Do secondary listings work?

IN Malaysia, secondary listings aren’t new, but they are rare.

The first Malaysia-Australia cross-listing was in 2021 when OM Holdings, which owns a smelting plant in Samalaju, Sarawak, sought a secondary listing on Bursa Malaysia.

The number of Singapore- and China-listed companies seeking a second listing on Bursa Malaysia has increased in recent years.

This is in tandem with 55 initial public offerings (IPOs) in 2024, the highest in nearly two decades. Bursa Malaysia expects 60 IPOs this year.

While the interest in secondary listings highlights the draw of the local capital market, one wonders why such listings are even needed.

With investors free to enter any market these days, why would they choose for an asset to be listed in two different markets, considering the additional fees for the issuers or companies?Last year, Singapore-listed UMS Integration Ltd announced its intention to undertake a secondary listing on the Main Market of Bursa Malaysia.

The semiconductor component maker, which operates in Penang, had tried for a secondary listing in South Korea back in 2011 to tap the semiconductor ecosystem there. However, the plan was aborted.

Another Singapore-listed semiconductor firm, Grand Venture Technology Ltd, also announced last September its plan for a secondary listing on the Main Market of Bursa Malaysia.

Soon after, Hong Kong-listed energy services player Unity Group Holdings International Ltd announced similar intentions.

If the listing materialises, it would mark the first time in over 15 years that a Hong Kong-listed company has entered Bursa Malaysia.

The company said in a statement the secondary listing is aligned with its development in Malaysia and the recent strategic partnership with one of the largest banks in the country to support local government projects.

An investment banker says more Chinese companies are exploring secondary listing in Malaysia as part of their “market diversification and risk hedging strategies”. It remains to be seen whether these plans will materialise.

Offshore listings require the China Securities Regulatory Commission’s approval, which can be lengthy and could hold back Chinese companies seeking to raise funds in Malaysia.

Regardless, the trend of more Singapore-and China-listed companies considering Malaysia as a destination for secondary listings certainly marks a major reversal from the norm, whereby Malaysian companies had been undertaking second listings in markets like Singapore, Hong Kong or Australia.

Top Glove Corp Bhd, for example, is secondary-listed on Singapore Exchange (SGX). Top Glove shares, therefore, are transferable between Bursa Malaysia and SGX.

In 2021, the glove maker announced the plan to seek a dual primary listing by launching an IPO in Hong Kong. The plan was later shelved.

In the case of IHH Healthcare Bhd, the company undertook concurrent listings on Bursa Malaysia and SGX back in 2012. The primary listing was in Malaysia and the secondary listing in Singapore.

Among other Malaysian companies that have secondary listings on the SGX are tin producer Malaysia Smelting Corp and oil palm planter TSH Resources Bhd.

What is a secondary listing?

In simple terms, it refers to a company’s shares being traded on the stock exchanges of two different countries.

While there will not be an issuance of new shares, the shares are fully fungible or exchangeable.

Secondary listing is often mistaken for dual listing which refers to a company’s shares being listed on two primary stock exchanges.

The main benefits of secondary listing are additional liquidity and increased access to capital.

Additionally, a company’s shares will be able to trade for longer periods if the stock exchanges on which their shares are listed are in different time zones.

One of the obvious reasons behind the rising interest for secondary listings on Bursa Malaysia is the higher valuation locally.

This is a common complaint among investors on SGX, despite the Straits Times Index rally.

Singapore’s stock market has not been compelling for a long time now despite attempts by the government to tweak rules and even appoint market makers to make it more robust and exciting.

In the case of UMS, which is seeking a secondary listing on Bursa Malaysia, it merely trades at a price-to-earnings (PE) multiple of 14 times on SGX.

Its automated test equipment peers on Bursa Malaysia such as Greatech Technology Bhd, ViTrox Corp Bhd and Pentamaster Corp Bhd are trading at PE multiples of 35, 79 and 34 times, respectively.

As shareholders, valuation is important as it means that one is not selling his or her stake below the real value.

Another rationale for UMS’ secondary listing is to expand its investor base and boost liquidity of its stock.

Since there will be no new shares in UMS’ secondary listing, existing shareholders will not be diluted.

It is left to be seen how UMS’ secondary listing pans out.

Will investors, including those from Singapore, rush to pick up the UMS stock on Bursa Malaysia?

The fact that the Bursa Malaysia Technology Index has largely underperformed since mid-June 2024 is not helpful to UMS’ cause.

However, one should not disregard the many listings on Bursa Malaysia over the past year that have performed strongly on debut.

For the Malaysian investor, the secondary listings of UMS and other SGX-stocks are an opportunity to buy the shares listed in Singapore.

From the standpoint of government-linked investment companies (GLICs), secondary listings create a bigger pool of stock choices following the prime minister’s instruction for GLICs to invest more domestically.

For now, all eyes are on the relevant regulatory approvals that UMS must obtain for the proposed secondary listing.

UMS submitted an application to the Securities Commission on Dec 31.

In a bourse filing, UMS has cautioned that there is no assurance that the approvals will be granted.

UMS will also need to procure the approval of its shareholders at an extraordinary general meeting.

If the secondary listing materialises, the main question is whether it will help to nudge up the UMS share price on SGX.

If it does, it could encourage more companies from other stock exchanges to follow suit.

However, in the case of OM Holdings, its share price has largely been on a downtrend after the secondary listing on Bursa Malaysia in 2021.

That said, there are many factors that may drag down a stock. Tradeability in a new stock exchange will not help to offset weak fundamentals and other external factors.

To put it into perspective, TSH Resources’ shares have largely stagnated despite the secondary listing on SGX back in 2023.

Earnings wise, it is much stronger than pre-pandemic levels despite some fluctuations on a year-on-year basis.

The stagnation in share price could be partly explained by the environmental, social and governance concerns on oil palm planters like TSH Resources.