What ails the IPO market


Detrimental issues: Why the dearth of new large companies coming to the market? Is it due to a structural issue or the pricing by promoters being deemed to be ‘very high’ by institutional placees and high net-worth investors? — AP

Detrimental issues: Why the dearth of new large companies coming to the market? Is it due to a structural issue or the pricing by promoters being deemed to be ‘very high’ by institutional placees and high net-worth investors? — AP

No big flotations last year, how will the upcoming big IPOs fare?

INITIAL public offerings (IPOs) on the local bourse are increasingly losing their shine.

And this year, the few big upcoming IPOs are re-listings, meaning these are companies that had been listed before, were later taken private and now are being re-listed.

This shows a dearth of new large companies in Malaysia.

Flashback: DPI making its debut on the Ace Market earlier this month.
Flashback: DPI making its debut on the Ace Market earlier this month.  

Compounding matters is the fact that the two big IPOs coming to market this year are poultry-linked companies which are trying to hit the market at very high values.

QSR Brands (M) Holdings Bhd, which operates the Kentucky Fried Chicken (KFC) and Pizza Hut chains, is reportedly looking to list at a historical price-earnings ratio (PER) of around 40 times and a forward PER of 30.

Then, there is Leong Hup International Bhd that is involved in livestock feed manufacturing, egg production and poultry farming. It is said to be looking at a forward PER of around 30 times earnings.

Mr DIY, backed by private equity firm Creador, is exploring an IPO valuing the company at around RM10bil. This could mean listing at a toppish PER of at least 30 times historical earnings.

This likely means that the promoters of these stocks will find it tough to get investors to subscribe to them.

But first, why the dearth of new large companies coming to the market?

One economist explains the lack of mega-IPOs here as a structural issue the country is facing.

He points out that the number of high-tech companies in Malaysia has declined since 2000 and this, in turn, is the result of a lack of investments within this space.

“There is a structural problem in Malaysia.

“Policies need to be addressed to create a fertile ground for the creation of large high-tech companies,” he says.

Former senior investment banker Ian Yoong Kah Yin says it’s simply a case of the pricing of the IPOs by promoters being deemed to be “very high” by institutional placees and high-net-worth investors.

“The investment story has, therefore, to be compelling, mainly (have) high earnings growth potential or be at low earning multiples,” he tells StarBizweek.

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