KUALA LUMPUR (April 27): ACE Market-listed LGMS Bhd jumped as high as 27.68% or 31 sen to a seven-month high of RM1.43 in morning trade on Thursday (April 27), after Japan's Mitsui & Co Ltd emerged as its substantial shareholder.

At market close, the counter pared some gains to settle 8.04% or nine sen higher at RM1.21 from its closing price of RM1.12 the previous day, giving it a market capitalisation of RM551.76 million.

The stock saw 11.4 million shares change hands, exceeding its 200-day average trading volume of 5.38 million shares.

On Wednesday, LGMS told Bursa Malaysia that Mitsui had acquired 104.88 million shares, boosting its shareholdings to 114 million shares equivalent to a 25% stake in the cybersecurity specialist.

Filings on Thursday reveal that the sogo sosha (Japanese general trading company) had acquired the shares from executive chairman Fong Choong Fook and his his wife Goh Soon Sei, who also serves as an executive director, at RM1.10 apiece.

In a note on Thursday, Kenanga Research analyst Samuel Tan said Mitsui's involvement in various businesses and industries will open many doors for LGMS in untapped sectors, such as healthcare, logistics, energy, and F&B.

"We are excited over this strategic alliance as it will allow LGMS to leverage Mitsui's vast global network to widen its reach and strengthen its foothold in the cybersecurity space.

"Mitsui’s exposure in various businesses and industries will open many business opportunities for LGMS in untapped sectors such as healthcare, logistics, energy and F&B.

"Based on our channel checks, this is Mitsui’s maiden investment in an external cybersecurity firm which speaks volumes of LGMS’s capabilities. While Mitsui has its own cybersecurity business which only services the Japanese market, it sees this partnership as a move to enhance its position in the Japanese market by offering additional services that require certain credentials and certifications that are unique to LGMS.

"Meanwhile, LGMS will be able to gain access to the advanced technology of Mitsui’s proprietary cybersecurity systems and introduce these new services into the Malaysian market and potentially other Asean countries where cybersecurity awareness is still at its infancy," he wrote.

Tan noted that just providing cybersecurity services to Mitsui's group of companies alone could result in significant earnings for LGMS.

He added that he maintains his "outperform" call and target price of RM1.50 for LGMS, pending guidance on potential earnings catalysts resulting from the entry of Mitsui.

"We like LGMS for its: (i) unique exposure to the growing cybersecurity business, (ii) the deep moat around its business given the high barrier to entry created by the tough qualification process as a vendor, and (iii) new proprietary certification software which is expected to be the next earnings driver.

"Risks to our call include: (i) longer-than-expected gestation period for its regional expansions, (ii) economic downturn resulting in customer lowering budget allocated for cybersecurity, (iii) reluctance to spend on cybersecurity services due to the lack of knowledge and awareness in emerging countries, and (iv) failure to maintain the extensive list of accreditations due to potential loss of critical talents.

LGMS listed on the ACE Market in June last year at 50 sen apiece, raising gross proceeds of RM45.7 million.