LACMED: Strong Performance Driven by Recurring Income Growth and Cost Stability
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM1.14 (+42.8%) |
| Last Traded | RM0.80 |
| Recommendation |
A healthcare sector player delivered robust performance, driven by expanding recurring income streams and effective cost management. The investment bank maintained its “BUY” rating for the company, affirming a target price of MYR1.14.
Performance Review
The company’s focus on recurring revenue has been a key driver, with related products and services now comprising 45.2% of its MYR584m tenderbook (approximately MYR264m). This strategic shift is designed to enhance revenue predictability and mitigate earnings seasonality. In FY25, the segment recorded an impressive 61% year-on-year revenue growth, coupled with a high gross profit margin of 57.4%. This strong margin performance is supported by stable selling prices and the ability to pass on potential cost increases to customers, ensuring operational resilience amidst inflationary pressures. A significant development is the Philips Maintenance Agreement secured in June 2025, which expands service entitlements for MRI and CT scanner machines nationwide, commanding substantially higher service fees.
Challenges and Operational Updates
Despite overall strong performance, the Indonesian operations faced initial challenges, contributing approximately MYR1.7m to 4Q25 revenue, which was below management’s expectations due to earlier delays. However, the company has since expanded its footprint in Sumatra, Surabaya, and Sulawesi, with new principals expected to be onboarded from the second half of 2026. Management targets a 5% revenue contribution from Indonesia in the future, with the current Indonesian tenderbook standing at approximately MYR40m. The operational outlook is believed to remain intact, presenting the recent share price weakness as an opportunity for accumulation.
Future Outlook and Risks
The company continues to seek new principals to complement its existing product portfolio and service offerings. Its strong tenderbook, particularly the growing share of recurring income contracts, provides a solid foundation for future growth. Key risks include potential regulatory changes, over-reliance on major suppliers, and the inability to secure new projects or potential delays in existing orders. Nevertheless, the group is viewed as a key beneficiary of Malaysia’s healthcare expansion initiatives. The target price of MYR1.14 is based on a 15.7x FY26F P/E, aligning with selected peers in similar distribution businesses.
