IPO market to remain lacklustre in 2020

Investor interest in the domestic equity market has been relatively flat due to weak earnings reported in the past 2 years

by SHAZNI ONG/ pic by MUHD AMIN NAHARUL

MALAYSIA’S IPO market is expected to remain lacklustre in 2020 as larger companies opt to defer listing while smaller companies will make up the bulk of the new listings here.

Although general interest in IPOs remains healthy, investor interest in the domestic equity market has been relatively flat due to weak earnings reported in the past two years, said an industry player who declined to be named.

“From that perspective, some major companies choose not to list this year and instead explore Hong Kong and other markets,” he told The Malaysian Reserve (TMR).

While there is competition from that angle, smaller candidates have opted to debut on the ACE Market of Bursa Malaysia Bhd or the Leading Entrepreneur Accelerator Platform (LEAP).

There’s no shortage of players needing to raise capital but some of the bigger deals have been held back due to the presence of private-equity (PE) investors looking for deals, the analyst said.

“Sometimes, theoretically speaking, these PE boys can also be competition to the IPO space.

“I agree with what Bursa is saying on IPOs but the bulk of these will likely be smaller, heading for the ACE or LEAP markets. We’ll have more volume but value-wise. It’s always a question mark.”

Last month, Bursa Malaysia CEO Datuk Muhamad Umar Swift said he expects 40 new listings on the exchange next year, including 30 small and medium enterprises, to be driven by strong national fundamentals and expectations for global uncertainties to be resolved.

The IPO landscape is rather disappointing this year mainly due to the ongoing US-China trade war, which has dragged investment sentiment across the board, Areca Capital Sdn Bhd CEO and ED Danny Wong said.

Declines in the ringgit and market indices, along with banks tightening their finances, also weighed heavily on investor sentiment.

“Given this kind of scenario, potential IPOs have no choice but to rush out of the market, which sends the wrong signal,” Wong told TMR.

The impact of the change of government in May last year also lingers, he added.

“With all these factors, the market is not ready to take on more big IPOs. That’s why this year, a few big ones have chosen to defer their listings,” Wong said.

On a brighter note, he expects things to take a turn for the better in 2020, with sentiment to improve and earnings to catch up after the ringgit and markets stabilise.

The benchmark FTSE Bursa Malaysia KLCI is down 7.57% year-to-date and heading for its worst year in over a decade.

Due to such gloomy conditions, investors may look at IPOs that are not too richly valued.

Some listings are fully valued upon listing, leaving no further upside and leading to some investors selling the IPO shares after the company’s debut.

On this matter, the analysts said it comes down to a mismatch between the listing candidate’s targeted valuation and what investors are willing to pay.

This problem isn’t restricted to Malaysia, he added, citing WeWork’s disastrous IPO outing as an example.

“Similarly, now you have Saudi Aramco trying to list, and they’re coming out well below their original valuation. There exists a valuation gap between what companies think they are worth and what investors think on the other side of the equation,” the expert said.

Over RM2 billion was raised on the local bourse through 29 IPOs, according to data from Bursa Malaysia as of Dec 2, 2019.

Almost half of the figure came from the relisting of Leong Hup International Bhd, which raised RM1.03 billion through its Main Market listing.

Apart from Leong Hup, only three firms made it to the Main Market this year, namely HPMT Holdings Bhd, which raised RM65.3 million; UWC Bhd (RM84.47 million) and AME Elite Consortium Bhd (RM166.58 million).

The IPO space was dominated by 14 listings on the LEAP Market thus far, followed by the ACE Market with 11 IPOs.

One of the most highly anticipated IPOs of 2019 was that of QSR Brands (M) Holdings Bhd, which fell through after the fastfood operator said it decided to postpone indefinitely its re-listing plan following discussions with its bankers.

Among the IPOs anticipated in 2020 are mobile operator U Mobile Sdn Bhd, home improvement retailer Mr DIY Group (M) Sdn Bhd, beverage chain Loob Holding Sdn Bhd and property developer Iskandar Waterfront Holdings Sdn Bhd.

In 2018, 22 companies debuted on the local bourse, of which two were listed on the Main Market, nine on the ACE Market and 11 on the LEAP Market. The listings raised RM700 million as per Bursa Malaysia Bhd’s annual report.

In contrast, RM7.4 billion was raised via 14 IPOs undertaken in 2017, comprising six Main Market listings, six ACE Market entrants and two LEAP Market IPOs. This was also the year that the LEAP Market was first introduced.

Eleven companies went public in 2016, raising a total of RM600 million with seven firms listed on the Main Market, while five debuted on the ACE Market.

In 2015, 13 IPOs were undertaken, comprising nine Main Market listings and four ACE Market IPOs and raising some RM4.1 billion. This was lower than the RM5.9 billion raised in 2014 via 14 IPOs.