PETALING JAYA: There was no stopping the Malaysian initial public offering (IPO) market at the start of the year … or so market watchers thought.
The first 11 offerings made their debut well above their respective reference prices.
Then it cracked, and subsequently crashed. Health supplements provider DXN Holdings Bhd opened a sen down from its offer price of 70 sen on May 19.
A week later, property developer Radium Development Bhd tumbled 30% in its main market debut, and another day later, furniture group Synergy House Bhd fell 16% on its first day on the ACE Market.
Are DXN Holdings, Radium Development and Synergy House just a blip? More importantly, have they spooked investors?
As far as Imran Yusof, head of research at MIDF Amanah Investment Bank, is concerned, one would be missing the big picture by assuming that the IPO market has lost its fire.
He said the performance of the market thus far indicated that there still was interest among retail investors.
“However, it seems that they are more discerning in terms of the companies they invest in,” he told FMT Business.
But choice of sectors does count for a lot too, and the flavour of the day, it seems, is technology.
Of the 10 best performing IPOs this year — measured by share price performance since listing — six are technology companies.
Imran said the sector had become the focus of investors as it provided stronger growth prospects.
“Several factors drive the IPO market. They include valuation, economic conditions and investor sentiment to name a few,” he said.
Overall market performance and economic factors are also determining factors. “Hence, clarity on economic policies may help to improve sentiment,” Imran added.
Mercury Securities Sdn Bhd equities analyst Ronnie Tan believes technology stocks are highly sought after today.
He described the less-than-impressive performance of DXN Holdings and Radium as isolated cases given that they are not from the same sectors.
DXN the tipping point?
Of the last five IPOs, three have opened below their respective reference prices despite their sound fundamentals that had earlier earned them “subscribe” recommendations.
For DXN Holdings, Mercury Securities set a target price of 95 sen, 35.7% above its IPO price of 70 sen.
It cited DXN Holdings’ global presence that, it said, positioned the company to benefit from the health and wellness products market. DXN Holdings also has a whopping RM498 million net cash position.
So why did it perform so badly?
DXN Holdings CEO Teoh Hang Ching attributed the poor performance to a lack of awareness of the company among Malaysian investors.
This makes sense. DXN Holdings’ biggest market is Peru which has generated 22.8% of its revenue, followed by Bolivia (14.2%), Mexico (13.7%) and India (10.9%).
On the other hand, technology companies continued to start remarkably well. Cloudpoint Technology Bhd surged 97% on its debut, while semiconductor player Edelteq Holdings Bhd opened 212.5% higher upon listing.
Of the 16 new IPOs on Bursa Malaysia this year, six are technology companies.
Failing to hold the IPO hype
While the consensus on Malaysian IPOs this year, even among analysts, has been positive, Thong Pak Leng, vice-president of equity research at Rakuten Trade Sdn Bhd, differs.
He said market weakness had left the performance of IPOs in the first half of 2023 “generally weak”.
Of the 13 companies that debuted above their respective reference prices, five of them are now trading at below that price.
Only three are still chalking up gains while the remaining counters have seen a significant fall in their share prices. For instance, DP Sigma Holdings Bhd closed at 12% above its reference price of 50 sen on its first day of trading but is now languishing at 33 sen, which is 40% below the reference price.
At the start of the year, the market was expecting to see 39 listings that could raise more than RM3 billion.
Only time will tell if the target can be reached.