This article first appeared in Capital, The Edge Malaysia Weekly on July 31, 2023 - August 6, 2023

ACE Market listings have continued to form the bulk of initial public offerings (IPOs) so far this year. Of the 21 newly listed companies on Bursa Malaysia in the first seven months of the year, 14 companies made their debut on the ACE Market.

The impressive vibrancy in the IPO market aside, have retail investors really benefited given that the number of shares offered to the public is nearly always relatively low?

Take Autocount Dotcom Bhd, which had the highest oversubscription rate of 167 times among all the IPOs this year. Of the 137.63 million issued shares, only 27.53 million — or 20% of the total — were made available to the Malaysian public. In contrast, some 99.09 million shares, or 72%, were offered by way of private placement to selected investors.

It was a similar narrative at Edelteq Holdings Bhd. The semiconductor manufacturing solutions provider, whose IPO shares were oversubscribed by 152 times, placed out 106.57 million shares, or 74.4% of its total 143.2 million shares, to private investors while the public portion was only 26.63 million shares, or 18.6%.

As small companies offer better growth prospects, there is greater interest in the ACE Market, says Vincent Lau, head of equity sales at Rakuten Trade. “There is no good or bad [in having more ACE Market listings]. When you are big, the growth will not be that strong, so that’s why people favour the ACE Market,” he tells The Edge in an interview.

“Companies looking to list on the ACE Market are those that need money, so they will come [to the market] no matter what. For big companies, as they already have money, they are waiting for the right time and valuation to list,” he adds.

Lau is of the view that market liquidity remains ample judging by the amount of money in the subscription of ACE Market-listed shares. “Investors see an upside [in these stocks, making them] more attractive.”

He points out that the high allocation of shares by way of private placement has been the norm for IPOs, and it is in compliance with the listing rules.

Given the FBM KLCI’s lacklustre performance compared with its regional peers, he says the IPO market will remain as a catalyst for the local bourse, with excitement seen in most of the new listings.

Having said that, it is interesting to note more positive momentum in the FBM KLCI recently, after the benchmark index slipped below the 1,400-point level in June.

Since July 18, the benchmark index has been on an upward trend, rising 48.24 points, or 3.4%, to close at 1,451.27 points last Thursday — about two weeks before six states are scheduled to go to the polls on Aug 12.

Among the newbies on Bursa, Oppstar Bhd and TT Vision Holdings Bhd were the top performers on their debut, raking in a premium of 285.7% and 276.5% respectively.

Oppstar is the first pure integrated circuit (IC) design house listed on the local bourse, and the fact that it operates in the front-end semiconductor supply chain — an area largely dominated by large Western multinational corporations — was a huge plus for investors.

TT Vision’s operations also attracted significant interest. The Penang-based automated test equipment (ATE) manufacturer has four business divisions — (i) optoelectronics inspection equipment; (ii) discrete component and IC inspection equipment; (iii) solar cell inspection equipment; and (iv) vision-guided robotic equipment.

One segment that fared poorly was property — not surprising given the glut of real estate in the country and weak sentiment. Two property counters, Radium Development Bhd and SkyWorld Development Bhd, failed to garner much interest from the investing fraternity and are languishing.

Newly listed Radium’s predicament is even quite dire as it is facing legal action from the purchasers of one of its projects over alleged misrepresentation and breach of contracts. The lawsuit was announced soon after the company was listed and this has further weighed on its share price performance, which has slipped 30% to 35 sen against its listing price of 50 sen per share.

Given the spectacular gains made by some of the new listings to date, investors have naturally gravitated to new IPOs, particularly the technology ones, in the hope of landing some of these shares, even if a tiny portion.

Gains of 100% or more have made many an investor giddy with joy. A few like NationGate Holdings Bhd have made investors ecstatic, given that gains to date exceed 300%.

Closing at RM1.60 last Wednesday, NationGate’s share price has surged 321.1% compared with its listing price of 38 sen, which makes the electronics manufacturing services provider the best-performing IPO so far this year.

Wellspire Holdings Bhd and TT Vision have also made many investors happy, having posted gains of 271.7% and 235.3% to 85.5 sen and RM1.14 respectively last Wednesday, from their IPO prices of 23 sen and 34 sen.

Companies that are set to float their shares on Bursa include KGW Group Bhd, CPE Technology Bhd, Glostrext Bhd, MKH Oil Palm (East Kalimantan) Bhd, Leader Energy Holding Bhd, Keyfield International Bhd, Mercury Securities Group Bhd and Zantat Holdings Bhd.

Other potential IPOs that have been much talked about include QSR Brands (M) Holdings Bhd — the operator of the KFC and Pizza Hut restaurant chains — and Johor Corp’s plantation unit Kulim (M) Bhd.

Early this year, Bursa Malaysia Bhd CEO Datuk Muhamad Umar Swift said the exchange was targeting 39 listings this year, with the potential proceeds raised in excess of RM3 billion. Most of the new listings were expected to be concentrated in the ACE Market on the back of its “flexible requirements”.

Lau says, “The 39 listings target is achievable. While some say there is less market liquidity, with some pulling out money from the market to buy IPOs, the money is still flowing within the market.”

In 2022, there were 35 IPOs on Bursa, raising a total of RM3.5 billion — the highest since 2018. So far this year, over RM2.9 billion has been raised from the 21 new listings.

In general, companies are more inclined to tap the capital market to raise funds in a high interest rate environment. Thus, more companies are undertaking a listing exercise for cheaper funding.

For some Malaysian firms, reasons such as preferred exposure in a more “international market” and better valuations have resulted in the US Nasdaq market becoming a popular listing destination.

“Right now, Nasdaq is a window of opportunity because Chinese companies are not going to list there any more … Companies will look for a place that could give them a high valuation or provide the easiest and fastest way to raise money,” opines Lau.

VCI Global Ltd, for one, previously said its decision to list on the Nasdaq was premised on the market’s greater focus on technology and innovation. Operating in Malaysia, VCI Global, which owns investor and public relations firm Imej Jiwa Communications Sdn Bhd, is a multidisciplinary consulting group with key advisory practices in the areas of business and technology.

Listed at US$4 a share in April this year, VCI Global’s share price has shed 12.5% to close at US$3.50 last Wednesday.

Another notable listing was Starbox Group Holdings Ltd, a home-grown cash rebate app operator, which raised US$21.5 million (RM97.2 million) for the expansion and upgrading of its software and systems. Closing at US$4.15 last Wednesday, its shares are up 3.75% against its listing price of US$4 a share.

Overall, Lau believes that the local bourse will continue to hold well, supported by undemanding valuations and expectations that the market will trend upwards after the political dust settles when the six state elections are concluded.

“Hopefully, there is continuity in the current government. This is what investors and corporates would want to see,” he says.

Lau is positive on tech stocks, which are expected to offer further upside. “Our tech PE (price-earnings ratio) is even higher than that of companies like Apple Inc due to the scarcity premium.”

Corporate earnings-wise, he projects low single-digit growth, with better expansion in the second half of the year. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.