Former investment banker Ian Yoong.
PETALING JAYA: The flurry of initial public offerings (IPO) in Malaysia reflects the resilient underlying condition of the economy for businesses to raise funds from the equity market.
It is also an indicator of investor confidence to invest in the new public listings.
A majority of the listings had seen strong returns on their debut.
While appetite for new listings is strong, analysts said investors should exercise caution by examining the companies carefully before deciding to purchase their shares.
With 28 IPOs on the Bursa Malaysia in the January to July period, the local bourse had recorded the highest IPO funds raised in the South-East Asian region for the first half of 2024 with US$450mil raised, according to Deloitte in a recent report.
It said Malaysia accounted for 33% of the region’s US$1.4bil in funds raised during the period under review.
The stock market operator is reportedly targeting 42 company listings this year which is higher than 32 listings last year, 35 in 2022 and 30 in 2021.
SPI Asset Management managing partner Stephen Innes said the thriving Malaysian economy on sturdy gross domestic product (GDP) growth as well as a business-friendly climate had made IPOs appealing to both local and international investors.
“The spotlight is particularly on the consumer and technology sectors which have shown remarkable vigour and are drawing keen interest from investors. These industries are pivotal in maintaining a dynamic IPO pipeline, enhancing the overall market’s energy. This vitality is further amplified by governmental initiatives aiming to reestablish Malaysia as the ‘Silicon Valley of the East’,” Innes told StarBiz.
For foreign investors, especially from the United States and Europe, Malaysia’s strong appeal is partly due to its relatively weaker currency, according to Innes.
“Moreover, global supply chain adjustments, notably in critical sectors like semiconductors had position Malaysia as an increasingly favoured venue for new listings. This shift is part of a broader trend that sees South-East Asia escalating as a significant technology hub as Western countries diversify away from China,” he said.
Innes also cautioned that while the underlying sentiment is good, it could change all of a sudden.
“While solid fundamentals underpin the current IPO boom in Malaysia, it’s crucial to keep a vigilant eye on global economic trends, market dynamics, and the health of key sectors. The sustainability of the IPO wave depends on these elements remaining favourable,” he said.
“Thus, although the outlook for 2024 is optimistic, a continuous evaluation is necessary. In the fast-evolving world of finance, the winds of change can come swiftly,” he added.
Meanwhile, former investment banker Ian Yoong said the surge in IPOs could be attributed to the formation of the unity government which has done much to boost confidence in the long-term prospects of the country.
“Bursa is at an inflection point. Malaysian equities have been in the doldrums for the past 15 years. The technology sector, however, has been trading at a handsome premium to technology stocks listed in regional stock markets. The three-year average price to earnings ratio (PER) of the domestic technology sector is 51 times,” he said.
The PER of the Singapore Exchange’s (SGX) information technology sector is 21.7 times which is higher than its three-year average PER of 16.8 times and the PER of the Hang Seng Technology Index of some 26 times.
He said another potential catalyst moving forward for IPO listings on Bursa are secondary listings which could further sustain interest.
“IPOs take about 12 months to 18 months from kick-off from the beginning of the listing process to the day of going public. Channel checks reveal that about 12 to 18 companies listed in regional stock markets are exploring the possibility of a secondary listing on Bursa Malaysia,” he said.
For example, he pointed out of UMS Holdings Ltd, which is listed on the SGX, is eyeing a secondary listing on Bursa.
“UMS is planning a major expansion for semiconductor equipment manufacturing in Penang and trades at an earning multiple of 13 times financial year 2025. Please note I have a position in UMS,” he said.
