Making its debut on the Ace Market today, LGMS Bhd (LGMS) is an independent provider of professional cybersecurity services, primarily involved in cybersecurity assessment and penetration testing, cyber risk management and compliance, and the provision of digital forensics and incident response services. BUY recommendation with a target price of RM0.66 based on 18x PER FY23 (20% discount from the Bursa Technology Index due to its smaller market cap), premised on capacity expansion, long standing relationship with its existing customers, strong demand of cybersecurity services in ASEAN and its net cash position.

Since its establishment in 2005, LGMS has established track records and industry-wide recognitions. The Group is recognized by Cybersecurity Malaysia (‘Cyber Security Company of The Year’ in 2017), IDC (‘Asia/Pacific IoT Security Landscape and Key Vendors’ in 2018) and other industry bodies including accreditation and certification bodies. LGMS has an established decade-long-standing local and international customer base (>400 customers) across a broad range of industries. Its customers include major local banks and insurance companies, multinational companies and government agencies. Some of its customers are recurring or repeat customers which is testament to its professionalism.

LGMS’s principal market is Malaysia, with Singapore being the second largest contributor. According to Protégé Associates, Cybersecurity market in ASEAN is projected to grow at CAGR of 14.2% from 2022 to 2026 to reach RM28.5bn. Malaysia and Singapore’s 2022-2026 CAGR expected to be 13.9% and 11.0% respectively. The Malaysian cybersecurity market is projected to grow from RM 3.8bn in 2022 to RM6.3bn in 2026. The cybersecurity market will be spurred by digital transformation economy, proliferation of digital touchpoints and applications, need for digital privacy, increasing broadband penetration rates and supportive government policies.

In the next 2 years, LGMS plans utilise RM6.5m from its IPO proceeds to double its headcounts by recruiting 60 additional technical staff in Malaysia and 10 more technical personnel in Singapore (plan to open a new branch by 1QFY23), Cambodia and Vietnam. Training and international certification will also be untaken for new technical personnel. Other than opening a new branch in Singapore, the Group continues to look for strategic expansion to Vietnam (2022-2026 CAGR: 18.5%) and Cambodia (2022-2026 CAGR:31.2%) via tie-ups or JVs with local partners with its proceeds of RM7.7m. In addition, RM18m of its IPO proceeds will be used to purchase new office to scale up operations and support growing customer base. LGMS plans to increase its operation floor to at least 20,000 sqft as compared to current 14,400 sqft to accommodate the workforce expansion. It also helps LGMS to save rental of RM557,000 per annum.

LGMS has a healthy balance sheet with its net cash position of RM62.8m post IPO.

Source: Rakuten Research - 8 Jun 2022