IPOs could make a comeback in 2H19

The market is now hoping for the IPO of the country’s largest poultry producer, Leong Hup, to take place this year


Malaysia’s stock market saw a disappointing 12 months in initial public offerings (IPOs). Year-to-date (YTD), the local stock exchange witnessed just five listings — DPI Holdings Bhd and Gagasan Nadi Cergas Bhd on the ACE Market, while Uni Wall APS Holdings Bhd, Supreme Consolidated Resources Bhd and EquitiesTracker Holdings Bhd debuted on the Leading Entrepreneur Accelerator Platform (LEAP) Market.

It is less exciting for the Main Board. The much-anticipated IPO of QSR Brands (M) Holdings Bhd, which was initially slated for launching as early as next month, has been postponed indefinitely.

QSR said on April 10 it had decided to ‘re-time’ its IPO following discussions with bankers (Pic: Bloomberg)

The market is now hoping for the IPO of the country’s largest poultry producer, Leong Hup International Bhd, to take place this year.

New listings have been derailed with the country’s bourse stuttering in the last 12 months, losing billions in market capitalisation and outflow of foreign funds.

The bearish market had pushed potential companies to defer their listings as the pricing and valuations may not be as attractive.

But analysts expect a turnaround in IPOs in the second half of 2019 (2H19).

“It may not be a good time now for IPOs. When the sentiment is bad, it’s the wrong time to raise money.

“It’s only when the outlook is good and confidence is strong, then only can companies command better valuations and market appetite,” Areca Capital Sdn Bhd CEO and ED Danny Wong Teck Meng told The Malaysian Reserve (TMR).

Uncertainties continue to linger over external issues such as US-China trade tensions, slowing global growth and fears of an economic recession. At home, political uncertainty and a moderating economy have become the bogeymen for the equity market.

“When things are uncertain, the short-term view tends to be very fragile. Investors are also very cautious at the moment and will ask for something safer,” Wong said when queried on investor appetite for high-valuation listings.

2018 saw only two listings on the Main Market — Mi Equipment Holdings Bhd and Techbond Group Bhd, raising a total RM231 million.

Although there were 22 listings in total across all three markets on the exchange last year, 11 of these took place on the LEAP Market, raising a total of US$170 million (RM702.1 million) — a 20-year low compared to US$1.8 billion raised in 2017 from 13 listings based on Reuters data.

Semiconductor firm Mi Equipment was the largest IPO of 2018, raising RM191m (Source: mi-eq.com)

Semiconductor firm Mi Equipment was the largest IPO of 2018, raising RM191 million with the shares oversubscribed by just 1.16 times.

Petrochemical producer Lotte Chemical Titan Holding Bhd’s RM3.77 billion listing in July 2017 was the largest in the country since 2012.

A corporate lawyer specialising in capital markets said many parties are hesitant to proceed with expansion or new opportunities — in light of the volatility in financial markets, coupled with the slower domestic economic growth.

“A lot of plans have been aborted or pushed back because our economy and markets aren’t doing well. If people have plans, they’re thinking twice. Some are also biding their time and hoping things will improve by the third quarter of 2019 (3Q19) or 4Q19,” said the lawyer to TMR.

QSR said on April 10 it had decided to “re-time” its IPO following discussions with bankers.

The KFC, Pizza Hut and Ayamas operator’s statement came on the back of a Reuters report quoting sources, which said the US$500 million listing was deferred as investors felt the asking valuation of 25 times its price-to-earnings (P/E) was too steep.

Meanwhile, a Nikkei report last week quoting sources said Leong Hup’s IPO, which is set to raise up to US$400 million, has been valued at 15 times P/E and is expected to list on Bursa Malaysia next month.

Funding has been secured from 10 cornerstone investors including the Employees Provident Fund, while said investors received the valuation well, the report said.

In the meantime, the next listing will see Smile-Link Healthcare Global Bhd debut on the LEAP Market today.

The more cautious sentiment among investors was not unwarranted. Bank Negara Malaysia has projected GDP growth in 2019 to register between 4.3% and 4.8%, after 2018 expansion slowed to 4.7% from 5.9% in 2017.

A lack of clarity over government policies is also an oft-quoted reason for soft investor confidence.

The FTSE Bursa Malaysia KLCI has fallen 4.05% YTD as at market close last Friday. The benchmark index was also the worst performer among major stock gauges worldwide, despite a recent global rally and stellar performances from regional peers.

The ringgit has also been on a downtrend for the past week due to Malaysia’s possible exclusion from the FTSE World Government Bond Index.

But corporate earnings are expected to recover from their poor 4Q18 showing in the 2H19. The government is also reviving major projects such as the East Coast Rail Link and Bandar Malaysia. Investor confidence would likely be bolstered by these initiatives, thus strengthening the case for an IPO market recovery later this year.