This article first appeared in The Edge Malaysia Weekly on January 23, 2023 - January 29, 2023

THE Bursa Malaysia gong has been hit six times in the first three weeks of the new year — perhaps an indication of a more active initial public offering (IPO) market in 2023. The six companies, of which five are listed on the ACE Market, have collectively raised more than RM500 million.

Although the amount raised isn’t something to shout about, the counters’ performance has certainly raised eyebrows. The share price of two companies skyrocketed more than 200% above their offer price while that of two others soared more than 50% despite the cautious market sentiment.

Nationgate Holdings Bhd, which made its debut on Jan 12, saw its share price more than double to 81 sen shortly after the market opened on its maiden trading day. Its offer price was 38 sen.

TT Vision Holdings Bhd, which was listed on Jan 18, opened at RM1.49 — a huge premium of RM1.15 or more than four times over its issue price of 34 sen.

Based on their closing price last Thursday, Nationgate’s share price had gained nearly 208% to RM1.17 from its offer price, while that of TT Vision had risen 253% to RM1.20.

Of the other four that were listed this month, L&P Global Bhd had climbed 78.3%, while Wellspire Holdings Bhd, DS Sigma Holdings Bhd and Kumpulan Kitacon Bhd (Main Market) were up 58.7%, 17.3% and 10.29% respectively.

M&A Securities Sdn Bhd managing director of corporate finance Datuk Bill Tan says “attractive valuation” is one of the factors driving the share prices up. Citing Nationgate as an example, he points out that the company had seen a big improvement in its quarterly net profit prior to listing. M&A Securities was the adviser for the IPO exercise.

“Nationgate posted a profit after tax of RM30.05 million for its third quarter ended Sept 30, 2022 (FY2022). On an annualised basis, that is about RM120 million,” he tells The Edge.

“Based on its IPO price, the price-earnings ratio (PER) is six times. In comparison to its peers in the electronics manufacturing services (EMS) sector, which is trading at an average PER of 20 to 25 times, there is still a lot of upside to Nationgate’s IPO price.”

According to Nationgate’s prospectus, the company was valued at a PER of 11.9 times based on an offer price of 36 sen per share and audited pro forma annualised earnings per share (EPS) of 3.18 sen, or RM33.04 million, for the financial period ended June 2022.

Tan points out that there is still strong interest in technology-related companies. “Despite the current weakness in the tech industry globally due to the US-China trade war, I believe the long-term growth of the sector will make it attractive to investors. Investors are interested in technology companies that have regional and overseas exposure, and there are not that many in Malaysia,” he adds.

Some quarters have pointed out that low liquidity due to a small share base is another factor that fuelled the upward trend.

A senior investment banker observes that the moratorium on substantial shareholders for new listings, requiring them to hold their shares for six months, could be a reason for the jump in stock price. “As you can see, some of the listed companies that have a lukewarm [share price] performance are likely to have public float of 40% to 50%.

“One of the reasons for this [bigger free float] is because many listed companies did very well during the 2020/21 rally in the stock market and that prompted companies’ substantial shareholders and founders to sell some of their shares. As a result, the public spread widened.”

He adds that the share price movement also depends on the companies’ financial performance, their fundamentals, the nature of their business, as well as the industry they are in.

Danny Wong, CEO of Areca Capital Sdn Bhd, says the improved market sentiment, attractive valuations of the IPOs, limited number of shares offered and high subscription rate are among the key reasons for the stellar performance of some of the listings of late.

Astramina Advisory Sdn Bhd founder and managing director Datin Wong Muh Rong says the weakness in the broader market could be one of the reasons investors are shifting their focus to the IPO market. “The market has been fairly lukewarm and people haven’t been making money. With Chinese New Year around the corner, there is a mood for a rally and everyone likes a good punt.

“When the first IPO does well, the momentum starts building up and there is an expectation that the second IPO will do well. This attracts more followers. The confidence level is also slowly returning, with people now firmly believing that Covid-19 and lockdowns are things of the past.”

She believes that many of the ACE Market listings offered a small number of shares at their IPO, which explains the double-digit oversubscription rate. “Over the years, the number of shares offered to the public has reduced and demand is increasing,” she says.

“The allocation for public balloting is extremely small. It is usually less than 2%. The bulk of these allocations go to the high-net-worth individuals and institutions.

“It is because of this that the subscription rate for IPOs is very high. You see these IPOs being oversubscribed by more than five to 10 times. This is something we haven’t seen in the last two to three years.”

Muh Rong reckons that the reason the public portion is getting smaller could be due to the promoters’ preference to work with long-term investors.

“The portion that is being allocated to the public is getting smaller. There are no more big allocations for the investing public. I think this is because the promoters would rather deal with high-net-worth individuals and private banking clients. These investors are more savvy and typically longer term. All these factors contribute to the successful performance of the IPO,” she adds.

According to Bursa Malaysia, 2023 could be another robust year for the IPO market. The regulator is expecting about 39 companies to seek listing this year, with an estimated RM3 billion in proceeds to be raised.

Bursa Malaysia CEO Datuk Muhamad Umar Swift was quoted as saying that he expected the new listings to be mainly on the ACE Market, compared to the Main Market and LEAP Market, due to the flexible requirements of the ACE Market.

“There is a lot of liquidity. The market is generally strong and that will balance out the year. But of course, all these will have to be backed by investor sentiment. We are expecting the funds raised this year to be greater than in 2022,” he was quoted by the media as saying.

According to a filing with the Securities Commission Malaysia, five companies are seeking to list on the Main Market of Bursa Malaysia — DXN Holdings Bhd, Cape EMS Bhd, Radium Development Bhd, Skyworld Development Bhd and MST Golf Group Bhd.

Sources say Harps Holdings Bhd could be making its way to the public market this year. Recall that the glove maker shelved its plan to list on Bursa Malaysia in 2021, citing market conditions as the reason.

Harps’ IPO was one of the most anticipated by the market due to the boom in the glove sector following the outbreak of Covid-19 in early 2020. But the big drop in demand for gloves at end-2021 after vaccination programmes were rolled out globally led the company to call off its RM2.5 billion IPO.

MIDF Amanah Investment Bank director of corporate investment banking Sherilyn Foong expects the local stock market sentiment to improve on the back of China’s reopening, political stability post-election and bullish view on the technology and consumer sectors. “The IPO market for the new year is definitely looking interesting, with the positive momentum from last year clearly extending into the new year,” she tells The Edge.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.