The last three companies to list on the Bursa Malaysia have seen their share prices trade below their listing prices.
While some analysts attribute this to the weaker market sentiment globally, as investors trade cautiously on renewed concerns over a possible global economic slowdown, others say a company with strong fundamentals and business operations coupled with good shareholder backing will likely buck the overall trend to see a share price upside.
OSK Research director/research head Chris Eng says investors can expect market volatility on the local bourse to continue until the end of this year but was optimistic that the local benchmark, FTSE Bursa Malaysia (FBM) KLCI, would move towards 1,680 by year-end.
“We are still optimistic about the short-term prospects but feel that the focus will be on better known stocks. Looking past year-end, there is a concern over the general global economy and if a recession may take place. So we are cautious about the subsequent six months, with there being high risks of the market re-tracing its steps,” he adds.
Twenty-five companies have listed on Bursa Malaysia as of year-to-date, with 15 companies on the Main Market and 10 companies on the ACE Market. Based on Bursa Malaysia's IPO performance table, roughly half of the listings this year are trading below their listing prices, indicating a lacklustre demand for new IPOs.
Analysts attribute the subdued interests in these stocks to several reasons, which include the type of companies that have listed as well as the volatile market conditions causing investors to focus on blue chip stocks that will ride out the volatility.
When markets are volatile, investors are better off holding their positions on stocks that have an existing share price performance than betting on new companies that are just about to list.
For instance, Ideal Jacobs (M) Corp Bhd shot up 307% to an intraday high of RM1.10 within its first day of trade in May before retracing its steps to end at 43 sen on its first day close.
While the company's listing price was 27 sen, it has since fallen below the price and closed at 25.5 sen as of Thursday.
All three companies that listed in the last two weeks Hibiscus Petroleum Bhd, Peterlabs Holdings Bhd and Prestariang Bhd closed at a discount on their first day of trade and are currently are trading below their listing prices, in line with the overall weaker market sentiment.
An analyst says that special purpose acquisition company Hibiscus is the first of its kind to debut on the local bourse and as such, investors would tend to shy away from a company with no operations or income-generating business at the point of the IPO.
“The reason for such a company undertaking an IPO is to raise funds to buy operating companies or businesses. While Hibiscus plans to use the proceeds to establish itself as an oil and gas exploration and production company, investors will typically opt for companies that already have a proven track record,” he adds.
Hibiscus, which raised RM235.17mil from its fund raising exercise before it listed on July 25, has seen its share price shed 7.2% against its listing price, ending at 58 sen on Thursday.
Another concern among investors would be the potentially limited upside in share price appreciation for newer and relatively unknown stocks.
Kenanga Research, in its IPO note on Prestariang issued July 26, valued the stock at RM1.07, a potential 19% gain from its IPO price of 90 sen based on targeted financial year 2011 (FY11) price to earnings ratio of 11 times with 9.7 sen earnings per share.
“We think the valuation is fair, judging from its closest peer Century Software, which is currently trading at similar FY11 PER and geared towards government contracting,” the report says.
Century Software Holdings Bhd, a financial management software solutions provider, was one of the first few companies to list at the start of this year.
At an issue and offer price of 93 sen, the stock is currently trading at 66.5 sen per share. It should be noted here that since its listing, Century Software has announced a bonus issue as of April.
While some IPOs have not shined upon their debut on the local bourse, there are those that have seen significant share price appreciation.
Such is the case with MSM Malaysia Holdings Bhd, the sugar-refining arm of Felda Group, which has continued to trade above its listing price of RM3.50 while Bumi Armada Bhd, which listed at RM3.03, has moved upwards.
As of market close on Thursday, MSM Malaysia gained some 54.57% to RM5.41 from its listing price while Bumi Armada added 34% to RM4.06.
A foreign research analyst says these companies do well on their first day of trade due to strong demand from institutional investors wanting to buy into these companies, especially if they have missed out in securing placements during the bookbuilding exercises.
That naturally creates a strong demand in terms of volume traded over the first few days of these companies listing on the local bourse and with institutional investors buying in, provides a share price support for these stocks.
Meanwhile, Kenanga Research associate director Chan Ken Yew says that companies in an expansion mode and looking to raise funds will likely to proceed with their listing plans.
However, companies with strong fundamentals and are well-known to the investing fraternity will likely be well-received should they seek a listing over the near term, say analysts.
Media reports have indicated that other impending listing include Pavilion Real Estate Investment Trust (REIT), Axis Global Islamic REIT and Gas Malaysia Sdn Bhd.
It was reported that MMC Corp Bhd was keen to list Gas Malaysia this year, after securing approvals from other key shareholders, which include Petronas Gas Bhd and Shapadu Group. Gas Malaysia is the sole distributor and retailer of natural gas to non-power companies in the country which consume less than two million mmbtu per day.
Aside from this, government-linked investment companies are expected to divest their stakes in government-linked companies, which will also translate to the listing of several firms on the local bourse.
The Government has indicated that seven companies will be listed under the divestment programme, of which the MSM Malaysia listing in June had incorporated four of the seven listings under the programme.
Market talk also has it that the government's printer Percetakan Nasional Malaysia Bhd, which is currently a wholly-owned unit under the Finance Ministry, may be listed.
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