LGMS Berhad: A Hidden Gem in Malaysia's IT Sector?

LGMS Berhad, a Malaysian IT solutions provider, has quietly built a portfolio of fundamentals that suggest it could be trading at a significant discount to its intrinsic value. Despite a recent dip in profit margins and leadership turnover, the company's strong insider ownership, revenue growth, and projected improvements in return on equity (ROE) position it as a compelling investment opportunity—if investors are willing to look past near-term headwinds.

ROE: A Baseline with Upside Potential

LGMS's ROE, a key metric for assessing managerial efficiency, currently stands at 12.3%—below the industry average, according to its latest filings. However, the company forecasts an ROE of 13.65% by 2028, which, if achieved, would align it closer to sector benchmarks. This projection is supported by its 28% revenue growth in FY 2024, driven by expanding IT infrastructure projects.

While ROE remains a work in progress, the revenue surge suggests the company is scaling its operations effectively. The dip in profit margins to 27% (from 32% in 2023) is a concern, but it reflects rising operational costs rather than a loss of pricing power. Investors should monitor whether margin pressures ease as revenue growth stabilizes.

Earnings Growth: A Steady Climb Amid Industry Headwinds

LGMS's earnings growth has lagged behind Malaysia's IT sector's blistering 29.5% five-year average, but its 10% net income growth in 2024—paired with surging revenue—hints at a turnaround. The company's focus on high-margin IT services, such as cloud infrastructure and cybersecurity, could help restore margins over time.

The stock's recent volatility—a 16% drop in August 2024 followed by a 20% rebound in June 2025—reflects investor skepticism about its ability to sustain growth. Yet the MYR 12.3 million net income reported in 2024 represents a solid foundation for future expansion, especially with the company's letter of intent to acquire a minority stake in Antarex Holdings, a move that could open new revenue streams.

Insider Ownership: A Majority Stake, but at What Cost?

LGMS's governance dynamics are its strongest suit—and its biggest risk. Insiders, including CEO Choong Fong (54% ownership) and Senior Executive Soon Goh (16%), collectively hold 70% of the company's shares, a staggering concentration of control. This alignment between management and shareholders typically bodes well, as insiders have a vested interest in maximizing long-term value.

However, the turnover in leadership—including the resignation of two directors in 2023 and the addition of two new non-independent directors in 2025—raises questions about governance stability. The expiration of a 2018 lock-up agreement (June 2025) also leaves open the possibility of insider selling, though the CEO's massive stake suggests confidence.

Valuation and the Case for a Buy

LGMS's market cap of RM565 million contrasts sharply with its RM396 million insider stake valuation, implying the public float is undervalued. With low analyst coverage (only 4 analysts tracking it) and a small retail investor base, the stock is ripe for a re-rating if growth accelerates. The 7.7% five-year earnings growth rate may seem modest, but it's sustainable, and the 2024 revenue jump suggests execution is improving.

Investors should also consider the low institutional ownership (under 5%), which means the stock is less prone to overvaluation. If ROE improves to 13.65%, LGMS could outperform peers, especially in a sector where IT demand remains robust.

Risks and Final Thoughts

The risks are clear: margin pressures, governance instability, and execution on the Antarex deal. Yet the combination of insider conviction, revenue momentum, and an undemanding valuation makes LGMS a high-reward, moderate-risk bet for long-term investors.

Recommendation: Buy with a medium-term horizon, targeting a 1–2-year holding period. Monitor Q3 2025 results for margin recovery and progress on strategic initiatives. For conservative investors, wait for clearer signs of margin stabilization before committing.

LGMS Berhad isn't a slam-dunk trade, but for those willing to look beyond the noise, it offers a rare chance to invest in a growing IT player at a discount—provided its insiders are right about the road ahead.