Dual listing - to do or no to do  

DUAL listings are not commonplace in capital markets, but every now and then, companies embark on these exercises, with mixed results.

In today’s interconnected world, investors can trade stocks in just about any market. Yet, one reason why companies choose to dual-list seems to be related to valuation and that, in turn, is related to access to capital.

In other words, companies believe different markets could value them better.

Take the case of UMS Integration Ltd, the Singapore-listed semiconductor company which this week launched its prospectus in Malaysia for a dual listing set to take place on Bursa Malaysia on Aug 1 (See story on page 10).

The Singapore market had tended to ascribe the stock a price earnings (PE) multiple value of under 20 times for the longest time, while its peers in Malaysia trade at much higher valuations.

Running up to this exercise, UMS’ share price has risen by some 12% in the last month alone, partly already achieving the goal of enhancing the value of its stock.

As is well known, Singapore has a drawback – while it is a world leading financial centre, its stock market lacks liquidity, leading to low valuations.

While the Singapore stock market does have a robust regulatory framework and is home to some of the world’s top real estate investment trusts (REITS), the other companies listed there tend not to draw sufficient investor interest.

One reason is that local investors are exposed to a multitude of competitive global investment offerings as the country is an asset management hub.

Secondly and more importantly, the Singapore government’s investment funds have tended to invest abroad and not into the local equity market.

This fact is pertinent and goes to the heart of the issue – especially when compared to Bursa Malaysia.

In Malaysia, all government-linked investment companies (GLICs) have poured a lot of their funds allocated for equities into Malaysian listed stocks.

In fact, some argue that the Malaysian stock market is thus inflated in terms of the valuation of many of its listed companies.

That said, Malaysia’s technology sector, made up of semiconductor-related companies, does stand out.

With Penang having a vibrant ecosystem of the sector – dating back to the 1970s when Intel Corp first set up shop there – Malaysian semiconductor players today carry out brisk business servicing the global market.

Many global giants are also in Penang. Malaysia is recognised as the sixth-largest exporter of semiconductors, commanding 13% of the global market for semiconductor packaging, assembly and testing while driving 40% of the nation’s export output.

No wonder then that investors here are familiar with and appreciate this sector and, at least theoretically, are able to price such stocks better than Singapore.

At a packed briefing in Kuala Lumpur this week, UMS launched its Malaysian prospectus for its dual listing and the company’s financial controller and senior vice-president of operations, Stanley Loh Meng Chong, explained the rationale behind the move.

“We always try to do things that would benefit shareholders.

“This is why in 2010 we attempted to dual list on the South Korean stock exchange. We had believed that the exercise would enhance the company’s valuation,” explained Loh.

However, the South Korean exercise did not take place for reasons beyond the company’s control.

Loh says prior to its listing, a China company that had listed on the South Korean exchange had turned out to have committed some fraud in its accounts.

That changed the mood of both the investors and regulators in South Korea about foreign listings, ending UMS’ dual listing plans.

On the current dual listing plan on Bursa Malaysia, Loh points out that Bursa Malaysia-listed peers of UMS include the likes of SAM Engineering & Equipment (M) Bhd and UWC Bhd.

Both currently trade at historical PE multiples of 30 times and 78 times, respectively, going by Bloomberg data.

“We believe we have better profit margins and dividend yields. In Singapore, we are not getting the same valuation as these companies. We hope that by coming to Malaysia, UMS will be more fairly valued,” says Loh.

In the prospectus, UMS explains the rationale for the exercise this way – “to broaden our investor reach and widen our investor base, and potentially increase liquidity in a region where the market is familiar with our business profile and recognises the fundamental strengths of our business”.

Jason Saw, managing director and group head of investment banking at CGS International Securities Singapore, who is advising UMS on the dual listing, says the exercise gives the Malaysian investor access to a company which is listed on another exchange.

“You can buy these shares in ringgit. UMS is not a small company, it has a market capitalisation of around RM3bil. Some investors cannot invest overseas or are a bit more reluctant,” he says.

But is that really the case? Yes, for funds that have a mandate to only invest in Malaysian stocks.

But most fund management houses have multiple funds. “While there could be some funds with an only local stocks mandate, meaning only buying Bursa Malaysia-listed shares, most fund managers can invest offshore with open fund mandates,” explains Danny Wong,the CEO of Areca Capital, an asset manager managing more than RM5bil.

It should also be noted that the Malaysian government has urged GLICs to reduce their overseas investments and focus more on the domestic market.

Dual listing mechanics

The mechanics of dual listings are also interesting. How do the same shares get traded on two exchanges? One of Malaysia’s most notable dual listings is that of IHH Healthcare Bhd, which was dual-listed simultaneously in both Malaysia and Singapore during its July 2012 initial public offering (IPO).

Since then, its shares trade on both exchanges and are fully fungible – meaning you can freely transfer shares between the two listings. But trading volumes for IHH on the SGX is a fraction of what it is on Bursa Malaysia.

In 2016, Top Glove Corp Bhd, listed on Bursa Malaysia since 2001, decided to dual list on the SGX, by making its shares fungible across both exchanges.

The rationale for that move was to broaden its investor base, increase liquidity and enhance brand profile.

However, the exercise did not significantly result in any upward re-rating of Top Glove and no premium was attached to the stock due to the dual listing. Neither was there any visible enhancement of the stock’s liquidity.

By 2023, Top Glove removed its dual listing from the SGX.

In UMS’ case, things are different. For one, it is the first time a Singapore-listed company is seeking a dual listing on Bursa Malaysia. Some read this as a win for Bursa Malaysia.

Secondly, UMS also is firmly entrenched in Malaysia by virtue of having significant operations in Penang, the country’s semiconductor hub.

Thirdly, the mechanics for UMS’ dual listing are also slightly different. Since it is already listed on the SGX, the structure the company has opted for is for 10 million UMS shares to be made available to Malaysian investors.

The listing reference price will be UMS’ last traded price on the SGX, converted into ringgit. The 10 million UMS shares being sold on Bursa Malaysia are being made available by the company’s major shareholder, Andy Luong, who owns 15.38% of UMS.

According to the advisers of the deal, Luong will merely transfer the 10 million shares to market makers and liquidity providers to trade the shares and that these parties will eventually have to return the 10 million shares to Luong, by buying back the shares from the SGX market.

While the 10 million shares only account for 1.4% of UMS’ issued shares, the exercise is to “test the market”, Luong explained at the prospectus launch.

More shares could be made available in the future to suit demand. Furthermore, all shares will be fully fungible in both markets, although the wording in the prospectus does say that it could take up to 12 days for the transfer of those shares from one market to the other.

That delay in turn poses the risk that some “shareholders will not be able to take advantage of arbitrage opportunities arising from any difference between the price of our shares on each of Bursa Securities and the SGX,” the prospectus states.

A new dawn for Malaysia-Singapore capital markets

When talking about Malaysia and Singapore capital markets, older generation investors will always make reference to the dark period during the Asian financial crisis when investors in Singapore lost billions after Malaysia froze trading on the over-the-counter trading platform called the Central Limit Order Book (Clob).

While that may have fostered some level of scepticism among investors regarding cross-border listing arrangements, it does seem like a distant memory unlikely to repeat itself, considering how advanced stock trading platforms and regulations are today.

More positively, there could be a few more Singapore-listed technology companies interested in a dual listing in Malaysia. One of them is Grand Venture Technology Ltd, which in March, received the approval from the Securities Commission for a dual listing.

Grand Venture is a precision manufacturing and assembler catering to the semiconductor industry and has operations in Penang and Johor, aside from its main set up in Singapore.

However, in June, the company paused its Malaysian secondary listing and may be pursuing a different corporate exercise, possibly a buyout of its shares by a different entity.

Nevertheless, UMS’ dual listing will be closely watched by other candidates to see if the Malaysian market will help get Singapore semiconductor companies a better valuation.

It is true that the Malaysian stock market has given high valuations to many semiconductor companies here, creating a huge amount of wealth for their founders.

These includes the likes of Michael Ng Kweng Chong of Globetronics Technology Bhd, Datuk Chu Jenn Weng of ViTrox Corp Bhd, Datuk Chuah Choon Bin of Pentamaster Corp Bhd and Datuk Seri Tan Eng Kee of Greatech Technology Bhd.

“It is likely that some Singapore semiconductor company owners looked at the multibagger performance of these Malaysian stocks and realised that they are missing out on this Malaysian equity animal spirit,” said one fund manager.

Meanwhile, going by the theory that different stock markets have different levels of appreciation for certain types of companies, could a Malaysian company seemingly under-appreciated here, get better value in another market?

Take the case of Hibiscus Petroleum Bhd, the only pure oil and gas exploration company with global operations that is listed on Bursa Malaysia.

The local equity market has tended to ascribe it a PE multiple of under three times earnings for a while. (It’s PE ratio has since gone up to around eight times due to a dip in earnings, coupled with a price rally following recent acquisitions and a rise in oil prices.)

The company has explored listing on other exchanges that tend to have a better appreciation of oil and gas explorers, such as the London Stock Exchange. But an investment banker tells StarBiz 7 that a dual listing is not so straightforward.

“There are many factors to consider. In the end, the share price will depend on the market which is the stock’s primary listing venue, where there is the most volume.”

One senior fund manager also feels that dual listings in Asia tend not to work.

“Dual listings hardly work on Asian bourses. They lack liquidity and coverage,” he opines.

But in UMS’ case, the whole exercise is leading the company to get more attention from Malaysian investors.

In the end, it may not really matter which bourse investors buy the UMS stock from.