Australia is more attractive as companies do not have to prove profitability to gain listing on ASX, say experts
by MARK RAO
POOR responses and strict rules are pushing local tech start-ups to countries like Singapore to gain capital funding and Australia to list their business.
Iflix — a video streaming service headquartered in Kuala Lumpur — is reported to be working towards a listing on either the Australian Securities Exchange (ASX) or the New York Stock Exchange. The move could value the company at over US$1 billion (RM4.19 billion).
Singapore-based PropertyGuru Ltd earlier this month submitted its prospectus ahead of a planned initial public offering (IPO) on ASX that could raise some A$363 million (RM1.03 billion).
Local tech start-ups have chosen Singapore to gain access to a larger venture capital funding and a lower corporate tax. One such company is Grab, which started as MyTeksi but is based in Singapore.
Apart from Malaysia’s ecosystem which is somewhat inhospitable for tech-and software-based start-ups, experts said Australia is more attractive as companies do not have to prove profitability to gain listing on ASX.
“The investor base in Malaysia is not so receptive of tech-based start-ups, which typically rely on a different kind of business model than investors are used to.
“Malaysian investors tend to feel that a proven track record is more important when investing in a company,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Malaysian Reserve (TMR).
Pong claimed that the companies listed on Bursa Malaysia’s Leading Entrepreneur Accelerator Platform (LEAP) which, despite presenting interesting opportunities, have not received recognition from investors.
“These companies do not have the track records of the more established firms, but they have promising business models. Investors stand to lose out from the potential value that tech-based start-ups provide,” he said.
The LEAP market was introduced by the local bourse in 2017. It aimed to provide an alternative fundraising platform for small and medium enterprises (SMEs) that would otherwise be ineligible for a listing on the main or secondary markets.
Trading of LEAP-listed stocks comprised just 0.06% of the total 40.7 billion units traded on the local equity market last month, although it’s worth noting that there are only 27 companies listed on the LEAP market today.
Volume in this tertiary market is typically erratic, rising to as high as 97.11 million shares traded in January this year only to fall to 7.24 million shares the month after.
The less-exciting reception for such stocks have prompted locally based firms to seek greener pastures abroad with ASX among the preferred destinations.
ASX allows companies to be listed without any profit track record although they are required to file quarterly cashflow statements.
The market is also geared to support early-stage companies and is often perceived as an alternative for nascent and growing companies looking to secure a second round of funding.
JF Apex Securities Bhd head of research Lee Chung Cheng said a company may opt to list in a market where it already has some business exposure.
However, he said the trend of local firms looking to list in Australia is relatively new as companies historically turned to the Singaporean and Hong Kong stock markets.
“I suspect the fact that companies can list on ASX without a profit track record does play a part, to an extent,” he told TMR.
“At the same time, the Malaysian stock market is not at all receptive to tech-based startups as investors are not very used to the idea.”
So, local tech start-ups may be looking to fetch better valuations in markets that are more receptive to such business models, Lee added.
Listing of local companies on ASX is not new as there are already 11 local firms, mostly tech-related companies that are being traded on the Australian exchange today.
These include four companies under the Catcha Group such as iProperty Group Ltd (now trading under REA Group Ltd) and iCar Asia Ltd.
If iflix is to be listed on the ASX, it will be the fifth company under the Catcha Group to trade on the Australian stock market.
PropertyGuru’s core SouthEast Asian markets are Singapore, Vietnam, Malaysia, Thailand and Indonesia. The firm is said to command a 60% consumer market share across these core markets.
Pong said there are several reasons a local company would consider listing abroad, including securing a bigger profile in a major market and tapping into business connections in those markets.
Securing better valuations and seeking out a more liquid trading environment, not to mention a more attractive tax environment, are further considerations, he said.
“While corporate tax rates in Malaysia are typically higher compared to markets like Hong Kong and Singapore, the effective tax rate paid can be lower due to the tax incentives given by the government,” Pong said.
“However, this depends on the company itself and if it is eligible for such tax incentives.”