News of Etiqa going public lifts interest in upcoming flotations in second half
FRESH reports this week that MALAYAN BANKING BHD (Maybank) is preparing to spin off and list its insurance arm Etiqa on Bursa Malaysia has stirred some interest in the local initial public offering (IPO) market, suggesting that things may pick up in the second half of this year after a considerably quiet first half.
So far, there have been seven companies that have come onto the market, but these have been generally small listings namely on the ACE and the new LEAP markets.
“The market has been quite quiet as far as listings are concerned. We’ve not seen big listings, but things could pick up in the next half after the general election,” says an investment banker.
To be sure, within the region, Malaysia has traditionally been overshadowed by its neighbours like Singapore when it comes to IPO exercises due largely to the higher valuations that companies are able to command in these other markets.
According to the latest EY Global IPO trends report, Singapore will remain a hub for IPO activity by Asean companies, but the global advisory firm is also expecting Hong Kong to attract an increasing number of cross-border IPOs from Asean countries, South Korea and Japan.
“IPOs by Asean companies look set to increase once more in 2018, with strong opportunities in particular in real estate, consumer industries and technology.”
Overall, the average IPO size will remain relatively low in 2018 compared with the historical average, with an increasing number of IPOs of entrepreneurial businesses, particularly in the technology sector, coming to the public markets to raise funds, adds EY.
Back to Malaysia, the potential listing of Etiqa, if it materialises this year, is expected to inject some excitement of sorts, being one of the larger ones in recent years to list on Bursa Malaysia.
According to CIMB Research, Etiqa’s potential listing is expected to garner a market capitalisation of between RM5.3bil and RM10.7bil upon listing, based on a price-to-book value (P/BV) of between of 1.4 times and 2.8 times.
Based on this, it would also be bigger than its closest competitor, Lembaga Tabung Haji-owned Syarikat Takaful Malaysia Bhd, which has a market capitalisation of RM2.76bil going by a share price of RM3.40 and a P/BV of 2.8 times.
Backed by parent Maybank and ultimate parent company Permodalan Nasional Bhd (PNB), an Etiqa IPO is likely to be an attractive exercise, bankers say.
“There’s potential upside and it should command some kind of premium,” notes one banker.
While the insurance business is relatively small within the Maybank group, Etiqa is one of the largest insurance companies in Malaysia offering life and general insurance.
It also has operations in Singapore, the Philippines and Indonesia.
Maybank’s stake in Etiqa is parked under its wholly owned Etiqa International Holdings (EIH), which owns 69% of Maybank Ageas Holdings Bhd (MAH).
Ageas, a Brussels-based international insurer, holds the remaining stake.
In terms of its financial performance, MAH’s net profit in financial year 2017 (FY17) increased by 21.3% to RM734.8mil, while its gross earned premiums/contributions were up by close to 9%.
However, MAH’s return on equity (ROE) - a measure of a company’s profitability - at 13.8% was lower than Syarikat Takaful’s 26.5%, CIMB Research points out.
StarBizWeek first reported in April last year that Maybank was prepping Etiqa for a spinoff as part of PNB’s larger plan to sweat the assets of its investments.
Other local listings
Besides Etiqa, the local market is also hoping for the listing of several other relatively large companies this year.
Chief among them is edotco Group Sdn Bhd, which is the tower and infrastructure arm of telecommunications group Axiata Group Bhd.
Reports have indicated that this listing exercise, if it takes place, is likely to raise at least US$500mil while some say it could seek to raise as much as US$1bil.
Another exercise said to be fairly large and in the pipeline is that of integrated oil and gas firm SAPURA ENERGY BHD.
Recall, early this year, Sapura Energy confirmed a StarBizWeek report that a listing of its exploration and production (E&P) operations was in the works.
However, Sapura Energy, which has exposure in the engineering and construction (E&C) and drilling divisions besides E&P, had apparently had its plan to list its unit on Bursa Malaysia hit a regulatory roadblock amid concerns that it may not be able to meet certain listing requirements, including cashflow related requirements.
Sapura Energy had reportedly been seeking a valuation of around RM7bil for its E&P division, which is on the high side, some observers point out.
According to sources, the company has not given up its plan to list the E&P unit on Bursa Malaysia.
Of the potential listings, this may be the one to be pushed through sooner rather than later, given that the group needs to monetise its assets to pare down debt, analysts say.
Although Sapura Energy has an order book of RM16.6bil, it is also struggling with more than RM15bil of debt.
Timing-wise, now could also be a good time to list as crude oil has continued its uptrend and is now trading above US$70 per barrel as compared to US$60/barrel early in the year - a boon for a company like Sapura Energy.
Meanwhile, other billion-ringgit IPOs in the pipeline are believed to be that of operator of KFC and Pizza Hut restaurants QSR Brands Bhd and Malaysia Airlines Bhd.
Both entities were once listed before being taken private.
Last year, Bursa Malaysia managed to attract some 13 new listings that raised a total of US$1.7bil.
Comparatively, IPO volumes in Malaysia had collapsed in 2016 amid a soft overall market, with combined IPOs raising just over RM1bil or US$257mil for the entire year.
Of the listings last year, Lotte Chemical Titan Holding Bhd, a producer of olefin and polyolefin, raised close to RM4bil, among the highest amount for the year.
When it comes to companies going public, pricing is almost always an issue anywhere.
A successful IPO depends largely on demand for the product that a company is selling – a stronger demand will translate into a higher stock price.
Recall in the case of Lotte Chemical, although it raised the highest amount of funds, its listing exercise was closed to being canned because it couldn’t sell its shares at the price that it wanted, which was RM8 per share.
In the end, the deal was “saved” but the pricing and the number of share issuance were slashed quite substantially.
More recently, Malaysia-based healthcare provider Qualitas Medical, which is en route to a listing on the Singapore stock exchange (SGX), reportedly remains in discussions with prospective investors although the company was originally scheduled to price its shares on April 11.
It plans to raise about RM400mil.
Earlier, Qualitas was planning for a listing in January or February this year.
In other words, there’s been a delay in finalising the share sale price.
Even earlier before this year’s planned listing and prior to its plan for an SGX listing, Qualitas had eyed floating its shares on Bursa Malaysia.
This was way back in 2015. However, that plan failed to take off.
In the case of IPOs, some experts tend to believe that smaller and mid-cap IPOs offer more upside and better valuations because of greater potential growth.
But like larger IPOs, a balance needs to be struck when it comes to managing expectations between the existing shareholders of a company and its potential investors.