This article first appeared in Capital, The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023

ACE Market listings dominated the initial public offering (IPO) market in 2022, accounting for 71%, or 25 of the total 35 companies, as investors sought to invest in companies with good growth prospects and solid business fundamentals, say investment bankers.

The number of ACE Market listings more than doubled to 25 from 11 last year, while there was an equal number of five listings on the Main Market and the LEAP Market. In comparison, there were seven Main Market listings and 12 on the LEAP Market last year.

“Bursa Malaysia saw the highest IPO volume this year since 2018, with a total of 35 listings raising RM3.5 billion. The IPO scene in 2022 year to date was dominated by the ACE Market in number,” Maybank Investment Bank head of equity capital markets Raymond Chooi tells The Edge.

However, the Main Market led the IPO market in terms of total proceeds raised, accounting for 63% or RM2.2 billion of the total RM3.5 billion, versus the ACE Market’s RM1.2 billion and RM32 million from the LEAP Market.

“To date, the combined market capitalisation of these companies has grown by an average of 22.5% since their listings to RM15.4 billion. This shows that the market still has abundant liquidity looking for good investments,” says Chooi.

“About 90% of the Malaysian economy is driven by small and medium enterprises. Companies that survived the Covid-19 pandemic are now ready to grow, and not just [geographically]. [In addition], requirements for the ACE Market are less stringent than the Main Market and there are companies on the ACE Market that are already meeting the criteria of the Main Market but choosing to stay put while upgrading themselves before the next move,” says Wong Kar Choon, who is Deloitte Malaysia’s disruptive events advisory country leader, adding that the number of ACE Market listings this year was impressive considering the economic climate.

He adds that the interest rate hike would potentially encourage more companies with good business fundamentals to seek listing as they can leverage the equity market for a diversified and cheaper funding base.

To dealmakers, that there were 42 companies in the prospectus exposure stage (as at Nov 15) that had submitted their first application to the Securities Commission Malaysia (SC) for review is a promising sign of a buoyant IPO market in 2023.

“Similar to what is happening in Indonesia and Thailand, there is an upward trend of companies in the technology, media and telecommunications segments seeking an IPO in Malaysia,” Wong notes.

Dealmakers expect potential listers to be discerning about the timing for their flotation exercise, considering the high inflation and high interest rate environment in the second half.

During the year, the benchmark FBM KLCI plunged to a low of 1,373.36 points on Oct 13 from the 1,600-point level earlier as negative news such as the geopolitical crisis led by the Russia-Ukraine war and China’s zero-Covid policy and their adverse impact on global supply chains compelled investors to withdraw their funds from the equity market. The index closed at 1,462.55 last Wednesday.

“Many companies have expressed interest, but are waiting for the right time. This year’s IPO trend has been fairly similar to the past three years, where each big IPO — Leong Hup International Bhd in 2019, MR D.I.Y. Group Bhd in 2020, CTOS Digital Bhd in 2021 and Farm Fresh Bhd this year — was followed by smaller listings. This trend is likely to repeat next year,” observes an investment banker who declined to be named.

The investment banker believes that in 2023, Bursa Malaysia will continue to see more mid-sized IPOs, such as that of property developer SkyWorld Development Bhd, which released its prospectus exposure on the SC’s website on Dec 5 for a Main Market debut.

Other potential Main Market IPOs in the pipeline in 2023 include dietary supplement maker DXN Holdings Bhd, which had reportedly delayed its US$300 million (RM1.3 billion) IPO to next year because of weak market sentiment; and QSR Brands (M) Holdings Bhd, operator of the KFC and Pizza Hut restaurant chains, which is said to be in the advanced stages of the SC submissions of its RM1.59 billion IPO.

Other potential listings to watch out for include that of Johor Corp’s (JCorp) plantation unit Kulim (M) Bhd’s RM1 billion IPO and underwater cable installer OMS Group Sdn Bhd’s (OMSG) RM1.34 billion deal.

Meanwhile, Kumpulan Kitacon Bhd signed an underwriting commitment with RHB Investment Bank Bhd on Dec 9 to underwrite a total of 18.59 million shares in conjunction with its IPO, which entails a public issue of 76.09 million new shares and an offer for sale of 62.5 million existing shares. The construction services company is expected to list next month.

For CIMB Investment Bank Bhd, several IPOs have been “lined up for the year already, including delayed ones from last year due to volatile market conditions and heightened inflationary pressure”, its CEO Jefferi Hashim says.

“There are others that we are still working on to ensure the best and optimal outcome is achieved for these companies. We observe that the domestic IPO market remains robust and continues to attract interest from domestic and foreign investors,” he explains.

“The year-to-date equity market has seen net foreign inflows of approximately US$1.1 billion (as at Dec 12, 2022), higher than one year ago, and we see this trend potentially continuing in the year to come with political uncertainty,” he adds.

M&A Securities managing director of corporate finance Datuk Bill Tan says while the market “isn’t soft, it has been very selective” with favourable industries such as IT, technology and the semiconductor markets faring well, while the “more traditional sectors such as steel have fallen” behind.

Tan hopes that the new government will announce initiatives promoting the capital markets, given Prime Minister Datuk Seri Anwar Ibrahim’s reputation for “being pro-market and market-savvy”.

“Before the 15th general election, corruption and racial issues caused foreign funds to sell out of Malaysia. They were a significant deterrent to foreign investors,” Tan tells The Edge.

Eyes are peeled for new reforms, which are hoped to attract foreign direct investments into Malaysia, he adds.

After a record-breaking 2021, the global IPO market proved otherwise in 2022. With only 1,333 IPOs raising US$179.5 billion, IPO activity dipped 45% and 61% by number of deals and proceeds respectively, year on year, revealed the EY Global IPO Trends 2022 report published on Dec 15.

“As the average deal size shrank due to lowered valuation and poor stock market performance, we didn’t see as many large IPOs launch in 2022. Weakened stock markets, valuations and post-IPO performance have further deterred IPO investor sentiment,” it noted.

The report also showed that the Asia-Pacific IPO market, being least hit by the global economic downturn and geopolitical tensions, had 845 IPOs totalling US$120.6 billion in proceeds, accounting for 63% of deals and 67% of funds raised in 2022.

Meanwhile, data by Deloitte as at Nov 11, showed that companies in Southeast Asia raised US$6.3 billion from 136 IPOs to date this year, [52%] down from a record US$13.3 billion from 152 IPOs in the full year of 2021.

“According to [financial markets analytics platform] Dealogic, as at Dec 15, other countries in the region such as Indonesia, Singapore and Thailand recorded a decrease in total deal values in 2022, compared with 2021. Malaysia was the only country that saw an increase in deal value of 24.6%, despite a smaller increase in new listings (16.7%) this year in comparison to other regional neighbours,” says CIMB’s Jefferi.

“Most businesses are expected to normalise fully in 2023. We expect that concerns will begin to ease in 1H2023 as the Malaysian government is expected to provide better visibility on policies and growth drivers for the next five years. Growth will moderate but is expected to be at healthy levels against a gradual rate increase environment,” says Maybank’s Chooi.

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