10 Questions for LMS Compliance

Company Overview

LMS Compliance is an established laboratory group with over 15 years of operational history and 3 accredited laboratories and 1 sales office across Malaysia, providing quality testing and certification services for customers across a gamut of industries, ranging from food, feed, fertilizer, pharmaceutical, medical devices, healthcare, industrial and Greentech. The Group has 4 main business segments: 
o Laboratory testing and assessment services
o Certification services
o Distribution of Conformity Assessment
o Technology Trading 

1. Could you elaborate on LMS Compliance’s business segments and revenue drivers?

• LMS Compliance ("LMS") is a multifaceted company offering a comprehensive suite of services to support businesses across various sectors in achieving their compliance, safety, and sustainability objectives.

• The Testing & Assessment segment plays a pivotal role in the company's operations, representing 96% of its earnings. It operates ISO/IEC 17025 accredited laboratories dedicated to laboratory testing and assessment services, helping clients adhere to industry standards and ensure the safety of their products through rigorous testing and data-driven insights.

• The Certification segment enables LMS to serve as an ISO17021 accredited certification body, certifying organizations against various international standards, demonstrating their commitment to quality and compliance. LMS also engages in trading activities, distributing essential materials like chemicals and testing equipment through its Trading segment.

• Lastly, the Assurance segment collaborates with legal and accounting experts to provide ESG/sustainability assurance services, ensuring compliance with reporting standards such as Global Reporting Initiative (“GRI”), Sustainability Accounting Standards Board (“SASB”), Task Force on Climate-related Financial Disclosures (“TCFD”), and SGX 27 Core Metrics.

2. How does LMS remain competitive on a domestic and international scale?

• LMS intends to stay competitive by expanding on their ESG reporting services, improving their conformity assessment technology, and strengthening the business through inorganic growth.

• By improving on their proprietary online cloud-based applications, the group is able to help streamline and digitalize laboratory operations and act as a one-stop ISO certification platform. The distribution of the conformity assessment technology adds to the Group’s stream of highly scalable revenue.

• Because there are many small labs in Malaysia that do not close their operations and instead are consolidated with European and Australian businesses – LMS aims to consolidate and create joint ventures with these businesses

• The Group also seeks to form synergistic partnerships in Singapore, Indonesia and China. By bringing innovative testing, distribution of its conformity assessment technology and product certification services to these markets, the Group can benefit businesses and consumers in these regions.

3. Tell us more on the sustainability of revenue from testing services and growth prospects of the other segments

• LMS has approximately 80% of its revenue from repeat customers in the testing and assessment segment. The Group is not dependent on any single client or industry for the testing services.

• As of March 2023, the Group’s top 3 industry segment split for laboratory testing services are as follows: (i) Food & Feed industry contributing approximately 36%; (ii) Green Technology industry contributing approximately 18%; and (iii) Healthcare industry contributing approximately 17%.

• However, the Group’s top clients from the Medical Device industry, followed by Food industry, and Pharmaceutical industry. This is indicative of the diversity of LMS' clientele to be able to generate revenue year on year for stakeholders.

4. Elaborate on LMS' long-term expansion strategies and steps it has taken to optimize operational efficiency and productivity?

• LMS' long-term expansion strategy is to focus on strategic alliances, regional expansion, and efficiency optimisation. This involves the pursuit of strategic alliances and expanding into new regions. The APAC region is a primary target for LMS, with the company keenly acknowledging the promising growth prospects it offers.

• LMS recognises that effective cost management is pivotal for long-term success. Currently, LMS operates with surplus capacity within their existing laboratories, which provides them with a competitive advantage in capitalising on increased profitability as business volumes grows.

5. What Are Some Trends for LMS in a Post-COVID Environment?

• Sustainability has taken center stage. The pandemic has amplified global awareness of environmental and sustainability issues. LMS, with its expertise in sustainability assurance and greenhouse gas emissions verification, finds itself in a favorable position. The demand for stringent environmental compliance and the need to cater to consumers' preferences for eco-friendly products and services are expected to drive increased demand for LMS' sustainability-related services.

• The accelerated adoption of technology is also a prominent trend. The pandemic expedited the uptake of digital solutions to support remote work and automation. LMS' conformity assessment technology, exemplified by systems like Aikinz, Aizenz, and Aisinz, is poised to witness rapid adoption.

• These digital systems streamline assessment processes, replace manual tasks with automated procedures, and enhance operational efficiency. Organisations, driven by a need for resilience and operational agility, are likely to prioritise technology-driven solutions.

6. How does LMS plan to scale its business geographically in Malaysia, China and Indonesia?

• The company is actively pursuing growth opportunities through a combination of acquisitions and partnerships in these target regions, with a goal to introduce innovative services.

• The robust GDP growth within the ASEAN region, especially in Malaysia, provides a strong foundation for LMS' expansion plans. This favourable economic climate gives us the momentum needed to enter new markets and build fresh client relationships.

• Since going public in 2022, there are 3 key expansion areas:
  i. Diversify, broaden testing & assessment services – wider range of tests, exploring new sectors
  ii. Establish new laboratories in regions of Malaysia where we do not have presence
  iii. Enhance certification services and conformity assessment technology distribution

• The company is actively seeking growth through strategic partnerships, joint ventures, and acquisitions, collaborating with like-minded organizations to make a positive impact while strengthening market position and exploring complementary industries. This approach underscores LMS' steadfast commitment to strategic expansion across Malaysia, China, and Indonesia.

7. What key risks do LMS' business face? How are you managing these risks?

i. Regulatory Compliance: Adapting to changing laws and regulations in their operating countries can lead to increased compliance costs and penalties for non-compliance. Vigilance in monitoring and adhering to these regulations is crucial.

ii. Accreditations and Licenses: LMS must obtain and renew various accreditations and licenses for their services. Effective management includes tracking expiration dates and diversifying accreditations to mitigate risk.

iii. Key Personnel: The expertise and relationships of key management personnel are vital to LMS' success. Their potential loss without suitable replacements could impact operations and growth.

iv. Technological Advancements: Staying competitive requires adapting to evolving customer needs and technology. Investments in research, equipment, and system upgrades are essential to meet these demands.

8. How has LMS’ new sustainability assurance service assisted its clients and sustainability objectives?

• LMS' sustainability assurance service goes beyond traditional reporting to evaluate both legal compliance and the adequacy of existing ESG practices, promoting responsible and compliant operations.

• LMS provides clients with invaluable environmental data and workplace safety assessments. This empowers them to make informed decisions, set sustainability targets, and improve their environmental performance through ISO audits.

• LMS employs digital solutions for real-time data acquisition and self-surveillance systems, enabling ongoing monitoring and support for clients on their sustainability journey.

9. Whare are key ESG factors material to LMS and how that can create long-term value?

• I. Environmental Responsibility: LMS is deeply committed to environmental responsibility. They assist organizations in assessing greenhouse gas emissions and offer verification and validation services to remove or reduce GHG emission, demonstrating their commitment to sustainability. This resonates with stakeholders who prioritize ESG considerations, enhancing LMS's reputation and appeal.

• II. Sustainability Assurance: LMS provides valuable sustainability assurance services based on AA1000 assurance standard, enhancing the transparency and credibility of sustainability reporting. They empower organizations to produce trustworthy ESG reports by independently verifying sustainability data. This adds significant long-term value to clients, strengthening their sustainability initiatives.

• III. Technological Innovation: LMS' dedication to technological innovation is another vital ESG factor. Their cutting-edge cloud-based laboratory management systems and certification platforms improve efficiency and reduce paper consumption, aligning with sustainable practices. This innovation positions LMS as an environmentally conscious partner for stakeholders who value technological advancements and sustainability solutions.

10. What is LMS’ value proposition to its shareholders and potential investors? What do you think investors have overlooked?

• LMS’ strategic focus on ESG reporting certification and testing services, makes it a one-stop shop for companies navigating the complex landscape of environmental, social, and governance compliance. As ESG considerations become increasingly central to corporate decision-making, its expertise and streamlined solutions position it as a key player in this growing market.

• Financially, the Group boasts an impressive track record, with profitability driven by 80% recurring revenue and a strong cash flow from operations. This stability provides a foundation for long-term dividend payments, appealing to income-focused investors.

• The Group is proactively pursuing inorganic growth opportunities, including strategic partnerships, M&A, and joint ventures. These initiatives have the potential to catalyse revenue growth and profitability, making the Group an attractive prospect for investors seeking opportunities in the ESG compliance sector. The potential licensing of its conformity assessment technology offers an additional source of recurring revenue as well.

10 in 10 – 10 Questions in 10 Minutes With SGX-listed Companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

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Click here for LMS Compliance’s H2FY23 Financial Results.