LGMS: Earnings Outperform Expectations on Cost Efficiencies, ‘BUY’ Rating Affirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that the company’s FY25 results surpassed expectations, primarily driven by robust revenue growth and effective cost management. Despite some challenges, the future outlook remains positive, supported by strategic acquisitions and strong market demand.
Financial Performance Highlights
Core net profit for the 12-month period ending FY25 significantly exceeded analyst estimates, reaching 114% of expectations. This strong performance was underpinned by a 0.6% year-on-year (YoY) revenue growth to RM43.9 million and improved operating expense (OPEX) management, with an OPEX margin of 59% against an estimated 62%.
Key drivers included substantial growth in the cyber risk management and compliance segment, which saw an 18% YoY increase, and the cyber threat and incident response segment, growing by 41% YoY. Increased billable clients and stronger contributions from the financial and technology services sectors also played a pivotal role in this growth.
However, the cyber risk prevention segment experienced a 10% YoY decline, attributed to weaker demand from the industrial, manufacturing, and automotive industries. This, combined with higher employee benefits expenses resulting from headcount expansion, led to a 17% YoY fall in the bottom line to RM10.2 million. Consequently, EBITDA margins narrowed from 39% in FY24 to 32% in FY25. A dividend per share (DPS) of 1.2 sen was declared for the financial year, implying a payout ratio of 54%.
Quarterly Operational Strength
On a quarter-on-quarter (QoQ) basis, revenue in 4QFY25 surged by 29%, reflecting higher project completions across all business segments. Cyber risk management and compliance recorded a significant 77% QoQ growth, while cyber threat and incident response also increased by 44% QoQ. Operational efficiency further improved, with OPEX declining by 4 percentage points (ppts) to 55%, and EBITDA margins rising by 8 ppts to 39%, driven by lower employee benefit expenses. Profit Before Tax (PBT) margins also improved to 37%.
Outlook and Recommendation
The report projects a strengthening of FY26E-FY27E earnings, bolstered by the full-year contribution from its newly acquired associate, Antarex Holdings, which is expected to provide an earnings buffer. The Malaysian cybersecurity market is forecasted for substantial growth, expanding from US$6.2 billion in FY2025 to US$9.3 billion by FY2031, representing a compound annual growth rate (CAGR) of 7.2% from 2026-2031.
The company is strategically positioned to capitalize on this market growth, supported by robust regulatory requirements under the Cyber Security Act 2024 and various national initiatives, including the National Cyber Security Strategy 2025-2030 and the MyDIGITAL Blueprint. These initiatives are expected to drive widespread cybersecurity adoption across both public and private sectors.
TA Securities has adjusted its target price to RM0.62 (from RM0.61 previously), based on an unchanged 23x P/E multiple applied to FY26E EPS. The firm upgraded its recommendation to BUY from HOLD, citing the recent sharp weakness in the stock’s price as an opportune entry point.
