Firms push ahead with IPOs

Local companies are going ahead with their plans to go public on Bursa Malaysia although uncertainty continues to cloud market sentiment.

Market watchers say, amid the economic uncertainty, initial public offerings (IPOs) by companies that have niche or specialised businesses should fare better than those that don’t.

They reckon market sentiment, which has been battered by the ongoing global tariff war, is improving, albeit slowly, from just a month ago, and this will help create and maintain interest in upcoming IPOs.

“A stronger ringgit and net inflow of foreign funds will also prop up sentiment,” says Rakuten Trade Sdn Bhd head of equity sales Vincent Lau.

Foreign funds have returned to Bursa Malaysia with a net inflow of RM853.8mil as seen in the week ended May 2.

MIDF Research notes this marked the first consecutive week of net foreign inflows into the local mart since last September.

Lau points out that the slightly bigger IPOs that have listed so far this year, such as Oriental Kopi Holdings Bhd, bus operator HI Mobility Bhd and Kuching-based telecom services company Reach Ten Holdings Bhd, have performed relatively better than the smaller ones which saw their prices slump on their debut.

“Does size matter? Perhaps, but being properly ready before going for an IPO is most important,” he says.

Some of the bigger companies that will make their debut on Bursa fairly soon are retailer Eco-Shop Marketing Bhd, as well as household goods maker Cuckoo International (M) Bhd which had delayed its listing by two months, citing global market volatility.

U Mobile Sdn Bhd, which is supposed to implement the country’s second 5G network is expected to be listed sometime next year, and will come in with an IPO likely valued at over RM10bil.

Areca Capital fund manager and chief executive Danny Wong says he believes companies operating within the consumer sector will do well when they list, as they will likely appear compelling to many investors who are trying to mitigate their exposure to the risks of a trade war by allocating more funds toward domestic-driven sectors.

“The currency factor is also important, and with the ringgit’s current strength and the Chinese yuan’s current weakness, imports for local companies should be cheaper, thus enhancing their profit margins.

“Whatever it is, valuation is key, post-IPO,” says Wong.

In a recent report on IPOs, professional services group EY notes that global IPO markets in the first quarter of this year “have been marked by profound uncertainty, as two major market disruptions and a series of complex crosscurrents shape investor sentiment”.

Nevertheless, on the whole, EY notes that the global IPO market showed resilience in the first quarter, posting year-on-year gains in volume and value, despite significant market disruptions.

“Some profitable companies offered discounted IPO prices, hinting at cautious outlooks, which sparked initial selling pressure and softened demand, with shares briefly dipping below their offer prices amid recent market turbulence.

“This showed that even profitable firms need stronger IPO readiness to succeed post-launch, particularly as new dynamics, such as trade tensions, risks of inflation and slowing economies undermine market stability and erode investor confidence,” EY adds.

It also points out, global retail investors are increasingly drawn to stocks expected to capitalise on artificial intelligence, particularly those using it to unlock new revenue opportunities.

Back to Malaysia, a retail research head says he shares similar views as Lau and Wong.

He says he feels that upcoming IPOs “should do okay”, especially if their business is defensive in nature.

“If the market’s second half turns out to be better as predicted by most analysts, the IPOs slated for then should be okay, as local funds are still sitting on plenty of cash.

“But yes, some retailers may be stuck at the moment due to the extreme volatility over the past few months.

“On the whole, I am not too worried as we are not in a bear market and I think that the market can go above 1,600 in the second half of this year, from its current 1,500-level, “ he adds.

Former investment banker and seasoned investor Ian Yoong is more negative, saying that he believes that companies such as Eco-Shop, Cuckoo and U Mobile are likely to underperform their IPO prices as the performance of newly listed companies are driven more by investor sentiment rather than fundamentals.

“It is worth bearing in mind that underperformance is short-term and attractive fundamentals will bear out in the long-term.

“Remember, Hartalega Holdings Bhd fell below its IPO price post-listing back in 2008, but went on to become a multi-bagger later on.”

Bursa Malaysia said last month it was confident of achieving its target of 60 IPOs with a combined market capitalisation of over RM40bil this year.

The local stock exchange operator saw 55 listings last year, a 72% increase from the year earlier.