[This Week's Highlights] Tech Strong SME Suprema... Global No.1 in Biometric Security

Established by PhD-level experts from Daewoo Electronics and Korea Electronics and Telecommunications Research Institute
Suprema, Suprema ID, Suprema HQ listed on KOSDAQ
Participated in access control project for housing complex in Saudi Arabia's 'NEOM City'

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the online environment flooded with unrefined information, Asia Economy aims to be your hands, feet, eyes, and ears by delivering accurate information about companies. Each week, we focus on companies that rank high in stock views on the financial information provider FnGuide, providing basic information as well as analysis of related companies such as partners, clients, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We come to you every week under the name "This Week's Watchlist," highlighting stocks of interest. This week, we take a closer look at Suprema, a promising company competing for the global No. 1 position in the biometric (bio-recognition) security field.

What do activating a Samsung Electronics Galaxy smartphone, opening a company entrance door, and passport recognition at airports have in common? They all utilize Suprema's technology. Suprema is a security company based on biometric recognition. Suprema was founded in 2000. At that time, it was a rare case for a small and medium-sized enterprise to be established mainly by PhD-level experts from Daewoo Electronics and the Electronics and Telecommunications Research Institute.

Suprema's fingerprint recognition security device

Suprema's Chairman Lee Jae-won graduated from Seoul National University College of Engineering, Department of Control and Instrumentation, class of '87. He was a visiting researcher at Stanford University in the U.S. and a researcher at Samsung Electronics' Advanced Institute of Technology. Although he achieved results such as developing vehicle systems through automotive research, a new business area for Samsung at the time, the project he had devoted himself to was canceled during the Asian financial crisis. Feeling disillusioned with life in a large corporation, Chairman Lee founded Suprema. The company entered the bio-recognition and physical security business after receiving a contract to manufacture fingerprint recognition algorithm technology and producing the product. Three companies in the Suprema Group?Suprema, Suprema ID, and Suprema HQ?are listed on the KOSDAQ market. Centered on Suprema, Suprema ID focuses on the public sector, while Suprema HQ serves as a holding company and focuses on ODM (Original Design Manufacturer) business.

Two Consecutive Wins at the World Fingerprint Recognition Competition

Suprema's proprietary fingerprint recognition algorithm technology won first place twice consecutively at the Fingerprint Verification Competition (FVC), a global fingerprint recognition contest. Fingerprint recognition has rapidly grown due to its practical advantages such as accuracy, convenience, and cost competitiveness. At the time of Suprema's listing in 2008, fingerprint recognition already accounted for more than 50% of the global biometric recognition market, and it still exceeds 50% as of last year.

Suprema's business is divided into integrated security systems and bio-recognition solutions. The integrated security systems business accounts for about 77% of sales. This business includes access control and attendance management systems, providing various authentication services such as fingerprint, face, password, and card recognition. The bio-recognition solutions business mainly sells fingerprint recognition algorithms for smartphones and biometric modules including fingerprint and face recognition. Suprema's fingerprint recognition system has been installed in over 300 million smartphones worldwide, including the Samsung Galaxy S23. The company is also participating in the access control project for the 'NEOM City' residential complex promoted by Crown Prince Bin Salman of Saudi Arabia. Design work is underway to apply the flagship product BioStation 3 to NEOM City.

Expansion of Biometric Authentication Usage into the Private Sector

The expanding adoption and application of biometric authentication in the private sector is a positive factor for Suprema's performance growth. At a meeting held earlier this year on improving internal controls in financial companies, discussions included strengthening access control by periodically changing ID and password methods or upgrading system access methods to personal authentication (ID cards, mobile phones, etc.) or biometric authentication. Since fingerprint and facial recognition, which offer high security levels, are widely used in biometric authentication, Suprema Group's orders are expected to increase.

Last year, Suprema signed a memorandum of understanding (MOU) with Hana Bank for integrated online and offline facial recognition services. Suprema has established itself as the No. 1 company in the domestic public procurement market for access security within three years of market entry, capturing a 30% market share. The spread of government employee ID cards equipped with the company's technology is expected to drive further growth in the public sector. Suprema is accelerating growth by securing system integration projects for major clients such as Hyundai Motor Namyang Research Center and Kakao's Pangyo Alphadom building.

Overseas, the installation of Suprema's security systems is expanding in data centers and other facilities. The company counts Equinix, the world's No. 1 data center company, as a client, with applications expanding to its global branches. Digital Realty and CyrusOne are also clients. Exports account for 80% of Suprema's total sales. As of Q3 2022, the sales distribution by region is the U.S. (26.8%), Europe (24.9%), Korea (20.7%), Asia (16.7%), and Central Asia & Africa (11.6%). The overseas business operates through 217 global partners and 7 overseas branches. Suprema is rapidly expanding its market share in Europe and the U.S. Based on its technology and brand power, Suprema maintains a gross profit margin in the 60% range and an operating profit margin in the 20% range. With a debt ratio of 5% and a current ratio of 930%, its financial stability is high. Leveraging its technological leadership, Suprema increases its margin and invests more than 10% of sales in research and development (R&D) based on secured liquidity.

Global Biometric Recognition Market Expected to Reach $82.9 Billion by 2027

The industry has significant growth potential, and the high entry barriers also favor Suprema. The global biometric recognition market was estimated at $42.9 billion in 2022 and is expected to grow at an average annual rate of 14.1%, reaching approximately $82.9 billion by 2027. Increasing market share in this sector requires long-term proven performance. The bio-recognition industry, closely linked to fields requiring high reliability such as access security and identity verification, cannot use unverified products, making it very difficult for latecomers to enter. Even after product development, ongoing technical support, product specification changes, and regular training for system use are required, maintaining close relationships between manufacturers and intermediate distributors. The business structure is inherently closed. Therefore, Suprema, which succeeded in market entry from its early days and has over 20 years of industry experience, holds an advantageous position compared to latecomers. Kwon Myung-jun, a researcher at Yuanta Securities, said, "Given that Suprema has secured global recognition, we believe it has great potential for continuous growth."

However, the high proportion of overseas sales means the company could be directly affected by a global economic downturn, which poses a risk. Although the risk of COVID-19 variant resurgence has decreased, uncertainties remain due to the Ukraine-Russia war, prolonged high interest rates, and the so-called "bankdemic" (bank + pandemic). Despite expectations for economic recovery and market growth, demand recovery may be delayed unexpectedly. Issues such as reduced private consumption, delayed facility investments, and decreased exports may arise. Factors like ongoing protectionist policies by countries and uneven global economic recovery could also delay demand recovery. Since major competitors are global large corporations, excessive competition could negatively impact profitability.

Global system integration (SI) companies are expanding their market influence through strategic cooperation with local SI firms that actually perform the work. If large global SI companies expand their business into the biometric recognition market, which is Suprema's main market, or if new competitors enter, excessive market competition could lead to price declines for products and services. Kim Kyung-min, a researcher at the Korea IR Association Corporate Research Center, explained, "Suprema is aware of changes in the market environment and is responding by strengthening technology and price competitiveness, expanding its product lineup, and pioneering new markets."