This article first appeared in The Edge Malaysia Weekly on January 16, 2023 - January 22, 2023

The euphoria over the latest listing on the ACE Market shows that the party is not over for companies seeking an initial public offering (IPO).

The latest to enjoy the IPO boom is Nationgate Holdings Bhd, an electronics manufacturing services (EMS) provider. The stock appreciated almost 300% in the first few days of listing.

The performance of Nationgate is a follow-through on the performance of new listings — especially those on the ACE Market — from last year. Of the 35 new listings last year, only five stocks ended the year below their IPO price. The other 30 ended the year on a positive note, with the best performer being SFP Tech Holdings Bhd, whose share price had soared as high as 500% from its IPO price.

SFP Tech, which provides testing services, is at the higher end of the electronics industry’s supply chain. Of the RM62.2 million raised, it allocated almost 75% to the company’s expansion. It is probably the reason why investors are bullish on the stock.

But not all companies are using their proceeds to expand operations. A few are utilising the bulk of the IPO proceeds to settle debts, which is not a good sign. More importantly, it indicates that in the frenzy over new listings, investors are not able to differentiate between good and mediocre companies.

In reality, when a new listing appreciates significantly, it does not reflect well on the promoters. It suggests that they may have sold themselves short by undervaluing the IPO price. Alternatively, it could mean that investors might have paid too high a premium unless they know something that the promoters don’t.

Either way, the IPO frenzy is just another stock market play. The party will eventually come to an end. And those still hanging on will pay a price.

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