paper • In 2010, there were l75 establishments involved in the manufacture of pulp, papers and paperboard in Malaysia.
• The production quantity ofpaper used in print publications is as follows:
Production Quantity of Paper in Malaysia AAGR 2009-2013 2009 2010 2011 2012 2013 %
Uncoated Woodfree Paper…….. 154 161 135 157 184
Notes: All units in thousand tannes except percentages. (Source: Department afStatistics) • Uncoated woodfree paper is a type of paper commonly used for printing of books and other similar materials. Between 2009 and 2013, the local production of uncoated woodfree paper grew at an AAGR of 4.5%
• In 2013, approximately 184,000 tonnes of uncoated woodfree paper were produced in Malaysia.
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 5.2 Import Quantity of Paper • Apart from local sources, publishers may also purchase paper through overseas sources.
• The import quantity of paper used in print publications is as follows:
Import Quantity of Paper (Malaysia) AAGR 2009 2009 2010 2011 2012 2013 2013 % Newsprint . Uncoated Printing and Writing Paper…………………………………….. 143 88 184 102 92 75 161 127 187 111 5.9 6.9
Notes: All units in thousand tannes exceptpercentages. (Source: Department a/Statistics) • In 2013, the import of newsprint, and uncoated printing and writing paper, amounted to approximately 187,000 tonnes and 111,000 tonnes respectively
• Between 2009 and 2013, the import quantity of uncoated printing and writing paper grew at an AAGR of 5.9% while import quantity of newsprint grew at an AAGR of 6.9%.
• Uncoated printing and writing paper are used for print publishing as well as many other applications like wrapping paper, office document printing paper, photocopying paper, bills, invoices, forms, and computer paper.
5.3 Sales Value of Printing • The sales value of printing in Malaysia is shown as follows: Sales value ofPrinting in Malaysia 2009 2010 2011 2012 2013 Printing…… 522 638 809 1,009 1,097 Notes: All units in RM million except percentages. (Source: Department afStatistics) AAGR 20092013 % 20.4 • Between 2009 and 2013, sales value of printing in Malaysia increased at an AAGR of20.4%. • In 2013, the sales value of printing in Malaysia amounted to approximately RMl.l billion.
7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 6. DEMAND DEPENDENCIES • As the demand for educational materials depend on end-users and consumers, the
following factors will have an impact on the overall Educational Publishing Industry: Per capita income; Population growth; Enrolment in schools; Number of schools; Number ofteachers; Educational indicators.
• In addition, the demand for online educational materials is dependent on the number of online users. As such, the demand dependencies can be assessed by the following statistics:
Number ofbroadband subscriptions; Broadband penetration rate. 6.1 Per Capita Income • The increase in the affluence of Malaysia, which can be represented by per capita income, will generally mean greater affordability and higher consumer spending on print materials in general as well as educational materials. Malaysia’s Per Capita Income (Based on Current Prices) AAGR 2009-2013 2009 2010 2011 2012 2013
Per Capita Income……… 23,850 26,882 29,683 30,667 31,698
Notes: All units in RA1 except percentages; p = preliminary. (Source: Bank Negara Malaysia) • Malaysia’s per capita income grew from RM30,667 in 2012 to RM31,698 in 2013, representing an increase of 3.4%.
• Between 2009 and 2013, Malaysia’s per capita income grew at an AAGR of 7.4%.
6.2 Population Growth • Growth in Malaysia’s population will provide the impetus for demand for general publications as well as educational publications. Sasbadi Holdings Berhad Page 13 of41 Industry Assessment 147 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Malaysia’s Mid-Year Population Estimate by Age Groups AAGR 2009-2013 2009 2010 2011 2012 2013 % 0-4 .. 2,426 2,509 2,501 2,507 2,524 1.0 5 -24 .. 10,460 11,063 11,014 10,961 10,910 1.1 25 -39 ……… 6,745 6,926 7,111 7,285 7,448 2.5 40 -59 .. 6,219 5,843 6,000 6,146 6,290 0.3 60 -74 .. 1,631 1,771 1,850 1,921 1,992 5.1 75 and above ……….. 415 478 488 518 550 7.3 TOTAL 27,895 28,589 28,964 29,337 29,715 1.6 Notes: All units in thousands except percentages; Total does not add-up due to rounding. (Source: Department ofStatistics) • The mid-year population of Malaysia in 2013 was estimated to be 29.7 million. This reflected an AAGR of 1.6% since 2009.
• Between 2009 and 2013, the 75 years and above age group was the fastest growing age group from the above table, with an AAGR of 7.3%.
• The 5 to 24 years age group category represented the main age group that dominates the education market in Malaysia. In 2013, an estimated 10.9 million people falls under this age group in Malaysia. Between 2009 and 2013, the population of this age group category grew at an AAGR of 1.1%.
• In 2013, the 5 to 24 years age group category represented 36.7% of the total population in Malaysia.
6.3 Enrolment in Schools • Performance in student enrolment in schools will directly affect the demand for educational materials as students are the main end-users of these materials. National Schools Enrolment in Schools in Malaysia (as at 30th June) AAGR 2009-2013 2009 2010 2011 2012 2013 % Pre-School’ .. 155 164 179 188 192 5.5 Primary School’ .. 2,959 2,899 2,860 2,811 2,743 -1.9 Secondary School’ .. 2,229 2,242 2,223 2,213 2,209 -0.2 TOTAL 5,343 5,305 5,262 5,212 5,144 -0.9 Notes: All units in thousands except percentages; (1) Schools under the Ministry of Education only. (Source: Ministry ofEducation) Sasbadi Holdings Berhad Page 14 of41 Industry Assessment 148 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2009 and 2013, enrohnent in primary and secondary schools fell at an average annual rate of 1.9% and 0.2% while enrolment in pre-school increased at an AAGR of 5.5%. Any decline in the enrolment in national primary and secondary schools will reduce the overall demand for educational materials based on the National School Curriculum. However, in this case, the impact is minimal due to the small decline.
• As at 30 Juue 2013, there were approximately 2.7 million and 2.2 million students enrolled in national primary and secondary schools respectively while approximately
0.2 million students enrolled in national pre-schools. Private Schools • The four major categories of private schools in Malaysia consist of private academic schools, international schools, religious schools and independent Chinese schools. With the exception of international schools, most of the private schools adopt dual curriculums including the national curriculum. Enrolment in Private Schools in Malaysia <as at 30th June) AAGR 2009-2013 2009 2010 2011 2012 2013 % Academic Primary! .. 14,566 13,983 14,793 15,048 12,890 -3.0 Academic Secondary’ 14,673 16,422 15,532 15,965 16,652 3.2 Chinese Private Secondaif .. 57,041 69,842 66,218 69,833 75,518 7.3 Religious Primary’ .. 13,282 14,092 15,357 16,713 17,888 7.7 Religious Secondary’ .. 6,517 6,479 5,253 7,604 8,659 7.4 InternationaI4 .. 16,766 19,929 23,159 32,006 38,476 23.1 Others’ .. 4,301 3,914 3,989 5,383 5,630
7.0 TOTAL 127,146 144,661 144,301 162,552 175,713 8.4 Notes: (1) Private academic schools refer to schools that teach the national curriculum for at least six core subjects identified in the Education Act 1996;
(2) This is also known as independent Chinese schools that adopt dual curriculums. This type ofschools use curriculum developed by Dong Jiao Zong, which prepares students for private examinations, as well as for the standard Malaysian examinations based on the national school curriculum;
(3) These schools focus intensely on Islamic education, and mayor may not teach the national school curriculum;
(4) These schools use international curriculum, such as British, American, Australian, Canadian or other programmes;
(5) Include expatriate, special education and correspondence schools. (Source: Ministry ofEducation)
Sasbadl Holdings Berhad Page I5 of4I Industry Assessment 149 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2009 and 2013, enrolment in private schools registered an AAGR of 8.4%. All types of private schools with the exception of private academic primary schools have registered positive AAGR between 2009 and 2013. International schools in particularly, grew at an AAGR of23.1%.
• As at 30 June 2013, Chinese private secondary schools had the highest student enrolment with 75,518 students representing 43% of the total enrohnent in private schools.
• With the exception of international, expatriate, correspondence and some special education and religious schools, all the other private schools use the national school curriculum.
6.4 Nurnber of Schools • An increasing number of schools may generally represent a better access to formal education, which would in turn improve the enrolment rate of schools in Malaysia. National Schools Number of National Schools in Malaysia (as at 30th June) AAGR 2009-2013 2009 2010 2011 2012 2013 % Primary School’ ………… 7,664 7,695 7,714 7,722 7,744 0.3 Secondar School’ ……… 2,219 2,248 2,282 2,307 2,347 1.4 TOTAL 9,883 9,943 9,996 10,029 10,091 0.5 Pre-School’……………….. 5,497 5,525 5,781 5,899 5,961 2.0 Notes: (1) Schools under the Ministry of Education only; * Pre-School is conducted as part of Primary School. (Source: Ministry ofEducation) • As at 30 June 2013, there were 5,961 national pre-schools, 7,744 national primary schools and 2,347 national secondary schools in Malaysia.
• Between 2009 and 2013, the number of national primary and secondary schools increased at an AAGR of 0.3% and 1.4% respectively while the number of national pre-schools increased at an AAGR of2.0%.
7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Private Schools Number of Private Scbools in Malaysia <as at 30’h June) Academic Primary. Academic Secondary Chinese Private Secondary…… Religious Primary ………………. Religious Secondary International ………………………. Others(1) ………………••..••.•••.•.•.• TOTAL
AAGR 2009-2013 2009 2010 2011 2012 2013 % 56 59 60 61 64 3.4 73 73 66 68 72 -0.3 60 60 60 60 60 0.0 34 34 35 38 43 6.0 17 17 19 23 29 14.3 50 57 66 79 94 17.1 25 25 27 26 27 1.9 315 325 333 355 389 5.4
Notes: (1) Include expatriate, special education and correspondence schools. (Source: Ministry ofEducation)
• As at 30 June 2013, there were 389 private schools in Malaysia. Of this, private academic schools represented the largest proportion with 136 schools. This is followed by international schools which represented 94 schools as at 30 June 2013.
• The number of private schools increased from 315 in 2009 to 389 in 2013, representing an AAGR of SA%.
6.5 Number of Teachers • As educational materials are used as part of teaching materials in schools, growth in the number of teachers may also create demand for teaching and learning materials. National Schools Number of Teachers in Malaysia <as at 30″ June) AAGR 2009 -2013 Pre-School!. 2010 6,91 I 2011 7,562 2012 7,516 2013 8,448 % 6.9 Primary School!.. 223,537 227,098 228,818 229,050 0.8 Second School! 175,241 177,382 177,462 177,806 0.5 TOTAL 405,689 412,042 413,796 415,304 0.8
Notes: (1) Schools under the Ministry ofEducation only. (Source: Ministry a/Education) Sasbadi Holdings Berhad Page 170/41 Industry Assessment lSI 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2010 and 2013, the number of teachers in national schools generally had been growing in terms of AAGR. The number of national pre-school teachers experienced a higher growth at an AAGR of 6.9%, followed by the number of national primary and secondary school teachers at AAGR of 0.8% and 0.5% respectively.
• As at 30 June 2013, there were approximately 229,000 national primary school teachers, 178,000 national secondary school teachers and 8,000 national pre-school teachers in Malaysia.
Private Schools Number of Teachers in Private Schools AAGR 2010-2013 2010 2012* 2013* % Academic Primary . 1,365 1,374 1,402 0.9 Academic Secondary .. 2,111 1,668 1,683 -7.3 Chinese Private Secondary . 3,594 4,074 3,947 3.2 Religious Primary .. 1,036 1,146 1,298 7.8 Religious Secondary .. 536 537 700 9.3 International . 2,185 2,951 3,754 19.8 Others(I) . 404 503 510 8.1 TOTAL 11,231 12,253 13,294 5.8 Notes. *As at 31 January; (1) Include expatriate, special education and correspondence schools (Source: Ministry ofEducation)
• Between 2010 and 2013, the total number of teachers in private schools registered an AAGR of5.8%.
• As at 31 January 2013, there were 13,294 teachers in private schools in Malaysia. Of this, there were 3,947 teachers in Chinese private secondary schools, and 3,085 teachers in private academic schools, and 3,754 teachers in international schools.
6.6 Education Indicators • Literacy and student enrolment rates are some of the indicators of demand for educational materials, which will ultimately affect the Educational Publishing Industry. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Selected Education Indicators in Malaysia 2009 2010 2011 2012 2013 Literacy Rate] Age 10 and above.. n.a. 93.7 94.5 94.6 n.a. Age 15 and above……………. n.a. 93.1 93.9 94.1 n.a. 2009 2010 2011 2012 2013 Enrolment Rate Primary’ .. 94.3 94.2 94.4 94.5 94.4 Lower Secondary 86.5 86.8 86.1 86.2 85.4 Upper Secondary…… 773 77.2 778 78.0 78.0 Post Secondary3….. 15.9 15.0 15.8 17.5 16.8 Notes: Ali units in percentages; n.a. ~not available; (1) Literacy is defined as having formal education; (2) Excluding pre-school enrolment in primary schools; (3) Including enrolment in Form 6. Matriculation Centres and Institute of Teacher Education (ITE) under Ministry of Education only. (Source: Ministry ofEducation) • The literacy rate in Malaysia is relatively high at approximately 94% in general. Despite the high literacy rate, growth continues to be recorded, albeit at a slower rate as it edges towards the 100% rate.
• In 2013, enrolment rate for national primary education was high at 94.4%. In 2013, there were 2.7 million national primary school students.
• Enrolment rates for national school started to decline after primary education with the lowest enrolment rate of 16.8% for post-secondary in 2013. In 2013, there were 2.2 million national secondary school students in Malaysia.
6.7 Number of Broadband Subscriptions • Growth in number of broadband subscriptions would provide a bigger pool of potential users of online educational materials. Number ofBroadband Subscriptions in Malaysia AAGR 2009-2013 Household .. 2009 1,972 2010 3,672 2011 4,270 2012 4,338 2013 4,558 % 233 Non-Household .,. 649 1,051 1,417 1,777 1,815 29.3
TOTAL 2,620 4,722 5,687 6,115 6,373 Notes: All units in thousands except percentages,’ Total does not add-up due to rounding. (Source: Malaysian Communications and Multimedia Commission)
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2009 and 2013, the total number of broadband subscriptions in Malaysia increased at an AAGR of24.9%, reaching 6.4 million subscriptions in 2013. 6.8 Broadband Penetration Rate • A higher broadband penetration rate would provide increased opportunities for providers of online publishing services. Broadband Penetration Rate in Malaysia 2009 2010 2011 2012 2013 Population (per 100 inhabitants) . 9.2 16.6 19.4 21.7 22.6 Household (per 100 households) 31.7 55.6 62.3 66.0 67.1 (Source: Malaysian Communications and Multimedia Commission) • Between 2009 and 2013, the broadband penetration rate in Malaysia by population grew from 9.2 per 100 inhabitants in 2009 to 22.6 per 100 inhabitants in 2013, which represented an AAGR of25.2%.
• Between 2009 and 2013, the broadband penetration rate in Malaysia by household grew from 31.7 per 100 households in 2009 to 67.1 per 100 households in 2013, which represented an AAGR of20.6%.
7. COMPETITIVE ANALYSIS 7.1 Nature of Competition in the Industry • Competition within the Education Publishing Industry focusing on National School
Curriculum can be segmented into two levels, namely: government authorised publishing of textbooks and supporting educational materials; general educational materials to supplement government authorised textbooks and supporting educational materials.
• The nature of competition for government authorised publications of educational materials is based on open tender where selected authorised publishers would be given contracts to publish various types of educational materials and to distribute them to national schools in Malaysia for a stated period of time. As these are prescribed textbooks and supporting educational materials, both teachers and students would need to use them as part ofthe school curriculum.
Sasbadi Holdings Berhad Page 20 of41 Industry Assessment 154 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • The advantage of winning such contracts is that the government would buy from the publishers for distribution to all national schools. As there were approximately 5.0 million national primary and secondary school students in 2013, a government contract to publish, for example a textbook for one grade would be a sizeable contract.
• For publishers that are not selected to be government authorised publishers, they can publish their own materials, commonly focusing on supporting educational materials like workbooks, revision guides, reference books, and sample examination papers and model answers.
• Despite the two segments of competition, the overall nature of competition within the industry is based on normal competition. This is because all publishers are able to take part in the tendering process to publish government authorised textbooks and educational materials. Like any normal competitive commercial situations, the government would then select the publisher best able to meet their criteria and objectives.
• Therefore, generally operators in the Educational Publishing Industry in Malaysia face normal competitive conditions, which is similar to a free enterprise enviromnent characterised by the following:
There are no undue government regulations or licensing requirements imposed on operators in the Educational Publishing Industry. Apart from the normal business operating licences and requirements, which operators can easily obtain, there are no other material government regulations or licensing requirements that would prevent operators from entering or exiting the industry. However, as with operators in all industries in Malaysia, publishers will need to comply to various relevant government regulations including, but not limited to, Companies Act, Income Tax Act, Printing Presses and Publications Act and Industrial Coordination Act; The industry is not dominated by a single or small number of operators as no one publisher had more than 10% share of the printed educational materials market in Malaysia based on available information as at July 2013; Operators may enter or leave the industry freely; No single or small group of operators is large enough to dictate pricing. • In such an enviromnent, the industry is subjected to normal supply and demand conditions moderated by the price mechanism. Operators in the industry, including Sasbadi Holdings Group, compete on product differentiation, and other factors of competition. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 7.2 Factors of Competition • As with most free enterprise environment, competition within the Educational Publishing Industry focusing on the National Curriculum is based on a number of factors, including:
Brand name; Track record and market reputation; Distribution network; Economies of scale.
• Brand Name
Brand name is a key competIlIve factor in the Educational Publishing Industry, especially since there is a wide range of products available in the market. An established brand name would enable the publisher to gamer higher customer loyalty from existing customers, attract new customers through strong brand equity as well as command a higher pricing compared to less prominent publishers in the industry. In particular, a long established brand name in the Educational Publishing Industry may create awareness among students, teachers and parents who may be aware of the brand when they were students themselves. A strong brand name will also entice bookshops and other retail outlets to carry the publications, thus extending distribution coverage in the market. • Track record and market reputation
Track record and market reputation are competitive factors in the publishing of educational materials. A more established publisher would generally be regarded as having materials that are more relevant to the curriculum, hence having a greater appeal to target customer groups. In addition, publishers that have a good track record in a certain educational segment would also stand a higher chance of winning tenders for textbook publishing from the Ministry ofEducation.
• Distribution Network
Distribution network is an important competItIve factor as it represents the publisher’s ability to penetrate the market. A wider distribution network, particularly through major book stores in the country, would provide an increase in the market reach to end consumers whilst contributing to a stronger brand awareness. Authors, in particular those that are highly sought after would prefer to work with publishers that have a wide distribution network to ensure optimisation of sales of their publications. Sasbadi Holdings Berhad Page22of41 Industry Assessment 156 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Economies of Scale Educational publishers that publish a reasonable number of publications with a relatively high number of prints per publication would benefit from economies of scale. Publishers with economies of scale would have a stronger negotiation power to obtain better conunercial terms from their suppliers in relation to printing, credit terms, logistics and other arrangements. Similarly, publishers that are able to achieve economies of scale would be able to reduce their unit cost of publication where overheads like advertising and promotions, administration, product development and other shared costs are spread over a much wider number of materials sold. 7.3 Operators in the Industry • As at February 2014, there were 182 companies registered as members with the Malaysian Book Publishers Association (MABOPA). (Source: MABOPA) • Some of the private operators in the Educational Publishing Industry in Malaysia, publishing educational materials based on the National Curriculum, include the following (listed in alphabetical order): Cemerlang Publications Sdn Bhd; Cerdik Publications Sdn Bhd; Gemilang Publishing Sdn Bhd; Hup Lick Publishing (M) Sdn Bhd; Info-Didik Sdn Bhd; Oxford Fajar Sdn Bhd; Penerbitan Pelangi Sdn Bhd; PEP Publications Sdn Bhd; Sasbadi Sdn Bhd; The Malaya Press Sdn Bhd; Utusan Publications & Distributors Sdn Bhd.
Notes: 1) Dewan Bahasa dan Pustaka is a major government publisher of educational materials especially National Curriculum textbooks 2) This is not an exhaustive list. (Source: Vital Factor Consulting Sdn Bhd) • Some of the private operators in the Educational Publishing Industry in Malaysia, publishing online educational materials based on the National Curriculum, include the following (listed in alphabetical order): Cahaya Motivasi Sdn Bhd; Creative Dreams International Sdn Bhd; Creative Online Solutions; iTTV Education Sdn Bhd; Kenshido International Sdn Bhd; Maju Infotech Sdn Bhd New Straits Time Press (M) Bhd; Puncakmas Marketing Sdn Bhd;
Sasbadi Holdings Berhad Page230f41 Industry Assessment 157 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Sasbadi Online Sdn Bhd; UniCLlQ Sdn Bhd. Note: This is not an exhaustive list. (Source: Vital Factor Consulting Sdn Bhd) 8. GOVERNMENT REGULATIONS • Some of the regulations and policies applicable to the Educational Publishing Industry are listed below: 8.1 Printing Presses and Publications Act 1984 • Any person who prints, imports, produces, reproduces, publishes, sells, issues, circulates, offers for sale, distributes or has, in his possession for such purpose any prohibited publication shall be guilty of an offence.
• Prohibited publication shall be defined as any publication that contains any article, caricature, photograph, report, notes, writing, sound, music, statement or any other thing, which is deemed prejudicial in any manner or deemed likely to alarm public opinion.
• Every publication printed or published within Malaysia shall have printed legibly in Bahasa Malaysia or the English language on its first or last leaf the name and address of its printer and publisher.
(Source: Ministry ofHorne Affairs)
8.2 Deposit of Library Material Act 1986 • The publisher of every printed library material published in Malaysia shall, within one month of the publication deliver to the National Library, at their own expense, a number of best copies as prescribed by the Act. (Source: National Library ofMalaysia)
8.3 Direct Sales Licence • Some publishing companies undertake direct sales of their products. If so, they will require a Direct Sales Licence.
• Under the Direct Sales and Anti-Pyramid Scheme Act 1993, a company that wishes to carry out the sale of goods through the direct sales method are required to obtain a Direct Sales Licence issued by the Ministry of Domestic Trade, Co-operatives and Consumerism.
• A Direct Sales Licence is normally valid for a period of three years, and may be renewed as and when it expires.
(Source: Ministry ofDomestic Trade, Co-operatives andConsumerism) 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions
8.4 Registration with the Ministry of Finance • Companies that are supplying or tendering for the supply of products to the Malaysian Government, including textbooks for the National Curriculum, must be registered with the Ministry of Finance.
• Registration is valid for a period ofthree years and is renewable.
(Source: Ministry ofFinance)
8.5 Manufacturing Licence • Printing or manufacture of paper products are classified as manufacturing activities. As such, publishing companies that are involved in such activities requires a manufacturing licence given the condition below.
• Application of a manufacturing licence under the Industrial Coordination Act 1975 is mandatory for companies involved in manufacturing with shareholders’ fund of RM2.5 million or more, or engaging 75 or more full-time paid employees.
(Source: Malaysian Investment Development Authority) 9. BARRIERS TO ENTRY 9.1 Capital and Set-up Costs • The barriers to entry for new entrants as an educational publisher based on capital requirements (excluding land and building) are relatively low.
• The capital and set-up cost of setting-up a small educational publishing company would be around RM 1 million (excluding land and building). This capital and set-up cost would also exclude major capital outlays required on software and related systems for designing and artwork, editing and printing where these activities can be outsource to other companies. The permission fees for reusing the content such as text and images, copyrights and royalty fees to the authors can be paid progressively upon book sales.
This entry amount is mainly for setting-up a basic office with production staff including editors and designers, payment for printing of a small number of first runs of publications, and providing credit terms for retailers. • An establishment of a small size is estimated to generate approximately RM2 million to RM5 million per year in revenue. However, small establishments may face difficulties and constraints against larger establishments that are equipped to publish a large number of titles and copies of books annually. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Capital costs would start to escalate for larger educational publishers with a certain volume of publications. Smaller publishers may not be able to compete with larger educational publishers in terms of economies of scale. 9.2 Availability of Retail Shelf Space • Educational materials, particularly those that are not government authorised textbooks and educational materials, are commonly sold at bookstores. However, the competition for retail shelf space in bookstores is fierce due to space constraints and the wide availability of publications for various levels and subjects.
• As such, publications of new entrants in the Educational Publishing Industry may not have immediate access to sought-after shelf space especially from larger bookstore chains until the products are more established in the market.
9.3 Experienced and Sought-After Anthors • A new entrant in the industry without an existing pool of experienced and sougbtafter authors is less likely to make an impact on the market. For instance, teachers who are well versed with the requirements of the national curriculum are suitable candidates to be authors of educational materials. As such, an established network of teachers or other such potential authors is necessary for a new publisher to have access to good manuscripts that will lead to successful or relevant publications. 10. THREAT OF SUBSTITUTES Digitalisation of Contents • The educational market in Malaysia largely relies on printed educational materials. Digitalisation of content would be a direct substitute to printed materials. As such, if there was a strong shift towards the use of digital content, then publishers that are slow in making the change over will be negatively affected.
• Desp ite the threat from digitalisation, contents remain largely the same. It is only the representation that is different. For established publishers who intend to undertake digital or online publishing, they would at least have content that may be used for digital or online publishing.
• In the short and medium term, Malaysia is expected to continue to rely mainly on print publications, especially for textbooks and some of the main supporting educational materials.
Online and Electronic Delivery Format • The digitalisation of content would give rise to the threat of substitute of delivery of content. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Currently, a large proportion of educational materials ranging from textbooks to supporting educational materials like workbooks, revision guides, reference books, and sample examination questions and model answers are based on the printed format and distributed through various retail outlets and school bookshops. Through digitalisation, these materials can be made available online and delivered via the internet.
• The online delivery method would directly be a threat of substitute to the print publication industry that relies on distributing books and other printed materials to retailers and ultimately end-users.
• In a number of overseas countries, some bookshops have closed as more and more consumers tum to digital books sold online through various companies.
• In addition, the convenience ofdownloading content from various online depositories would dramatically change the way publishers conduct their business. This include, among others:
adopting different methods of marketing, for example using social media and online marketing and promotions as opposed to the traditional methods of using print, television, radio, billboards, point-of sales and others. different distribution channels, for example subscribing to portals and websites that are able to attract potential customers to purchase online. This is similar to booking hotel accommodation through the hotel’s own website or through some third party portals or websites. removing the need for physical logistics including warehousing and delivery of products; revising business models, which may include revlsmg pncmg due to competitive pressure, and deciding on outright purchase, licensing, rental or subscription base. • As such, publishers would need to evolve with the changing trends and needs in the education market as well as students and end-users ofeducational materials. 7. INDUSTRY OVERVIEW (Cont’d)
Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 11. RELIANCE AND VULNERABILITY TO IMPORTS 11.1 Printed Materials • Printed materials in Malaysia are either produced locally or imported from overseas sources. • In 20 II, gross output value of the publishing of books, brochures and other publications amounted to RM933 million while imports of printed books, brochures, leaflets and similar printed matter totalled RM493 million.
• In 2013, imports of printed books, brochures, leaflets and similar printed matter were mainly from the following countries:
RM million % United States of America 131.3 27.0 United Kingdom .. 83.4 17.1 Singapore.. 77.6 15.9 Taiwan . 39.9 8.2 China . 33.3 6.8 Hong Kong . 17.2 3.5 Switzerland . 15.8 3.3 Australia . 13.6 2.8 Japan 12.2 2.5 Thailand . 10.0 2.0 India . 9.6 2.0 (Source: Department a/Statistics) • While most genres of printed materials are vulnerable to imports, educational materials for the National School Curriculum are generally safeguarded from import risks as the publishing of these materials would require local knowledge, expertise and language. In addition, the publishing of textbooks for the National School Curriculum is under the purview of the Malaysian Government and tenders are mainly awarded to Malaysian based companies.
11.2 Paper • Publishers in Malaysia may be reliant on imported paper.
• In 2013, Malaysia imported approximately 111,000 tonnes of uncoated printing and writing paper, which is commonly used for the printing of books and similar products.
• In 20 I3, imported uncoated printing and writing paper were mainly sourced from the China, Indonesia and other countries as follows:
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions Tonnes % China .. 30,395 27.3 Indonesia .. 25,522 22.9 Korea .. 14,504 13.0 Finland . 10,776 9.7 Taiwan .. 8,336 7.5 Japan.. 7,944 7.1 Sweden . 3,510 3.2 (Source: Department ofStatistics) • While there is some reliance on imports, Malaysia also produces its own printing and writing paper. In 2013, Malaysia produced approximately 184,000 tonnes of uncoated woodfree paper. 12. INDUSTRY PROSPECTS AND OUTLOOK • The outlook of the Educational Publishing Industry is dependent on the following factors: Perfonnance of the education sector focusing on primary and secondary schools; Government initiatives; Population, income and expenditure; Economic conditions. 12.1 Performance of the Educational Sector Focusing on Primary and Secondary Schools • Primary and secondary school students from all national schools and many of the private schools are the main end-users of National School Curriculum educational books and materials in Malaysia. As such, the outlook of the Educational Publishing Industry focusing on National School Curriculum is largely dependent on the perfonnance of the overall school education sector. School Enrolment in Malaysia <as at 30’h Jnne) Enrolment AAGR in 2013 2009 (‘000) 2013 (%j Enrolment in National Schools Primary Schools . 2,743 -1.9 Secondary Schools . 2,209 -0.2 Enrolment in Private Schools Primary Schools’ 31 2.5 Secondary Schools’ 101 6.5 Total National and Private Schools 5,084 -1.0 Note: (i) includes mainly private schools that utilise the National Curriculum, either partially or wholly. This excludes schools that do not utilise the National Curriculum including international, expatriate, correspondence schools and other schools. (Source: Ministry ofEducation) Sasbadi Holdings Berhad Page29of41 Industry Assessment 163 7. INDUSTRY OVERVIEW (Cont’d) Q
12.2 VITAL FACTOR CONSULTING Creating Winning Business Solutions • Between 2009 and 2013, overall enrolments in primary and secondary schools have declined by an average annual rate of 1.0%. However, the decline is small. More importantly, it is the base which comprised 5.1 million primary and secondary students that provides a large potential market for publishers of educational materials for the National School Curriculum.
• Based on the lOth Malaysia Plan, student enrolment in public education institutions is expected to grow by an AAGR of 0.6% between 2011 and 2015 (Source: Economic Planning Unit).
• Details of the curriculum used by private schools are further explained in this report under Section 3.6.1 Usage of Curriculum.
Government Initiatives • Favourable government initiatives would have a positive impact on the Educational Publishing Industry Focusing on National School Curriculum in Malaysia. Malaysia Education Blueprint 2013-2025 • The Malaysia Education Blueprint 2013-2025 was launched by the Ministry of
Education in September 2012, with the following objectives: Understanding the current performance and challenges of the Malaysian education system; Establishing a clear vision and aspiration for individual students and the education system as a whole; Outlining a comprehensive transformation programme for the system, including key changes to the Ministry.
• The blueprint outlines five aspirations for the Malaysian education system, as
follows: Access: 100% enrolment across all levels from pre-school to upper secondary by 2020; Quality: To be ranked among the top countries in international assessments such as PISA (Programme for International Student Assessment) and TIMSS (Trends in International Mathematics and Science Study) in 15 years; Equity: 50% reduction in achievement gaps (urban-rural, socioeconomic and gender) by 2020; Unity: An education system that gives children shared values and experiences by embracing diversity; Efficiency: A system that maximises student outcomes within current budget.
• By year 2020, the Ministry aims to move from 6 years to II years of compulsory schooling, starting at age 6+. This would be supported by various retention programmes and expanded vocational streams for students who are at the risk of dropping out. (Source: Malaysia Education Blueprint 2013-2025) Sasbadi Holdings Berhad Page 30 0141 Industry Assessment 164 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • These targets, pertaining to 100% enrolment and II years of compulsory schooling by 2020, would be favourable to the Educational Publishing Industry Focusing on National School Curriculum in Malaysia. IBestariNet and i-TRIM • IBestariNet and i-TR1M (Interaktif -Tuisyen Rakyat IMalaysia) are some of the government initiatives aimed specifically at promoting the use of online educational resources to complement conventional classroom teaching.
• Initiated by the Ministry of Education Malaysia (MOE) and carried out in partnership with YTL Communications Sdn Bhd, IBestariNet aims to equip 10,000 primary and secondary national schools with fourth generation (4G) internet connectivity and access to a cloud-based virtual learning platform, which allows teaching, learning, collaboration, and administrative functions to take place concurrently.
• The i-TRIM initiative on the other hand, provides additional assistance or tuition to UPSR, PMR and SPM students who are from lower household income group via an online educational platform. This initiative aims to narrow the gap in academic performance between students from lower and higher household income groups.
Government Transformation Programme (GTP) Roadmap • In 2013, the enrolment rates of primary, lower secondary and upper secondary education were 94.4%, 85.4% and 78.0% respectively. (Source: Ministry of Education)
• By transforming Malaysia’s education system via various initiatives, the government aims to achieve primary, lower secondary and upper secondary enrolment rates of 98%,90% and 85% by 2015 respectively. (Source: GTP Roadmap 2.0, Performance Management & Delivery Unit).
Economic Transformation Programme (ETP) • One of the Entry Point Projects (EPP) within the Education National Key Economic Areas (NKEA) is to scale up early childcare and education centres. (Source: Performance Management & Delivery Unit)
• Following the growth of childcare and education centres, pre-school enrolment rate is likely to increase, hence translating into demand for pre-school educational materials.
10th Malaysia Plan (lOMP) • The government is committed to revamp the education system in order to improve student outcomes via various initiatives.
• During the plan period (2011-2015), the government aims to increase pre-school enrolment rate to 92% by 20 IS and lower the entry age for schooling from 6+ to 5+ to provide an earlier head-start to more children.
Sasbadi Holdings Berhad Page3l of4I Industry Assessment 165 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • One of the initiatives aims to strengthen the teaching and learning of English with the introduction of a new curriculum, stressing the five key skill areas of reading, speaking and listening, writing, grammar and language arts. The time spent on teaching English is also expected to increase in primary schools during the plan period. (Source: 10th Malaysia Plan, Economic Planning Unit) Federal Government Expenditure on Education and Training • The expenditure of the federal government on the education and training sector is shown below: Federal Government Expenditure on Education and Training AAGR 2010-2013 2010 2011 2012 2013. 2014b % Operating Expenditure ……………… 37,821 41,741 47,040 47,975 51,191 8.2 Development Expenditure ……………… 12,046 7,735 7,550 6,466 4,895 -18.7 TOTAL…………………… 49,867 49,476 54,590 54,441 56,086 3.0 Proportion to the total federal government expenditure (%) 24.4 21.6 21.6 20.8 21.4
Notes: e =Revised Estimate; b = Budget Allocation; All units in RMmillion except percentages. (Source: Ministry ofFinance) • Between 2010 and 2013, the federal government expenditure on education and training increased at an AAGR of 3.0% and consistently constituted more than 20% of the total yearly budget.
• In the 2014 Budget, the allocation for education and training accounted for RM56.1 billion or 21.4% of the total budget, of which RM51.2 billion and RM4.9 billion have been allocated for operating expenditure and development expenditure respectively.
• This reflects the Government’s consistent commitment in investing and improving the overall education sector.
• In the 2014 Budget, approximately RMI.7 billion was allocated for pre-school programmes as well as setting up 93 pre-schools in national-type primary schools, implementing programmes to enhance teaching methods and proficiency in Bahasa Malaysia and English, expanding internet access to schools located in rural areas, and building 33 new schools and upgrading existing ones (Source: Ministry ofFinance).
• As such, the growth in pre-school enrolment would increase the demand for preschool educational materials in Malaysia.
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 12.3 Population, Income and Expenditure • Changes in population, especially the school going age group, per capita income and household expenditure would have an impact on the long-term prospects of the industry.
• Some ofthese indicators are as follows:
Population, Income and Expenditure of Malaysia AAGR(%) Population 5 ~ 24 age Group (2009 to 2013) . l.l Per Capita Income (2009 to 2013) . 7.4 Average Monthly Household Expenditure (2004/05 to 20091l 0) 2.3 (Sources: Department afStatistics, Bank Negara Malaysia) • A growing population of the school going age group would increase the potential customer base for educational publications in general.
• Growth in per capita income and average monthly household expenditure may result in increased spending by consumers on educational materials.
• If the above indicators continue to grow in the future, this would augur well for operators in the overall Publishing Industry.
• The total population is forecasted to grow at an AAGR of 1.3% between 2013 and 2015 to reach 30.5 million (Source: Department ofStatistics).
• In addition, Malaysia’s per capita income is forecasted to grow by 7.8% to RM34, 175 in 20 14 (Source: Bank Negara Malaysia).
12.4 Economic Conditions • A growing economy provides the impetus for private and public spending, which would have a positive flow-on effect on the Educational Publishing Industry. Between 2009 and 2013, real GDP of the Malaysian economy grew by an AAGR of 5.7%; In 2013, the Malaysian economy registered real GDP growth of4.7%; As for 2014, real GDP for Malaysia is forecasted to grow between 4.5% and 5.5%; For the first quarter of 2014, the Malaysian economy grew by 6.2% due to stronger growth in domestic demand, as well as a turnaround in net exports. (Source: Bank Negara Malaysia) Sasbadi Holdings Berhad Page33of41 Industry Assessment 167 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 13. THREATS AND RISK ANALYSIS 13.1 Increased Usage of Internet for Edncational Pnrposes • Under the Household Use of the Internet Survey 20 II conducted by the Malaysian Communications and Multimedia Commission (MCMC), it was estimated that 63.5% of households used the iuternet for educational purposes as compared to 46.0% in 2009 (Source: Malaysian Communications and Multimedia Commission). • With the aim of improving the quality of learniug across Malaysia, the Malaysian Government has commenced the implementation of IBestariNet, which provides highspeed internet access and virtual learniug environment for 10,000 schools (Source: Malaysia Education Blueprint 2013-2025).
• The iucreased usage of onliue learning materials may threaten and reduce the usage of print educational materials, hence posiug a risk to the iudustry.
Mitigating Factors • In liue with the growiug trend of learniug via online medium, educational publishers that are iuvolved in priut publication should consider diversifyiug iuto or strengtheniug their onliue publishiug as a complementary busiuess activity.
• There are synergies between priut and online publishiug as the same content and material can be used for both medium of publishiug. In addition, digital publications iucluding onliue publications can be more engagiug and interactive, whlch could be useful for publishers to create brand loyalty among consumers.
13.2 Increased Competition from Online Publications • The internet, as a medium has made publishiug of content online available to the masses without incurriug on paper or priuting costs.. In addition, the internet has also facilitated global competition. All these have the effect of increasing competition for the publication industry, including the Educational Publishiug Industry.
• Online competition also place significant price pressure on existiug operators in the education publishing industry focusiug on priut publishing.
• As such, online publishing would pose a threat to print publishers of educational materials in Malaysia.
Mitigating Factors • While setting-up an online presence is low cost, the cost of creating awareness as well as collecting a strong customer base contiuues to require high investment costs. 7. INDUSTRY OVERVIEW (Cont’d) Q
13.3 VITAL FACTOR CONSULTING Creating Winning Business Solutions • To-date, there are no indications from the Ministry of Edncation for replacement of print pnblications with online pnblications for schools under the National Education System. Malaysia continues to have a significant proportion of its population in rural areas where affordability of electronic devices and bandwidth will be a major constraint to rely solely on online educational publication materials.
• In addition, for an established publisher of educational materials, it can leverage from its brand equity in terms of brand awareness, strong customer loyalty, track record and market reputation to establish a concurrent online presence to meet the changing needs of students.
Changes in National Curriculum • Any changes in the national curriculum may have an adverse impact on some publishers. Some recent developments in the national curriculum in Malaysia are as follows: In 2011, the Ministry of Education started rolling out the new KSSR in stages to replace the KBSR system. The new KSSR is expected to replace all national curriculum for primary school years by 2016. In addition, a revised version of KSSR is expected to be rolled out by 2017. By 2017, the new KSSM is expected to be rolled out in stages. • Changes in national curriculum for example, the reversion of Mathematics and Science to be taught in Bahasa Malaysia, may affect some publishers.
• For instance, publishers that have a competitive edge in English-based educational materials for Mathematics and Science may lose its appeal if they are unable to publish Mathematics and Science educational materials in Bahasa Malaysia. As such, the replacement ofKBSR with KSSRmay adversely impact such publishers that are unable or do not have a ready technical team to publish in Bahasa Malaysia.
Mitigating Factors • A change in curriculum is generally positive for publishers, as it would encourage endusers to buy new educational materials when the older publications are made obsolete by the new curriculum. An example is the new KSSR curriculum incorporating school based assessment and national examination namely UPSR. This curriculum change may stimulate demand for additional purchases of educational materials, such as revision materials, during the academic year.
• Publishers with a ready pool of experienced writers and editors with the appropriate subject matter and language skills would be in a better position to quickly adapt to changes in curriculum to minimise any adverse impact, and at the same time benefit from first-mover advantage or fast-to-market.
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 13.4 Abolishment of National Examinations • In Malaysia, the majority of educational materials are examination oriented, targeted at students preparing to uodertake national examinations such as Primary School Achievement Test (UPSR -Ujian Pencapaian Sekolah Rendah), Lower Secondary Assessment (PMR -Penilaian Menengah Rendah), and the Malaysian Certificate of Education (SPM -Sijil Pelajaran Malaysia).
• As of January 2014, the PMR examination has been abolished with 2013 being the last year of centralised examinations for Fonn 3 students. As such, publishers may face lower demand for educational materials for PMR.
Mitigating Factors • Based on the circular by the Ministry of Education on 31 March 2014, PMR will be replaced by Fonn 3 Assessment (PT3 -Pentaksiran Tingkatan 3) whereby the results of the PD will be used as a basis for admission of students into certain types of schools and streaming of students for upper secondary levels of education.
• As such, Fonn 3 students would still require educational materials based on the new PT3 assessment fonnat, despite the abolishment ofthe PMR examinations.
13.5 Low Set-up Costs • The barriers to entry into the Educational Publishing Industry are relatively low based on capital requirements as most of the functions within the process of transfonning a manuscript into the end-product may be outsourced to third parties.
• The entry cost for online publishing is even lower as there are no printing costs involved compared to print publishing. In addition, distribution costs for online publishing are minimal as it is made available through the internet.
• As such, competition within the Educational Publishing Industry may increase.
Mitigating Factors • While set-up costs may be low, operating costs are considerably higher. This is due to the need to pay professional staff as well as to extend credit tenns to resellers and retailers. In addition, there is a long lead time between obtaining manuscripts and transfonning them into [mal products suitable for sales to consumers. All these factors would pose barriers to entry for new entrants.
• A more established publisher with a strong brand name, a wide distribution network whilst enjoying economies of scale, would be in a stronger position to compete in the market.
7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • Nonetheless, competition in a free-enterprise economy is a constant factor in most ofthe industries in Malaysia. As such, publishers that are quick in meeting the needs of its target customer groups, adapt to changing market conditions while using technology prudently, would continue to stay ahead ofthe competition. 13.6 Fluctuations in Prices of Raw Materials • Printing and writing paper are major raw materials used in print publication. As such, an increase or fluctuations in the price of paper could have an impact on publishers’ performance.
• The following provides some indication of prices of printing and writing paper commonly used by the print publishing industry.
Average Price ofPaper 2009 2010 2011 2012 2013 Uncoated Woodfree Paper (local production) Average Price .. 2,414 2,714 2,665 2,460 2,468 Growth Rate (%)…. (16.4) 12.4 (1.8) (7.7) 0.3 Newsprint (imported) Average Price… 2,854 2,668 3,393 2,082 1,931 Growth Rate (%).. 8.9 (6.5) 27.2 (38.6) (7.3)
Notes:Allunits inRMpertonneexceptpercentages. (Source: Departmenta/Statistics) • Between 2009 and 2013, the average price of uncoated woodfree paper (local production) increased at an AAGR of 0.6% whilst the average price of newsprint (imported) decreased at an average annual rate of9.3%.
• As such, the fluctuations in paper prices may have a negative impact on print publishers.
Mitigating Factors • Paper is generally a commodity that is subjected to world prices and hence, all other publishers who use the same raw materials are equally affected.
• While prices of printed materials does not react as quickly as changes in paper prices, in the long run, increases in paper prices will be passed onto end-consumers.
13.7 Economic Slowdown • Any widespread and/or prolonged economic slowdown would affeclconsumer and business confidence, and subsequently their tendency to spend. The uncertainty over the global economies, particularly resulting from the euro zone debt problem, may also impact on the local economy. This may cause consumers to be more cautious in their spending patterns, thus leading to a slowdown in consumer spending. 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • All the above factors may impair on the performance of operators within the Educational Publishing Industry. Mitigating Factors • The demand for educational materials like textbooks is generally more resilient to an economic slowdown as these form part of the requirements of the National School Curriculum.
• In addition, consumers are generally less sensitive to changes in economic conditions when considering expenditure for educational purposes. This is substantiated by the fact that while the Malaysian economy experienced a 1.5% decline in real GOP in 2009, real household [mal consumption on education increased by 11.5% in the same year
(Sources: Bank Negara Malaysia; Department o/Statistics). 14. DRIVERS OF GROWTH • Some ofthe drivers ofgrowth for the Educational Publishing Industry are as follows: Improving education indicators such as growing enrolment and literacy rates, coupled with a growing population, would represent an expanding base of target customer group, which in turn would stimulate demand for educational materials. Socio-economic growth such as growth in GDP, per capita income and household spending are also important factors that would increase consumption of consumer goods, including educational materials. Government initiatives as reflected in the Malaysia Education Blueprint 2013-2025, ETP and the 10MP will spur growth in the targeted segments of the educational market, specifically the pre-school education market. This could provide growth opportunities for publishers of educational materials. Growing reading culture in Malaysia can be a long-term driver of growth for the overall Publishing Industry. The National Book Council of Malaysia, who created the National Book Policy (NBP) is responsible for the development of the local book industry and nurturing a reading culture among Malaysians. Online educational initiatives such as IBestariNet and i-TRIM would spur growth in online publishing of educational materials. Successful implementation and continued efforts in sustaining these projects provide opportunities for publishers. 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 15. CRITICAL SUCCESS FACTORS • Critical success factors for publishers of educational materials include the following: Established Distribution Channels: A strong network of distribution channels would enable publishers to have greater market penetration and therefore have access to a potentially larger consumer base. Access to Prominent Retail Shelf Space: A publisher competent in securing prominent retail shelf space at major bookstores, are in a better position to maximise on retail sales through effective merchandising and catching the attention of shoppers. Keeping Abreast with Market Conditions and Consumer Preferences: It is essential for publishers to keep abreast with changing market conditions and consumer preferences to retain existing customers while attracting new buyers for its publications. By expanding its product mix and making content relevant to a wide range of customers, publishers would be able to address emerging business opportunities to sustain and grow its business. Established Track Record and Market Reputation: An established track record and market reputation plays a vital role in winning textbook and educational material tenders from the Ministry of Education. In addition, a strong market reputation would provide potential buyers of other educational materials with a stronger sense of security, trust and recognition to the relevance and usefulness ofthe products. Leveraging on Online Publishing: Leveraging on online publishing to complement existing print publishing activities may be critical for publishers due to the growing acceptance of learning via online means. In addition, publishers can narrow the gap between preferred market requirements and supply of content, as online publications become more interactive. Financial Stability: Publishers who are in a healthy fInancial position would be in a better position to bid for government tenders as well as publish more titles to meet a wider target customer group. In addition, publishers in strong fmancial positions may have more resources to invest in marketing and promotions to create brand equity and ultimately have a strong following for their publications. 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions 16. MARKET SEGMENTATION, SIZE AND SHARE 16.1 Market Operator Segmentation • The Educational Publishing Industry in Malaysia comprises two tiers of private publishers based on revenue size. Based on available information as at April 2014, details ofthe two tiers ofpublishers are as follows: 1″ tier: Comprises the top three publishers where each publisher’s revenue exceeds RM40 million per year. The top three publishers in alphabetical order are Oxford Fajar Sdn Bhd, Pelangi Publishing Group Bhd and Sasbadi Holdings Group. Each of the top three publishers had market share that were relatively close to each other. No one publisher had more than 10% share of the printed educational materials market in Malaysia. 2nd tier: Comprises approximately 200 publishers where each publisher’s revenue is less than RM40 million per year. (Note: Revenue used for segmenting operators into two tiers is based on their total revenue, which includes publishing of educational materials, and may also include other related and non-related activities. Publishers above refer to those who are involved in the business ofpublishing on a regular basis.) (Source: Secondary Market Research undertaken by Vital Factor Consulting Sdn Bhd) 16.2 Market Size • In 2013, the market size of the publishing of books, brochures and other publications (including educational and non-educational materials) in Malaysia was approximately RMl.O billion (Source: Department of Statistics and computed by Vital Factor Consulting Sdn Bhd).
• In 2013, the market size for printed educational materials in Malaysia was approximately RM750 million based on apparent consumption (Source: Department ofStatistics andcomputedby VitalFactorConsultingSdnBhd).
16.3 Market Share • In 2013, Sasbadi Holdings Group had a market share of 6% of the publishing of books, brochures and other publications (including educational and non-educational materials) in Malaysia based on the Group’s revenue from print publications (Source: Vital Factor Consulting Sdn Bhd). Sasbadi Holdings Berhad Page 40 of41 Industry Assessment 174 7. INDUSTRY OVERVIEW (Cont’d) Q VITAL FACTOR CONSULTING Creating Winning Business Solutions • In 2013, Sasbadi Holdings Group had a market share of 9% of printed educational materials in Malaysia based on the Group’s revenue from print publications (Source: Vital Factor Consulting Sdn Bhd). We, Vital Factor Consulting Sdn Bhd, have prepared this report in an independent and objective manner and have taken all reasonable consideration and care to ensure the accuracy 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 individual 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
Wong Wai Ling Director