IPO market shows vast improvement this year, say experts

Affin Hwang Asset Management head of equity strategies and advisory Gan Eng Peng (left) and AmInvestment Bank Bhd executive vice-president Gan Kim Khoon.

PETALING JAYA: The local bourse has been busy with the high number of initial public offerings in the first six months of this year outshining the performance of 2016.

While 12 companies went public all of last year, there have already been 10 companies listed on Bursa Malaysia in just the first six months this year, The Edge Financial Daily reported, attributing the performance to a recovery in oil prices and an improving economy.

The 10 IPOs from January to June had also raised RM717.82 million, which is about 71% of the RM1.09 billion raised last year.

However, some investment bankers believe the market is still missing larger, high-quality IPOs that drive activity and volume.

“The current IPO pipeline looks healthy in that sense, despite concerns over tighter liquidity in the system.

“However, the overall sense is that there is still a lack of large, high-quality IPOs in the local market. While the quantum of IPO activity might be higher this year, the overall supply of high-quality, must-buy names is limited,” Affin Hwang Asset Management head of equity strategies and advisory Gan Eng Peng told The Edge Financial Daily.

He added that the IPO market was the poorest last year, since the 2008 global financial crisis.

Eng Peng also believes the presence of high-quality names would spur the local market as it broadens choices for investors and also attracts international investors, as opposed to low-quality listings.

Two major listings this year – Lotte Chemical Titan Holding Bhd (LCT) and Eco World International Bhd – raised RM3.77 billion and RM2.58 billion respectively, from investors.

However, another investment banker says the IPO market is relatively smaller for the remainder of the year.

“Save for one food and beverage operator, which is slated to list in the second half of 2017, the other IPOs in the pipeline are relatively small in terms of offering size and are also predominantly ACE Market listings,” AmInvestment Bank Bhd executive vice-president Gan Kim Khoon was quoted as saying by The Edge.

He also noted that the LCT could not attract enough investor interest, despite the overall high level interest and participation of both institutional and retail investors in the local bourse so far this year.

Lotte shares undersubscribed

Earlier this month, LCT’s IPO saw the initial price of RM8 lowered to RM6.50 while the size of its public issuance was cut to 25.13% from the 30% initially allocated from the 2.3 billion shares on offer.

The retail portion of LCT shares were undersubscribed at 61.87%, with the closing price falling below the RM6.50 IPO price on the opening day of trading.

This, however, does not reflect the overall health of the local IPO market, RHB Investment Bank Bhd chief executive officer Robert Huray said.

“LCT’s recent IPO should not be viewed as a harbinger of future Malaysian IPOs. The said IPO encountered many challenges, but we do not believe market depth or liquidity was a major cause.

“A cursory view of the large IPOs in recent years indicates that the market had the ability to absorb IPOs that were larger than LCT’s. This included Felda Global Ventures (FGV) RM9.9 billion IPO and IHH Healthcare Bhd’s RM6.6 billion IPO,” Huray was quoted as saying by The Edge.

He added that these IPOs were completed a few years ago, and the pool of liquidity has continued to grow since then amid Malaysia’s high savings rate.

This viewpoint was also shared by Areca Capital Sdn Bhd chief executive officer Danny Wong who said other IPOs this year – Serba Dinamik Holdings Bhd and Advancecon Holdings Bhd – were oversubscribed.

“Advancecon had a better take-up rate. If LCT’s performance was due to low interest from the market, then Advancecon would not have done as well, so that reason (poor IPO health) is not valid,” Wong was quoted as saying.

He also expects to see more listings in the second half of the year, adding that the IPO performance in 2017 is generally expected to be better than in 2016, according to the financial daily.

The numbers from Bursa show that of the 10 IPOs this year, five had traded below their initial offering price as of last Friday.

Meanwhile, The Edge also reported that all eyes are on the potential listings of Bank Islam Brunei Darussalam – reportedly aiming to raise up to US$500 million (RM2.14 billion) – and Edra Power Holdings Sdn Bhd.