M+ Global has maintained its BUY call on LGMS Bhd but lowered its target price to 70 sen from 93 sen, after cutting earnings forecasts to reflect weaker demand in cyber risk prevention and compliance services, higher staff and technology costs, and a slower contribution from associate Antarex Holdings.
The research house said LGMS’ near-term earnings trajectory has become more subdued despite expectations for a stronger second half of FY2026, supported by rising demand for cybersecurity incident response services.
LGMS recorded core profit after tax of RM1.7 million in 2QFY26, down 13.7% year-on-year, while core profit for 1HFY26 slipped 0.5% to RM3.9 million.
M+ Global attributed the softer performance mainly to a 9.1% increase in employee benefit expenses and a 36.7% rise in IT spending, as LGMS invests in artificial intelligence-based security capabilities.
Earnings were also affected by weaker contributions from its compliance and incident response businesses, which fell 21.3% and 32.6% year-on-year respectively.
Incident Response Demand Expected To Pick Up
Despite the softer first-half performance, M+ Global expects LGMS to record a better showing in 2HFY26.
Management has observed a rising number of cybersecurity breaches as companies increase their adoption of AI and digital technologies, leading to greater demand for LGMS’ cyber threat response and forensic services.
The research house said the increase in breach incidents, together with customary year-end project billings, should support stronger revenue momentum during the second half.
However, growth in LGMS’ cyber risk prevention and management and compliance segments is expected to remain relatively muted.
M+ Global said enterprise clients generally remain reluctant to increase proactive cybersecurity spending until an actual breach occurs, limiting demand for preventive services.
LGMS has also stepped up investment in AI and other technologies in an effort to reduce its long-term reliance on human resources and improve service delivery efficiency.
While M+ Global views the strategy as important for the group’s longer-term growth, it said the timing of productivity gains and margin recovery remains uncertain.
Higher personnel costs in 1HFY26 were mainly due to annual salary adjustments and performance bonuses.
Antarex Contribution Expected Later
M+ Global also expects earnings contributions from Antarex Holdings, in which LGMS owns a 27% stake, to be weighted towards the later part of the three-year period from FY2026 to FY2028.
Antarex carries a cumulative RM24.5 million profit guarantee over the period, of which LGMS’ attributable share amounts to about RM6.6 million.
The research house said RM6.6 million of the purchase consideration has been retained to cover LGMS’ share of any potential shortfall under the profit guarantee, providing some downside protection to the investment.
Earnings Forecasts Cut
Following the weaker outlook for preventive cybersecurity services, higher operating costs and delayed Antarex contribution, M+ Global reduced its FY2026-FY2028 core profit forecasts by 15.6%, 21.7% and 18.4% respectively.
Its revised core profit forecasts stand at RM10.3 million for FY2026, RM10.8 million for FY2027 and RM12 million for FY2028, compared with RM12.2 million, RM13.8 million and RM14.7 million previously.
The new 70 sen target price is based on a lower price-to-earnings multiple of 30 times, from 35 times previously, applied to mid-FY2027 forecast earnings per share of 2.32 sen.
At a reference share price of 48 sen, M+ Global said the target price implies potential upside of about 45.8%.
Key downside risks include prolonged margin pressure from higher staff and technology expenses, slower demand for cybersecurity services, greater competition from domestic and international players, and execution risks involving Antarex and its profit guarantee.
