Eco-Shop puts more money on the table

PETALING JAYA: Eco-Shop Marketing Bhd has lowered the final retail price for its initial public offering (IPO) to “put more money on the table” for investors, amid soft market conditions.

A source with knowledge of the deal also told StarBiz that private equity firm Creador had to sell its Eco-Shop shares more than it wanted to, in order to meet Bursa Malaysia’s public float requirement of 15%.

Creador, which was previously behind prominent IPOs such as CTOS Digital Bhd and MR DIY Group (M) Bhd, also backs Eco-Shop with a 10% pre-IPO stake.

“Creador wanted to keep a 5% equity interest, but had to sell down 80% of its original stake to make available enough shares for the free float. Post-IPO, it will have a 1.9% stake in Eco-Shop,” according to the source.

Scheduled to be listed on the Main Market on May 23, Eco-Shop saw the shares allocated for the public being subscribed by 1.96 times the amount available.

This represents an overall oversubscription rate of 0.96 times, as reported by Eco-Shop on May 9.

For a highly anticipated IPO that is also the largest listing in over eight months, some market observers said the oversubscription rate could have been bigger.

To put it into perspective, the three companies listed on the Main Market so far this year had seen a better response from retail investors.

The public portion of Sarawak-based telecommunications company Reach Ten Holdings Bhd’s IPO was oversubscribed by 1.85 times, bus operator HI Mobility Bhd (6.57 times) and pipemaker Pantech Global Bhd (44.93 times).

Last year’s largest IPO – 99 Speed Mart Retail Holdings Bhd – was oversubscribed by 3.04 times.

However, to be fair, the stock market was in a better shape then. The current IPO market – to Eco-Shop’s disadvantage – has been soft amid global market volatility.

All nine listings on the ACE Market since March this year had declined on the first trading day.

The global tariff war has affected investor sentiment.

Nonetheless, Eco-Shop received a total of 18,308 applications for 225.2 million shares from the public.

This was despite only 114.94 million shares offered to the public.

At the same time, the response from cornerstone institutional investors including Permodalan Nasional Bhd remained robust, according to the source.

“In fact, the institutional investors wanted more Eco-Shop issue shares. But, the company only offered 15% of the share base as there was no necessity to raise more cash.

“When Eco-Shop went out to institutions, it had a demand of over 1.2 billion shares. But it only had 430 million shares to give out, so it had to cut many investors,” said the source.

When asked about the undersubscription for the retail bumiputra portion, the source said the initial response for Eco-Shop’s IPO was strong.

However, as the US tariff war worsened and weakened the overall market sentiment, the final demand from retail bumiputra investors was only for 38.4 million shares.

This was lower than the 57.47 million shares offered to retail bumiputra investors.

It is noteworthy that companies seeking listing on Bursa Malaysia are required to allocate 12.5% of the enlarged number of issued shares upon listing to bumiputra investors to be approved or recognised by the Investment, Trade and Industry Ministry (Miti).

In the case of Eco-Shop, it obtained a waiver to reduce the requirement to 10%.

“However, in the end, the Miti retail demand was low at only 2.5%, so 7.5% flowed back to the pool,” the source explained.

The unsubscribed bumiputra shares have been clawed back and re-allocated to institutional investors, who have taken up all the shares.

In view of the soft market conditions, Eco-Shop has fixed the final retail price at RM1.13, down by 6.6% from the earlier indicative issue price of RM1.21.

“The original price range was RM1.10 to RM1.21, so the final retail price was fixed at RM1.13.

“It was fixed closer to the lower end of the range to put more money on the table and to make the IPO attractive.”

The source pointed out that Eco-Shop’s IPO was priced 10% below 99 Speedmart’s valuation at IPO.

“The forward price-to-earnings ratio (post-money) for Eco-Shop is estimated at 26 times, compared with 99 Speedmart’s 28 times.”

The more prudent valuation does not signal weak prospects for Eco-Shop going forward, the source said.

“Internal earnings projections showed that the profit after tax in the financial year of 2026 (FY26) will reach RM250mil as compared to RM177.3mil in FY24,” said the source.

“Perhaps, this explains why the company owners do not want to sell too much of the shares,” the source added.