IPO interest driven by valuations and timing

Increased participation of retail investors in the past 6 months is leading smaller companies to seize the opportunity to list on the share market


SENTIMENT and valuations remain the key factors attracting investors and prospective companies into IPOs on Bursa Malaysia Bhd with liquidity still ample.

Judging from recent IPOs, retail investors continue to prefer the smaller and cheaper new issues, while institutional investors continue to focus on bigger listings backed by fundamentals like financials and business outlook, said analysts.

MIDF Amanah Investment Bank Bhd (MIDF Research) believed the increased participation of retail investors in the market in the past six months is leading smaller companies to seize the opportunity to come to market via ACE Market listings, but such class of investors are also very selective of what they want.

“We believe retail investors gravitate more towards listings of a certain price as it boils down to affordability,” said its head of research Imran Yassin Mohd Yusof. The number of shares offered to the public is also a major factor.

This is reflected in the oversubscription of Samaiden Group Bhd’s public issue at 48 sen, which was oversubscribed by some 56.5 times.

Combined with its business outlook and a small number of share issues on listing last week, the stock opened at a premium of over 100% above its offer price.

The Main Board-bound Mr DIY Group (M) Bhd’s IPO shares priced at RM1.60 a share, which is the largest issue in the past three years, saw lukewarm reception from retailers with the public issue portion oversubscribed by a mere 0.07 time according to an exchange filing last Friday. The institutional portion was well received and oversubscribed by 4.71 times.

There are five IPOs tentatively scheduled to take place this month and the take-up rate for recent IPOs shows the appetite for new listings remains good, said Imran Yassin.

Apart from Mr DIY and Samaiden, the other IPOs are Southern Cable Group Bhd, Aneka Jaringan Holdings Bhd and Econframe Bhd.

Pre-Movement Control Order (MCO), the exchange attracted InNature Bhd on the Main Market, while Powerwell Holdings Bhd and ACO Group Bhd on the ACE Market.

Early post-MCO saw the listings of Reservoir Link Energy Bhd, Ocean Vantage Holdings Bhd, TCS Group Holdings Bhd and Optimax Holdings Bhd.

In July this year, Bursa Malaysia pared down its IPO target for the year to 25 listings from 40 due to the pandemic as companies took a calculated approach to listings.

Malacca Securities Sdn Bhd head of research Loui Low believed the MCO period saw a pause in listing as promoters feared they might not get valuations they wanted.

That said the strong liquidity-driven recovery in the local exchange since March has attracted retailers back to the market and encouraged new listings.

Hence, Imran Yassin believed there could be a surge in IPO numbers in the fourth quarter as smaller companies seek to tap into the retail interest and liquidity.

Low said apart from market sentiment, valuation is key and will be one of the most important determining factors for whether a company could do well pre- and post-listing.

“Should valuations be too high and without any growth potential, it may take a beating during the start of the debut. I believe retail investors will still expose themselves to big IPOs like Mr DIY because the company is a proxy to the economic recovery thematic. The reason some big IPOs underperformed is because they were sold at a premium valuation at the start of the listing,” he said.

That said post-listing, the share performance is driven by the prospects and performance of the business.

“We believe companies with good prospects and strong fundamentals should continue to do well post-IPO,” Imran said.