The successful debut performance of Revenue and Nova Wellness bodes well for the market
TWO companies which made their debuts on the stock exchange this week could be the cue that the initial public offering (IPO) market has come back with a vengeance after a slow start to the year.
Revenue Group Bhd and Nova Wellness Group Bhd both traded above the eventual offering price in the first few hours or days of trading.
Revenue, which was listed on Wednesday, has gone up more than 88% in two days, while Nova Wellness, which made its debut yesterday, hit limit-up after rallying more than 38% from its offering price.
It is worth noting that both Revenue and Nova Wellness made their debuts on the Ace Market of Bursa Malaysia.
Does this mean the smaller IPOs coming into the market are going to fare well moving forward?
“Fundamentally, it all depends on the quality of the companies and the valuation at which they are listed.
“However, there are other factors that play a role in how a counter performs,” notes an investment banker.
Firstly, there is a lot of liquidity in the market, according to a banker.
“The demand for IPOs clearly is outstripping supply,” the banker says.
A fund manager points out that smaller companies offer a small number of shares at their IPO, which could explain why investors pick up the shares after the listing.
The IPOs of Revenue and Nova Wellness were oversubscribed by 11.22 times and 2.84 times, respectively.
Revenue is involved in the payment solutions business and has raised RM20.6mil from its listing, while Nova Wellness is in the nutraceutical industry, developing and manufacturing health supplements, functional food products and skincare products.
Nova Wellness raised almost RM45mil from its IPO, which will be mainly used to set up its new production facility.
Kenanga Research expects the expansion of the production facility by Nova Wellness to raise the company’s revenue from an average of RM25mil to RM100mil.
“Assuming a net margin of 25% to 30%, this translates to an aggregate net profit of RM25mil to RM30mil, implying a price to earnings ratio of 5.9 times to 7.1 times at IPO price of 55 sen apiece,” it said in a recent report.
It adds that the plant is only expected to gradually ramp up over the next three to five years.
Despite the interest on the smallish IPOs, 2018 is set to be the driest IPO year.
So far this year, there is only one new listing on the Main Market of Bursa Malaysia in the form of Mi Equipment Holdings Bhd.
The equipment manufacturing company made its debut on June 20, raising about RM220mil in proceeds, which made the company the largest IPO for this year.
For the last four weeks, Mi Equipment’s share price soared more than 37% or 53 sen to RM1.95.
Although the stock has jumped significantly from its offering price, analysts reckon that there is still value to be garnered.
Although Mi Equipment was only founded in 2012, Affin Hwang Capital Research expects the company to achieve a 2017-2020 core net profit compounded annual growth rate of 16%, supported by expansion in capacity.
“We like the company’s prospects, supported by a capable management team with robust technical expertise and industry experience; favorable industry growth as demand shifts from die-level packaging towards wafer-level packaging; proximity and deepening engagement with major back-end players,” it says.
However, it points out the other key risks for the company are the cyclical risks in the semiconductor industry, which could sharply hamper machinery orders.
On tte bright side, market talk has it that the largest IPO for this year could be QSR Brands (M) Holdings Sdn Bhd, the operator of KFC and Pizza Hut restaurant chains in Malaysia.
“It is still ongoing and the IPO is targeted before the end of the year,” says a banker.
Johor Corp (JCorp) president and chief executive Datuk Kamaruzzaman Abu Kassim was quoted as saying that the listing of QSR was estimated to raise RM2bil in proceeds.
“We would like to list the company on Bursa Malaysia, both the upstream and downstream businesses of QSR Brands.
“The estimated value or market cap of QSR Brands at the IPO could be about RM6bil,” he said back in May.
JCorp, which is the Johor state investment arm, is the parent company of QSR Brands with an equity stake of 51.86%.
Along with the other two owners of QSR Brands, the Employees Provident Fund and private equity firm CVC Capital Partners Ltd, QSR Brands was taken private back in 2013.
The relisting of QSR Brands could salvage the dearth of the IPO market for this year. On a year to date basis, there are about 14 IPOs listed on Bursa Malaysia, of which seven were on the Ace Market, six on the Leap Market and only one is on the Main Market.
There will be another company listed on the Ace Market next week, in the form of Radiant Globaltech Bhd.
“The general election that took place this year and the changes in the new government’s policy had seen some of the IPOs had been pushed to next year. But, we are seeing mergers and acquisitions proposals coming in,” says a banker.
According to filings on the Securities Commission, since April, only four companies had submitted their draft prospectus to the commission. The lasted company to file its application was Tashin Holdings Bhd, which is a subsidiary of steelmaker Prestar Resources Bhd.
Tashin, which is based in Penang, is principally involved in the processing of steel coils into slit coils and steel sheets, as well as the manufacturing of steel products.
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