IPOs regain strong public interest


INITIAL public offerings (IPOs) are attracting strong investor interest again, as reflected in the high rates of subscription for recent new issues. After playing it cagey for almost the whole of last year and a good part of this year, investors are pouring money back into the IPO market.  

Mesdaq-bound IFCA MSC Bhd is the latest to benefit from this renewed interest. It surprised the investing community yesterday when its issue of two million shares for the public was over-subscribed 20 times – the highest this year – although the portion reserved for company directors and employees was not fully taken up. 

In view of the overwhelming public interest, the company has re-routed about 1.31 million unsubscribed shares reserved for its staff and made them available to the public. 

For its listing exercise, IFCA had made an issue of 72.43 million new shares of 10 sen par value each at 20 sen per share. Of the total, 42.8 million shares were for private placement, 27.62 million were reserved for eligible directors and employees, with the remaining 2 million made available for public subscription. 

So far this year, with the exception of one issue, KL Infrastructure Group Bhd, all IPOs have been well received, attracting over-subscription rates of between 0.02 times (in the case of SKP Resources Bhd) and 12.5 times (for UBS Corp Bhd).  

Analysts said while the over-subscription rate of 20 times in IFCA was not the highest recorded in the IPO history of Malaysia, it had been a while since such strong interest was observed. 

“We had expected good response to this issue, but not an over-subscription rate of 20 times. It will be interesting to see how well IFCA will do on its first day of trading, given such strong response from the public,'' a dealing manager said. 

However, TA Securities head of research C.K. Ngu was not surprised by the good response to IFCA or recent IPOs. 

“Given that interest in the KLSE has improved somewhat in the past two months, it should not be a surprise to see a good reception to IPOs. 

“I think it's also fair to expect a similar reception for future IPOs should the stock market continue to stay active, if not better, in the coming months,'' Ngu said. 

He said while the improving market conditions might have boosted demand for IPOs, the attractive pricing of recent IPOs had also fuelled interest. 

“Many of these were launched before the stock market rallied. Hence, most issues were priced cheaper to take into account the lacklustre sentiment then. And when sentiment on the KLSE improved, share prices on the whole turned higher, making these IPOs more attractive,'' Ngu said. 

Another research head, who declined to be named, said during better times investors, especially retail players, tended to look for lower-priced IPOs and give less emphasis to relative valuations. 

He also noted that many of the better-received IPOs came from Mesdaq-related companies, as well as those related to current themes on the stock market, such as the oil and gas sector. 

Given that there is a growing belief that the KLSE Composite Index (CI) is currently trading in an early phase of a bull run, and is expected to reach 800 points before year-end, interest in IPOs should continue to grow. 

But investors should be cautious about chasing IPOs too aggressively with the aim of making huge profits, the research head said. “Stock investments should always be based on good fundamentals, and not on how much one can make in the shortest possible time,” he said. 

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