AS the nation continues to transition towards a digitalised economy, LGMS Bhd intends to capitalise on the evolution by tapping the small and medium enterprise (SME) market. Many such companies are susceptible to cyberattacks because they cannot afford the complete suite of cybersecurity assessments and related services.
LGMS CEO and founder Fong Choong Fook tells The Edge that this puts Malaysian SMEs at a disadvantage. However, as servicing large enterprises has always been the independent cybersecurity services provider’s bread and butter, the increasing prevalence of online security risks presents an opportunity for LGMS to expand its revenue base, especially as it believes that its new solution is affordable for SMEs.
“Some 75% of Main Market-listed companies face cybersecurity risks despite having purchased software and hardware for cyber protection, what’s more the smaller players.
“We have been creating a security tool for several years now and have a prototype, which will be an affordable option for SMEs to minimise their cybersecurity risks, many of which can be prevented. While giving LGMS an avenue to expand its footprint in the SME market, the new product has the potential to double LGMS’ revenue with a new stream of recurring income. This new tool for SMEs will be a subscription-based or pay-as-you-use model starting from a few thousand ringgit [per month],” Fong says, adding that the company will work with internet service providers to roll out the product.
LGMS made its debut on the ACE Market on June 8. From its initial public offering (IPO) price of 50 sen per share, the flotation exercise raised gross proceeds of RM45.7 million, 80% of which the company said would be utilised for business growth, including the purchase of a new office with a larger space and for workforce expansion, capital expenditure and strategic regional expansion into Singapore, Vietnam and Cambodia. It added that the remaining RM7.5 million would be set aside for working capital purposes and to defray listing expenses.
The company is looking to launch its new offices in Cambodia and Vietnam by the first quarter of 2023, with Singapore to follow later in the year.
LGMS’ base of local (80%) and foreign (20%) clientele comprises mainly financial institutions and telecommunications companies as well as foreign government-linked companies, which had engaged the company in the last six years, says Fong.
“We plan to expand our foreign pool of clients, which come to know about us from our listing as qualified vendors in international directories,” he says, explaining that its global partnership with foreign players such as Alibaba Cloud has given it international prominence.
“We are on track with our sales target for the year. LGMS has an annual growth target of 15%. Our plans are to deepen our growth in [servicing] enterprises as well as to diversify into the SME market,” says Fong.
For perspective, the cybersecurity sector is fragmented with market players competing in various categories from cybersecurity resellers to professional service providers. In an April 27 report, independent market research company Protégé Associates Sdn Bhd estimated that there are about 400 local and foreign cybersecurity players in the country.
“The cybersecurity market in Malaysia is expected to keep expanding with the annual growth rate projected to hover around 13.7% to 14% during the forecast period from 2022 to 2026 as the local economy continues its digital transformation journey. In terms of revenue, the cybersecurity market in Malaysia is projected to reach RM6.36 billion in 2026, registering a compound annual growth rate of 13.9% for the forecast period,” says the research company.
For the first quarter ended March 31, LGMS posted a net profit of RM3.09 million on revenue of RM7.84 million. For the financial year ended Dec 31, 2018 (FY2018) to FY2021, the company posted earnings of RM5.9 million, RM6.3 million, RM8 million and RM10.3 million respectively. Revenue came in at RM17.4 million, RM20.6 million, RM20.7 million and RM28.26 million respectively.
Protégé Associates says LGMS’ revenue of RM28.26 million was equivalent to a 0.8% share of Malaysia’s cybersecurity market in 2021 worth RM3.33 billion, which comprised revenue contributions by local and foreign players.
Increasing cybercrimes, skilled labour shortage not an issue
The growing prevalence of cyberthreats has heightened the relevance of cybersecurity products and services.
LGMS provides cybersecurity assessments, which contributes to 60% of group revenue, followed by consulting and certification services (20%) and incident response and digital forensics (20%).
“Many financial institutions and telcos engage LGMS for security assessments as these listed companies rely heavily on IT but may not realise the risks their firms face. Currently, we are seeing rapid growth in our incidence response and digital forensics segments,” says Fong.
LGMS’ assessment of a company’s cybersecurity set-up starts at several thousand ringgit and can run into the millions, he explains.
According to the company, its customers in the financial services, telecommunications and media industries in aggregate accounted for 55% to 73% of its total revenue from FY2018 to FY2021.
Data from the Royal Malaysia Police shows a 19.8% increase in cybercrime in Malaysia to 14,229 cases in 2020 from 11,875 cases the year before. The total combined losses from cybercrime in those two years amounted to RM911 million, with telecommunication fraud, e-commerce fraud (online purchases) and the Nigerian letter “419 scam” — a scheme in which a sender requests help to facilitate an illegal transfer of money — making up the majority of cybercrime cases in the nation.
Businesses and organisations in Malaysia have been targeted for advanced persistent threats, in which an unauthorised user — individual, criminal enterprise, terrorist organisation or nation-state — would gain access to a system or network for an extended period of time unnoticed.
“[In addition], today’s hackers hack the suppliers, not the organisation itself. Advanced hackers creep into and hide in the organisation while collecting intelligence for years. Imagine having an intruder in your home for years without knowing it. In the course of our investigations, we have seen government-linked companies experiencing this — where hackers were privy to confidential information.
“We have seen this also in financial institutions. If such firms face these issues even after investing heavily in IT security, imagine the data leaks and other [cybersecurity threats] in other companies, which may not have the funds for more stringent online security,” says Fong.
LGMS plans to double its current workforce of nearly 100 people within the next two years as part of its expansion plans.
Although the skilled worker shortage has been concerning to business groups, Fong says talent sourcing is not an issue for the company due to the “interesting nature of its business as well as its strong ties with universities”.
“LGMS is not in short supply of candidates. [Our biggest] challenge in talent recruitment is in identifying trustworthy characters. Therefore, we have a lengthy evaluation process with at least six to nine months of probation,” Fong explains.
Shares of LGMS have risen 34% to close at 90 sen last Thursday — since dipping to 67 sen in early July — valuing the company at RM410.4 million.
Source: https://www.theedgemarkets.com/article/lgms-eyes-sme-market-amid-rise-cyberattacks