Reduced expectations of IPOs

The Star

02-05-2025

KUALA LUMPUR: Recent performances of initial public offerings (IPOs) on Bursa Malaysia indicates that there will be no more 'guaranteed' upsides for new listings especially on its debut day anymore.
This is the sense that brokers, fund managers and analysts are getting; compared to just last year where IPO outperformance, especially upon its listing on the first day, was almost guaranteed.
Negative sentiments following the flare ups in trade tensions and reciprocal tariffs appeared to have reduced expectations of outperformance of new listings.
Fundamentals, right business strategy and reasonable valuations would be key to attracting investors to IPO counters, analysts said.
'I don't think there will be anymore of such irrationality for now,' said an analyst.
Meanwhile, Tradeview Capital founder and chief executive officer (CEO) Ng Zhu Hann pointed to the recent delays of two planned IPOs that indicate the rather subdued level of risk sentiment now.
Cuckoo International (MAL) Bhd had in early April said it was postponing its planned listing by some two months which is expected to complete by June 24.
SPB Development Bhd had earlier delayed the launch of its Main Market IPO to an unspecified date on market uncertainties.
'Many new listing's share prices in the first quarter are trading below their IPO price. This is compared to last year where 80% to 90% of new listings had performed better than their reference price.
'The two delayed IPOs of SPB and Cuckoo points to weaker sentiment on the take up rate of these IPOs and risk appetite is quite weak in the first quarter,' Ng told StarBiz.
'If they had proceeded, shareholders could have potentially lost money there. If the uncertainty prolongs, then it is likely that Bursa Malaysia would find it difficult to secure the targeted 60 new listings this year,' he added.
However, Bursa Malaysia's CEO Datuk Fad'l Mohamed said earlier in the week that it is on track to meeting its full-year target of 60 IPOs despite the present volatile economic environment.
There were 16 IPOs year-to-date.
According to Mercury Securities, larger IPOs with bigger market capitalisation tend to benefit from the larger investor pools and greater interests from retail and institutional investors as there are more sell-side coverage and meet funds' investment mandate.
These factors contribute to enhanced price discovery and aftermarket support, it said.
On the other hand, it noted micro-cap listings or those typically with less than RM100mil in market capitalisation continue to face structural headwinds with weak price momentum post-IPO.
These were seen through the thin trading volumes, minimal research coverage and usually limited institutional interest, Mercury Securities said.
'A case in point is Sik Cheong Bhd that has a market cap of RM71.8mil, has since recorded a 46.3% decline in share price. The stock's struggle highlights the liquidity discount often applied to micro-cap names despite of the fundamental strength of the company remain intact,' it said.
These appear to reinforce a broader theme that scale is becoming a proxy for investability, it said.
'As volatility and uncertainty remain elevated in broader market, investors tend to favour IPOs offering better market liquidity as this help to facilitate sustained demand interest (retail and institutional flows), while providing greater flexibility to exit positions efficiently in the event of uncertainty,' the research house noted.
Moving forward, Ng said he expects appetite for new IPO listings to recover sometime in the second half of this year noting of the meaningful recovery of the FBM KLCI levels from the index's year-to-date lows of 1,386.63 points.
The FBM KLCI closed at 1,540.22 points on Wednesday.
'But the market's average daily trading values are still below RM2bil since then and it indicates participation is not yet broad-based. I would suggest investors to be selective in picking IPOs to invest into,' he said.
But confidence could be returning sooner than expected as Eco-Shop Marketing Bhd just announced plans to raise RM419.87mil for a planned upcoming listing on the Main Market of Bursa Malaysia.
The dollar store retailer plans to use the raised funds to expand its retail footprint and distribution centres nationwide; invest into information technology hardware and software and; repay bank borrowings.
This will be the largest IPO to be launched in Malaysia over the past eight months. The retail portion offers about 187 million new shares at RM1.21 each.
Ten cornerstone investors have collectively already subscribed 90.31% of Eco-Shop's total institutional offering excluding the bumiputra portion under the Investment, Trade and Industry Ministry, the company said.
The cornerstone investors included AHAM Asset Management Bhd, Albizia Capital Pte Ltd, Areca Capital Sdn Bhd, Eastspring Investments Bhd, Kairous Equity Sdn Bhd, Kenanga Investors Bhd, Kenanga Islamic Investors Bhd, Lion Global Investors Ltd and RHB Asset Management Sdn Bhd.
In the last six months, Mercury Securities noted there were a total of 42 IPOs on Bursa Malaysia.
Among these, it noted of strong first-day performers on the Main Market were Life Water Bhd (44.6%), Azam Jaya Bhd (39.7%), and 99 Speed Mart Retail Holdings Bhd (13.9%).
'There is a huge disparity between the first day performance and the post IPO performance.
'While certain IPOs like Steel Hawk Bhd (130%) and Oriental Kopi Holdings Bhd (98.9%) delivered eye-catching returns, more than 70% of the IPOs are now underperforming and trading below their IPO offering price,' Mercury Securities said.
'The phenomenon of strong first-day pops followed by subdued price action or retracement post listing, indicating a clear signal that investors are increasingly discriminating between quality and hype,' it added.
It noted of IPOs which debuted in March and April 2025 was during a time period that was marked by surge in geopolitical and macroeconomic uncertainty had mostly seen lackluster first-day performances and have generally underperformed days after its listing.
'In such an environment, new listings face an uphill battle to attract sustained buying interest, particularly in the absence of strong fundamentals or compelling growth catalysts,' the research house said.