While the Singapore and Hong Kong stock markets are on the radar of a few Malaysian companies looking to list abroad, it is the Down Under that has the attention of those in the tech sector.
The Australian Securities Exchange (ASX), has attracted 11 Malaysian tech companies to its board.
It has many foreign companies listed and earned the moniker the “Nasdaq of Asia-Pacific”.
“There have been 100 initial public offerings (IPOs) from the tech sector in the past five years on the ASX. They are using our market to raise capital,” ASX business development manager for listings Kate Galpin tells StarBizWeek on the sidelines of the Wild Digital 2019 conference in Kuala Lumpur recently.
She points out that IPOs on the ASX has been an alternative to the “Series B” funding rounds for tech companies.
Series B financing is the second round of funding for a business through investments from private investors and venture capitalists (VCs). The Series B round generally takes place when the company has passed its initial startup phase.
The option of listing for young companies can be an easier route compared with the effort needed to raise funds from VCs and private investors.
A speaker at one of the panel discussions at the Wild Digital conference explained: “Despite the increase of liquidity and the amount of money flowing into this part of the world, raising money is not easy and the process can take between six and 12 months.
On the other hand, raising money from the public market can be faster and even enhance the price discovery process”.However, from an investor standpoint, the concern is on the company’s performance.
To attract young companies to list on it, the ASX allows companies to list without any profit track record. Companies are only required to post their financial reports biannually. However, companies without profits are required to file their quarterly cash flow statements.
ASX senior manager of listings business management James Posnett says: “The lack of profitability is more of a reflection of the stage the companies are in”.
Poor share price performance
Hence it is not surprising that the share price performance of the young tech companies that list on ASX is not spectacular.
According to online media Small Caps Australia, 73 out of the 95 companies that listed on ASX last year finished below their IPO price. The report further stated that the average share price return from IPOs by year’s end was a dismal 16.4% decline.
Nonetheless, 2018 was a challenging year for stock markets globally, particularly in the last three months of the year.
Gains in the first nine months of 2018 were erased after a steep decline in stock prices in the final three months amid persistent fears over the trade war between the United States and China as well as general concerns about global economic growth.
The ASX 200 index, the primary stock market index comprising 200 of the ASX’ largest stocks, fell 7% during 2018, in line with global markets.
Currently, there are 280 international companies listed on the ASX, of which 11 are from Malaysia, and they are mostly technology-based firms.
They include four companies under the Catcha Group, an Internet company that nurtures startups. Catcha has listed four of its companies on the ASX, namely iCar Asia, iProperty, Frontier Digital and Ensogo.
Other Malaysian-linked counters on ASX include mobile data roaming provider Flexiroam and gaming company iCandy Interactive. The other two are trading below their IPO prices.
Catcha’s iProperty is a success story. It was taken private and sold in a deal worth more than A$700mil in 2017.
However, the group’s e-commerce firm Ensogo, formerly known as iBuy, was delisted from ASX last month after being hit with operational issues and financial struggles.
“The performance of technology companies on the ASX has been mixed,” concurs Posnet.
Compared with other boards, such as the Nasdaq, the ASX is able to list companies that are at an early growth stage.
The point to note is this – the startups that get listed on ASX are successfully raising funds by selling their shares at the initial offering.
“So despite some of their share prices languishing subsequently, the point is that the fund raising event was a success,” says an adviser who helps companies list on exchanges such as the ASX and London’s AIM (Alternative Investment Market).
The Xero experience
There are more success stories. Posnett gives an example of a company called Xero Ltd, a New Zealand-based accounting software company.
The company has been loss-making since it was listed seven years ago.
But investor interest in the stock has been on an uptrend since its listing. The company has a market capitalisation of a massive A$8.5bil.
“The company was not profitable because it was growing very fast. But, of course, at a certain point you have to get profit,” Posnett says.
In a presentation about the exchange available on its website, the ASX mentions the case of Xero, and explains that investors have measured the latter’s value using sales multiples instead of earnings multiples.
Post listing, it attracted investments from a prominent US venture capital firm and other notable names onto its register.
Xero is one of the world’s leading global online accounting platforms, according to the ASX.Xero’s share price is currently trading at close to A$60 apiece, compared with its initial offering price of around A$15 a piece.
The company has been attracting investors due to its rapid growth of its revenues, despite the lack of profits.
In its 2019 annual report (for the year ended March), Xero announced an annualised monthly recurring revenue of A$$63.8mil, up 32% year-on-year.
But, it posted a net loss of A$27.1mil for the year.
The ASX has been attracting a strong wave of IPOs in the last five years.
According to the ASX website, on average, there were 125 new listings every year from 2014 to 2018, raising about A$10bil.
With a market capitalisation of A$2 trillion, the ASX is the third-largest exchange in Asia and the 10th largest globally.
Nevertheless, most of the tech companies listed on ASX are smaller in market capitalisation compared with those on Nasdaq.The ASX is targeting small and mid-cap tech companies worth under A$1bil and has seen an increasing number of technology companies from the United States, Israel, Singapore, New Zealand and Malaysia.
In the United States, companies with a market cap of below US$1bil often struggle to attract investor interest due to stiff competition.
In Australia, however, a company can be included on the main index S&P/ASX 300 index, with a minimum market cap requirement of about A$300mil.
“ASX is a strong market for early-stage growth companies, providing an attractive alternative to traditional means of funding for technology companies across various industry sub-sectors, with particularly strong peer groups in fintech, online marketplaces and software as well as service,” the exchange says on its website.
There are 220 technology companies listed on the ASX out of 2,200 companies.
But, the ASX is not alone in this market.
Other exchanges in the region, especially from Hong Kong and Singapore, are also targeting small to medium-sized companies.
Nevertheless, the ASX is confident it can continue its strong run and attract more IPOs.
Posnett says Australia’s vast pool of savings and pension funds and the presence of investors with a diverse risk appetite are one of the key reasons for its success in attracting small to mid-sized companies to list there.
Australia has one of the world’s largest pools of investable funds.
“Australia is unique because there is A$2 trillion (about US$1.5 trillion) under management in the pension market.
“Investors in Australia are also more open to take part in early-stage companies and grow with them,” Posnett says.
Australia has the fourth largest pension pool in the world after the United States, UK and Japan.
ASX expects its investable funds to grow to over A$9.5 trillion by 2035.
Meanwhile, market talk has it that two Malysian based start-ups could be eyeing ASX listings, namely iflix and PropertyGuru.
This indicates the continuing attraction of the ASX as a listing and fund raising destination of start-ups from this part of the world.