Thursday 28 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on September 26 - October 2, 2016.

 

RAISING RM27 million via an initial public offering is not seen as a challenging task on Bursa Malaysia. However, Worldgate Global Logistics Ltd opted to list on the Hong Kong Stock Exchange’s Growth Enterprise Market (GEM) instead of the local ACE Market — the first Malaysian company to do so.

Some observers say it may not be a wise move to list in Hong Kong unless a company has an international presence or operates in China, as investors there might not appreciate the stock or know much about the business here.

“It is true that the higher listing fees and stringent rules are often seen as a deterrent for companies to list in Hong Kong, but we decided to take the ambitious step because we want to leverage the strategic location of the Asian financial hub to become a regional logistics player,” Worldgate chairman Lee Chooi Seng tells The Edge.

To him, that could help pave the way for Worldgate to penetrate the massive Chinese market.

Lee anticipates a transfer to the Main Board in three years, when the company is expected to have a regional presence. Currently, more than 90% of its revenue is derived from Malaysia.

Worldgate is also looking for merger and acquisition opportunities in Singapore. “We are looking at companies that have potential and that we can leverage for growth. We hope to realise it next year,” Lee says. As a logistics hub in the Asean region, Singapore would complement the group’s business, according to him.

He says the fees to do an IPO in GEM easily amount to HK$20 million (about RM10.7 million) — about three times more than it would cost in Malaysia. Malaysian companies also need to go through the hassle of setting up offshore entities in places like the British Virgin Islands or Cayman Islands to facilitate the listing process.

As the requirements and expectations are high, Lee figures that a company that successfully lists in Hong Kong will have more credibility.

“If you are listed in Hong Kong, you don’t have to say so much as it speaks for itself. A platform in Hong Kong is more international ... when you tell the Chinese that you are listed in Hong Kong, they will look at you differently,” Lee says.

Worldgate’s IPO was priced at 35 HK cents, valuing the company at HK$280 million. It made its GEM debut on July 6 and its share price rocketed to as high as HK$6.06. However, it has since retreated to below HK$2.50 following the release of its half-year financial results.

At last Thursday’s close of HK$2.28, Worldgate was valued at HK$1.82 billion (RM973.6 million). In comparison, Century Logistics is valued at RM351.19 million and Tiong Nam Logistics Holdings Bhd at RM687.57 million. Both are bigger logistics players.

Worldgate recorded revenue of RM33.4 million for the six months ended June 30, 2016, up 13.7% from a year ago. However, it posted a net loss of RM6.1 million, mainly due to the recognition of one-off listing expenses of RM6.6 million. Gross profit came to RM7.4 million for the six months, down 2.3% year on year.

The financial results have raised concerns about the share price rally.

“It is natural for investors in Hong Kong to be cautious as we are the first [Malaysian company] there. But if we do not have the substance, I don’t think people there would have placed the value they did on our company,” Lee says.

“We are optimistic we will return to the black again in the next quarter. In fact, it is normal in Hong Kong ... in the first half, all the listing expenses will be lumped in. It is different in Malaysia.”

“Perception is something we cannot control. I think the confidence is there, which is why the share price went up,” he adds. 

He is positive about the company’s prospects. “The industry is always challenging; it depends on how you tackle it. Before the listing, we had anticipated the slowdown, and thus, had to make up for that by finding additional customers, working harder and cutting costs and expenses.” .

Worldgate’s strong debut is said to have sparked interest in  listing on GEM among local SMEs.

However, several factors determine a successful IPO, such as a company’s prospects, business model and industry it is in, says Gan Kim Khoon, director and regional head, equity capital markets, at RHB Investment Bank Bhd.  “The value of the listing  is not a major factor. Share prices can be impressive if a company is listed on the ACE Market as well,” he says.  

Gan is of the view that if a company’s business is entirely in Malaysia, it makes no sense to list in Hong Kong. Most Malaysian companies listed in Hong Kong have international operations, especially in China, that investors there will appreciate and understand.” he adds. Only a few of the bank’s clients tend to list their operations in Hong Kong. 

 

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