Tough times for IPOs

GONE are the days when investors on Bursa Malaysia are spoilt for choice when it comes to large listings.

In recent years, delistings are outnumbering new entries on the Main Market and the value of initial public offerings (IPOs) have shrunk.

At some point, the stock market enjoyed mega-IPOs such as Felda Global Venture Holdings Bhd, IHH Healthcare Bhd and Lotte Chemical Titan that had raised RM10bil, RM6.3bil and RM3.8bil respectively.

Today, an IPO raising just above RM1bil is considered among the largest for the market. This has become the norm for the Malaysian stock exchange.

Amid such changes, it is also noteworthy that a number of newly-listed stocks have performed poorly in the past several months.

Five out of 11 IPOs on the Main and ACE Markets between July 2021 and January 2022 are currently trading below their issue prices.

This compares starkly with the IPO landscape early last year, when almost all new IPOs were considered as a sure win.

In the past seven months, the disappointments came from big names such as IGB Commercial Real Estate Investment and Senheng New Retail Bhd as well as Swift Haulage Bhd, which had secured nine cornerstone investors.

The other two stocks trading below their IPO price are building contractor Haily Group Bhd and animal health products maker Yenher Holdings Bhd.

It is noteworthy that the five stocks had been oversubscribed, but the stocks still did not manage to make any meaningful gain post-IPO.

Even the most-hyped IPO of 2021, CTOS Digital Bhd, has tumbled by over 17% from its peak of RM2.06 a share on Oct 15, 2021.

However, at a share price of RM1.70 as of Jan 27, the stock still trades above the IPO price of RM1.10.

Poor market sentiment is one of the factors that has weighed down the performance of the newly-listed stocks in the past several months.

Market liquidity, judging from the daily volume of securities traded, has been normalising to pre-Covid-19 levels. The FBM KLCI has declined by 3% year-to-date.

Nevertheless, a banker tells StarBizWeek that the performance of a stock post-IPO does not necessarily depend on market sentiment.

He points out that some IPOs have performed well despite weak market sentiment, such as Coraza Integrated Technology Bhd and Aurelius Technologies Bhd that are up 221.4% and 50.7% respectively from their IPO price.

“You need to see an IPO on a case-by-case basis. A stock’s performance post-IPO will depend on the sector it is in, its valuation and market sentiment.

“A stock in a particular sector could underperform while its peers could trade higher.

“It also depends on the trading approach for that particular stock.

“If some investors, including the institutional players, start selling the shares over the first few weeks or months after IPO, the stock will see downward pressure,” he says.

He also notes that one should not compare Main and ACE Markets’ listings, given the difference in size and liquidity.

Among the criteria for a Main Market listing is that a company should have an aggregate net profit of at least RM20mil for the past three full financial years and a net profit of at least RM6mil for the most recent financial year.

As for the ACE Market, there is no minimum operating track record or profit requirement..

It is noteworthy that for four consecutive years, ACE Market listings have consistently outnumbered the IPOs on the Main Market.

In 2021, there were 11 listings on the ACE Market compared with six on the Main Market. LEAP Market, which is only accessible to sophisticated investors, had 12 listings.

The banker says investors on Bursa Malaysia have become more selective and reduced their risk appetite.

“This could also be the reason why IPO stocks don’t perform as they used to,” he says.

Looking ahead, amid a weak market environment, some companies could be delaying their IPOs.

An industry observer expects almost no IPOs from the plantation and glove sectors, considering the market sentiment on both sectors.

“The plantation sector is plagued by environmental, social and governance issues, which is why the stocks didn’t perform despite record high crude palm oil prices.

“The glove sector, on the other hand, is badly affected by the ramped up vaccinations globally and the decline in average selling prices,” he said.

It is noteworthy that glovemaker HARPS Holdings Bhd had in late October 2021 called off its IPO, citing unfavourable market conditions.

The industry observer also expects new IPOs from the technology sector to be impacted by the massive technology stocks sell-off globally since early this year.

“There are huge expectations on technology stocks’ earnings, and no doubt, the earnings would likely be good this year.

“But the question is, can they deliver strong earnings as good as expected?” he says.

Meanwhile, Rakuten Trade head of equity sales Vincent Lau says the recent technology stocks sell-off on Bursa Malaysia is a reaction to the sell-off on the United States’ Nasdaq market.

“I believe it is a healthy correction,” he says.

On IPOs, Lau says that there is “no good or bad time” for a stock to be floated.

“Based on the draft prospectuses that have been made public, I think the IPOs for this year will be quite healthy,” he says.

A banker expects ACE Market listings to continue to outnumber the Main Market IPOs in 2022.

“Khazanah Nasional-backed Farm Fresh Bhd could be the one of the largest IPOs this year, with the number of cornerstone investors likely exceeding CTOS Digital,” he says.

CTOS Digital had 23 cornerstone investors, including the Employees Provident Fund, Permodalan Nasional Bhd and AIA.

A source tells StarBizWeek that Farm Fresh’s prospectus could be unveiled by end-February.

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