This article first appeared in The Edge Malaysia Weekly on November 20, 2023 - November 26, 2023

SO seriously does LGMS Bhd take cybersecurity that a user’s site is vetted before he or she can even access its website.

“Checking if site connection is secure …”, its web page states as a scan is conducted for a few seconds before a user is allowed access, ostensibly as no virus or malicious ware have been found.

The cybersecurity firm’s founder and executive chairman Fong Choong Fook would probably prefer that all companies exhibit the same attention to or concern for potential cyberattacks.

Although the firm boasts a number of large corporate clients in the country, it is aware that smaller firms tend to try to save on cybersecurity, not realising the ramifications in the event of a breach.

Fong says LGMS is seeking to deepen its reach into other segments to lift its dependency on core markets in the country and, at the same time, grow its business internationally for more expedient conversions and better margins.

But domestically, small and medium-sized enterprises remain a priority, given their insufficient defence and vulnerability to cyberattacks, he says, adding that the company plans to address the issue with a new product called StarSentry, which he claims will be affordable for the segment.

“LGMS’ impartial approach in its service offerings is what distinguishes us from other industry players in Malaysia, which are information technology solution firms or system integrator companies selling third-party cybersecurity hardware or software that typically do not have a full suite of cybersecurity solutions. In contrast, we offer a comprehensive range of solutions, which even cover digital forensics and computer crime investigations,” Fong tells The Edge in an interview at the company’s headquarters in Selangor.

He established LGMS in 2005 after observing the potential of the cybersecurity business, and was joined five years later by his wife Goh Soon Sei, who is now an executive director.

As the business flourished, the duo began hiring about three years later and listed LGMS on the ACE Market of Bursa Malaysia in June last year at an offer price of 50 sen apiece, and raised gross proceeds of up to RM45.7 million.

LGMS’ three business segments are categorised into cybersecurity assessments, which contribute at least 65% to the group’s revenue, followed by consultation and certification (10% to 20%), while the remaining 10% to 15% come from its incidence response division.

Financial service institutions (FSIs), telecommunication companies and media groups collectively are the highest contributors to group revenue at 55% to 63%. FSIs alone contributed more than 50% to LGMS’ revenue growth in the financial years 2021 and 2022, Fong says.

He reveals that the group had maintained its annual revenue growth target of about 15% over the last five years, and was on track to achieve a “positive growth for FY2023, which would be backed by LGMS’ current order book”.

“LGMS’ secured orders had surged substantially in the current financial year compared with previous years and we expect these orders to be executed within an acceptable timeframe,” says Fong, who declines to provide the value or growth percentage of the secured orders, or whether the current order book puts the company on track to achieve its revenue target of 15% for the year.

“The timing for the revenue from these contracts will depend on the clients’ readiness for project execution,” he explains.

“Given the trend we have observed this year, LGMS will reduce its dependency on FSIs to other industries that are less mature where cybersecurity services are utilised, but need it just as much,” Fong says, noting that FSIs are already well-acquainted with LGMS’ offerings after it made a name for itself in the sector.

In the third quarter, LGMS secured contracts from non-FSI segments such as aviation, oil and gas and retail.

“We have plans to grow our other target segments including government bodies and the SME (small and medium enterprise) market. These sectors present significant opportunities for us and they are increasingly recognising the importance of robust cybersecurity services. Our expansion strategy involves leveraging our experience and success in the FSI sector so that we can also offer specialised services that address the specific challenges faced by government entities and SMEs,” Fong shares.

For the second quarter ended June 30, 2023, LGMS made a net profit of RM3.57 million, 44.5% higher than RM2.47 million in the same period last year, on the back of an 8.45% rise in revenue of RM9 million from RM8.3 million before.

In a Bursa Malaysia filing, the group says net profit for the financial year ended Dec 31, 2022, was 12.1% higher at RM11.55 million from RM10.3 million the year before amid a revenue growth from RM28.26 million to RM32.79 million, which LGMS says was driven by more cyber risk prevention contracts in FY2022.

To this end, LGMS will launch a new cybersecurity product — StarSentry — comprising both hardware and software in the first quarter of next year to ease penetration into the local SME market.

The product will be priced “affordably”, which Fong hopes will resolve barriers to entry in cybersecurity services for the SME market.

Fong observes that in spite of rampant cases of cybersecurity crimes, many SMEs are ill-equipped with the necessary defence. He points out that many SMEs are still using free software and do not have information technology support, making them more vulnerable to cyberattacks and invasion, unlike larger enterprises that invest in cyber protection hardware and services.

“Therefore, we came up with the idea of putting our expertise into a piece of hardware that will work as a plug-and-play for SME clients. It has taken us about two years to build the product,” says Fong, noting that the new product will be a cheaper alternative to consultative security assessment by LGMS’ personnel and will provide system health checks based on unlimited scans.

As LGMS adjusts its priorities locally, it will also shift its focus towards growing an international pool of clients. Fong explains that LGMS’ bread and butter has always been its local customers who make up 80% of its business, with the remaining 20% coming from overseas.

“Eventually, we will shift our focus overseas as the thinking and knowledgeability about cybersecurity services among foreign companies are far more mature. Therefore, we’re not held back educating [and convincing] them about our services, or being compared with system integrators (SIs).

“For instance, the first question that one of our clients in Australia asked us was if we carried any third-party products. Our unequivocal response of LGMS being product-neutral and not being a third-party reseller resonated well with their expectations, signifying a maturity in their approach towards cybersecurity. That streamlines the adoption of our services,” Fong explains.

In addition, LGMS’ international transactions are predominantly done in US dollars, hedging against ringgit weakness, whereas margins from contract billings are “better”, he says.

Internationally, LGMS has clients in the US, Europe, Southeast Asia, Australia and New Zealand, to name a few. “Many come for LGMS’ certification services. Recently, we concluded the security assessment for a major bank in Cambodia as well as certification of its payment systems,” Fong illustrates.

With an eye on overseas markets, the firm in April formed a strategic partnership with Mitsui & Co Ltd, in which the Japanese conglomerate emerged as a substantial shareholder in LGMS after acquiring 23% of the company from Fong and Goh, in addition to the 2% Mitsui held previously.

This reduced Fong’s shareholding to 36.3% and Goh’s to 10.8% (as at June 7) from 53.86% and 16.1% previously.

Fong explains that the co-founders were not cashing out, but merely facilitating the entry of Mitsui as a strategic partner without any dilutive impact to existing shareholders.

According to its website, Mitsui — which also has businesses in product sales, worldwide logistics and financing, mineral and metal resources, energy and infrastructure projects — established its wholly-owned cybersecurity services unit Mitsui Bussan Secure Directions Inc (MBSD) in 2001. The unit has been providing security assessments, consulting and monitoring services for more than 20 years.

Fong explains that the strategic partnership between LGMS and Mitsui enables both parties to exchange business know-how and go-to market strategies, while LGMS leverages Mitsui’s network to expand its customer base.

“We expect the partnership to open more international doors for LGMS,” Fong says, pointing to Mitsui’s cybersecurity arm, which is among the top two largest cybersecurity firms in Japan.

Asked if any of the potential market penetrations with Mitsui would contribute to LGMS’ FY2023 or FY2024 earnings, Fong replies that “planning is still underway and contributions would not be immediate as the outcome of the partnership will only be seen in the long term”.

“For now, we are growing our capacity and intend to double our manpower to 200 by the end of next year from about 100 currently.”

While LGMS does not have a formal dividend policy, Fong says it paid out 50% of its profits as reflected in the first and final single-tier interim dividend of 1.3 sen per share for FY2022.

Shares in LGMS, which climbed 38% to RM1.27 on July 7 in the weeks following the announcement of its partnership with Mitsui from a year-to-date low of 92 sen, were trading at the RM1.01 mark last Wednesday, which translates into a market capitalisation of RM460.56 million.

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