ACE market listings dominated the initial public offering (IPO) market in 2022, accounting for 71%, or 25 of the total 35 companies, as investors sought to invest in companies with good growth prospects and solid business fundamentals, investment bankers say.
The number of listings in the ACE market has more than doubled to 25 from 11 last year, while there were an equal number of listings in the Main and LEAP markets of five. This compares to seven main market listings and 12 in the LEAP market last year.
“Bursa Malaysia this year saw its highest IPO volume since 2018, with a total of 35 listings raising RM3.5 billion. The IPO scene so far in 2022 has been dominated by numbers by the ACE market,” Raymond Chooi, Maybank Investment Bank’s head of equity capital markets, told The Edge.
However, the main market led the IPO market in terms of total proceeds, which accounted for 63% or RM2.2 billion of the total RM3.5 billion, versus RM1.2 billion of the ACE market and RM32 million of the LEAP market. market.
“To date, the combined market capitalization of these companies has increased an average of 22.5% to RM15.4 billion since their listing. This shows that the market still has plenty of liquidity looking for good investments,” says Chooi.
“Approximately 90% of the Malaysian economy is powered by small and medium-sized enterprises. Companies that weathered the Covid-19 pandemic are now ready to grow, and not only [geographically]. [In addition]the requirements for the ACE market are less stringent than for the main market, and there are companies in the ACE market that already meet the criteria of the main market but choose to stay there and improve before taking the next step” , says Wong Kar Choon, who is Deloitte Malaysia’s Disruptive Events Advisory Country Leader, adding that the number of ACE market listings this year is impressive given the economic climate.
He adds that the rate hike might encourage more companies with sound business fundamentals to apply for a listing, as they can use the stock market for a diversified and cheaper funding base.
2023 promises Malaysian IPOs
For dealmakers, the fact that 42 companies were in the prospectus phase (as of November 15) that had submitted their first application for consideration by the Securities Commission Malaysia (SC) bodes well for a buoyant IPO market in 2023.
“Similar to Indonesia and Thailand, there is an upward trend in technology, media and telecom companies looking to list in Malaysia,” notes Wong.
Dealmakers expect potential listers to carefully assess the timing of their IPO given the high inflation and high interest rate environment in the second half.
Over the year, the benchmark FBM KLCI plunged from 1,600 points earlier to a low of 1,373.36 points on Oct. 13, as negative news such as the geopolitical crisis fueled by the Russia-Ukraine war and China’s zero-Covid policy and their negative impact on global supply chains forced investors to withdraw their funds from the stock market. The index closed last Wednesday at 1,462.55.
“Many companies have expressed interest but are waiting for the right time. This year’s IPO trend has been quite similar to the past three years, which have seen every major IPO – Leong Hup International Bhd in 2019, MR DIY Group Bhd in 2020, CTOS Digital Bhd in 2021 and Farm Fresh Bhd in this one year – smaller IPOs followed. This trend is likely to be repeated next year,” observes an investment banker who asked not to be named.
The investment banker believes Bursa Malaysia will continue to see more mid-tier IPOs in 2023, like that of real estate developer SkyWorld Development Bhd, which went public on May 5.
Other potential Main Market IPOs in the pipeline in 2023 include nutritional supplement maker DXN Holdings Bhd, which has reportedly delayed its $300 million (RM1.3 billion) IPO until next year due to weak market sentiment ; and QSR Brands (M) Holdings Bhd, operator of restaurant chains KFC and Pizza Hut, which is said to be in advanced stages of SC filings for its RM1.59 billion IPO.
Other potential listings to watch for include the RM1 billion IPO of Johor Corp’s (JCorp) plantation unit Kulim (M) Bhd and the RM1.34 billion deal of subsea cable installer OMS Group Sdn Bhd (OMSG).
Meanwhile, on December 9, Kumpulan Kitacon Bhd signed an underwriting agreement with RHB Investment Bank Bhd to subscribe for a total of 18.59 million shares in connection with its IPO, representing a public offering of 76.09 million new shares and an offer to sell 62.5 million existing shares includes shares. The construction services company is expected to be listed next month.
CIMB Investment Bank Bhd has “several IPOs already scheduled for the year, including delayed IPOs from last year due to volatile market conditions and heightened inflationary pressures,” says its CEO Jefferi Hashim.
“There are others that we are still working on to ensure the best and most optimal outcome is achieved for these companies. We observe that the domestic IPO market remains robust and continues to attract interest from domestic and foreign investors,” he explains.
“The stock market has seen net inflows from abroad of approximately $1.1 billion (as of December 12, 2022) year-to-date, up from a year ago, and we see this trend accelerating over the coming year with political uncertainty may continue. ” he added.
Government reforms to revitalize foreign interests
Datuk Bill Tan, managing director of corporate finance at M&A Securities, says that while the market “wasn’t soft, it was very selective,” with cheap sectors like IT, technology and the semiconductor markets doing well, while “more traditional sectors like steel have lagged “.
Tan hopes the new government will announce initiatives to boost capital markets given Prime Minister Datuk Seri Anwar Ibrahim’s reputation for being “market-friendly and savvy”.
“Ahead of the 15th general election, corruption and racial issues led to foreign funds being sold out of Malaysia. They were a significant deterrent to foreign investors,” Tan tells The Edge.
New reforms are on the lookout to attract foreign direct investment to Malaysia, he added.
Global IPOs successful, comeback in 2023 – EY
After a record-breaking 2021, the global IPO market proved otherwise in 2022. With just 1,333 IPOs raising $179.5 billion, IPO activity was down 45% year-over-year, according to the Trends 2022 report released Dec. 15.
“As the average deal size shrank due to lower valuation and poor stock market performance, we didn’t see as many large IPOs in 2022. Weakening stock markets, valuations and post-IPO performance have further deterred IPO investor sentiment,” she noted.
The report also showed that the Asia-Pacific IPO market, which was least affected by the global economic downturn and geopolitical tensions, had 845 IPOs with total proceeds of $120.6 billion, accounting for 63% of deals and 67% of funds raised in 2022.
Meanwhile, data from Deloitte on Nov. 11 showed companies in Southeast Asia raised $6.3 billion from 136 IPOs this year. [52%] from a record $13.3 billion from 152 IPOs in all of 2021.
“After [financial markets analytics platform] Dealogic, other countries in the region such as Indonesia, Singapore and Thailand as of December 15 saw a decrease in the total value of transactions in 2022 compared to 2021. Malaysia was the only country to report a 24.6% increase in transaction value despite everything registered a smaller increase in new registrations (16.7%) this year compared to other regional neighbors,” says Jefferi of CIMB.
“Most businesses are expected to fully normalize in 2023. We expect concerns to ease in the first half of 2023 as the Malaysian government is expected to provide better visibility of policies and growth drivers over the next five years. Growth will moderate but is expected to be at healthy levels in an environment of gradual rate hikes,” Maybank’s Chooi said.
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