Penang-based testing and certification services company LMS Compliance is seeking a listing on the Catalist board of the Singapore Exchange (SGX) to raise funds to support its business expansion.
On Nov 22, the company launched its offer of 14 million placement shares at 26 cents each, raising gross proceeds of $3.64 million. Application will close on Nov 29 and trading will start on Dec 1. Proceeds from the IPO will be used to fund acquisitions, as well as strengthen the company’s service offerings to allow it to have an edge over its competitors in the region, says executive director and CEO Louis Ooi.
LMS, with a track record of more than 15 years, plans to expand its capacity and range of services. The latter will be done by enhancing the features and capabilities of its digital laboratory solutions. “We strongly believe in digital transformation, having invested in technology to enhance and diversify our business. Without this infrastructure in place, we cannot compete with the industry giants,” says Ooi in an interview with The Edge Singapore.
According to insights firm Straits Research, the global testing, inspection and certification market, valued at US$335 billion ($460 billion) in 2021, is seen to reach US$457 billion by 2030, or a CAGR of 4%. Asia Pacific, which accounts for the largest market share, is estimated to grow at a CAGR of 5.2% during the firm’s forecast period.
Despite the large market size, it is an industry that is dominated by several laboratories that have existed for over a century with footprints across the world, says Ooi. The giants in the industry include Swiss conglomerate SGS, quoted on the SIX Swiss Exchange, and German firm TÜV SÜD.
LMS — which operates across several states in Malaysia — chose to list in Singapore to further expand its footprint and leverage on the stronger currency, aside from enjoying the geographical benefit of being able to collaborate with multinational companies based in the city-state.
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For FY2021 ended December 2021, LMS reported earnings of RM4.9 million ($1.5 million), up 5.5% y-o-y. Revenue in the same period was up 7.25% y-o-y to RM17 million. For the most recent 3MFY2022 ended March 31, earnings came in at RM1.44 million, versus RM1.08 million recorded in 3MFY2021.
Ooi is aware of the relatively muted IPO scene across the world, including Singapore, as investors turn cautious amid the more pronounced macro risks. He believes there is no right or wrong timing to list. “As far as I am concerned, we have done our part in fulfilling a couple of criteria.”
The company's revenue is seen to grow consistently at a CAGR of 7% to 8%. Meanwhile, based on FY2021 EPS of 5.66 sen, the offer price of 26 cents pegs the IPO at 15.2 times historical earnings. “I believe that we are also attractively valued,” adds Ooi. In comparison, SGS is currently trading at a P/E ratio of 27.18.
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The company currently does not have a fixed dividend policy. However, it intends to recommend and distribute dividends of a minimum of 20% of its profit after tax for FY2022, FY2023 and FY2024.
Staying profitable
LMS was established in 2006 by Ooi and his wife May Chong, a registered chemist. With a 800 sq ft laboratory and three employees, they started offering laboratory testing services to customers who were mainly feed manufacturers.
The company gradually grew and expanded its range of services to include assessment, certification and trading. Its customers include those in the food, feed, fertiliser, pharmaceutical, medical devices, healthcare, industrial and greentech industries.
Through its ISO/IEC 17025 accredited laboratories, for example, LMS provides laboratory testing and assessment services including chemical, nucleic acid and physical analyses. The company’s testing and assessment segment is its largest revenue contributor, accounting for approximately 96%–98% of its total revenue throughout FY2019 to 3MFY2022.
This industry, while niche, is nonetheless a competitive one. In Malaysia alone, there are around 1,000 accredited laboratories and around 100 certification bodies. What sets LMS apart is its interest in innovation and technology, evident in the development of its conformity assessment (demonstration that a product, service, system or person meets specified requirements) technology, says Ooi.
“When we started in 2006, there was no big data, no Internet of Things, no industry 4.0. But we developed an in-house laboratory information management system called LIMS. It was a data logging system I created with some simple programming.
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“Over the years, with some outsourced help, we were able to develop a more advanced version of the system, which helped us to digitalise our operations and make it more efficient. With this, we are able to deliver more agile and accurate results,” says Ooi.
The application was able to greatly improve LMS’s own workflow — over the past three years, the company was able to increase its revenue at 8% CAGR although the headcount remains the same.
The company was even able to stay profitable during the pandemic lockdown period, only suffering losses in March and April 2020 when Malaysia announced the movement control order (MCO). “At the start of the MCO, we were not allowed to operate. After a bit of back of forth [with the authorities], we were considered ‘essential services’, thereby allowing us to operate at 50% capacity.
“That said, most of our clients had to cease their operations. We were running out of work in progress in our pipeline. I called for a meeting, asking everyone to think about what we can do. Then, someone said: ‘Let’s do face mask testing.’ That was such a great idea — we immediately formed a group consisting of a microbiologist, chemist and engineer to study some testing methods,” says Ooi.
Therefore, in June 2020, LMS launched the face mask testing services. With this first-mover advantage, the company was able to generate a significant amount of additional revenue. Eventually, the company started testing sanitisers as well as disinfection services. “That’s how we increased our revenue and managed to keep ourselves profitable for FY2020 despite not meeting the revenue target,” says Ooi.
Addressing risks
Moving forward, Ooi sees a great market potential in conformity assessment technologies. Being in a highly regulated industry, Ooi believes that its applications would be able to minimise the risks associated with human errors or misappropriation of results.
For example, its aikinz-LIMS solution is able to electronically generate certificates of analysis which are issued after results of laboratory tests are analysed. The application also embeds traceable QR codes in test reports, safeguarding its customers’ products against counterfeits. All confidential data and communications are stored in a secured server, which helps to minimise leakage and misappropriation of information.
Aside from aikinz-LIMS, LMS Compliance also offers aizenz, an ISO certification platform. It has recently launched aizinz, which provides global real-time surveillance and access to data such as product safety and hygiene information. The company plans to add artificial intelligence, data analytics and data mining and benchmarking capabilities to these applications, helping to analyse customer behaviour patterns to assist in decision-making.
Ooi is hopeful that the company is able to grow at a larger scale post-IPO. “All giants start small — we could be one of them,” he adds
