After years of decline, Malaysia’s initial public offering (IPO) market might finally be gearing up for a comeback in the second half of the year (2H18) as the market has become abuzz with news and rumours of several high profile listings for the year ahead.
Riding on a strengthening currency, expanding economic growth and steadily improving fund flows, most industry analysts are of the opinion that our local bourse will see more companies being listed in 2018 as compared to previous years which saw dwindling numbers, especially in the main market.
While this year’s first round for IPOs saw an increased number of listings, all of them have been generally smaller listings on the ACE market and the new LEAP market aimed towards SMEs.
To date, there has been a total of eight companies coming out the market, and the most prominent listings of the bunch has been telecommunications player Binasat Communications Bhd who managed to raise RM39.53 million in proceeds and construction player GDB Holdings Bhd who raised RM43.75 million. Both companies listed themselves onto the ACE market.
Axiata’s US$2 billion dollar towerco
For the next half of the year, however, we might be looking at several large scale IPOs on main market. One of them is said to be Axiata Group Bhd’s 62 per cent owned telecommunications tower business (towerco) – Edotco Group Sdn Bhd (Edotco).
According to AmInvestment Bank Bhd (AmInvestment Bank), Edotco could easily be valued at US$2 billion at current valuations as the company has shown commendable growth from its expanding portfolio and operational performances.
As at 4QFY17, Edotco’s telco tower portfolio expanded to owning 16,533 towers and managing 10,931; it has a presence in Malaysia, Bangladesh, Sri Lanka, Cambodia and Myanmar.
These figures are set to grow further as the company has recently announced that it would be forming a 55:45 joint venture with Dawood Hercules Corp Ltd to acquire another Pakistani towerco, Deodar (Pvt) Ltd who has a portfolio of 13,000 towers.
Upon completion of the deal, Edotco will have a portfolio of over 30,000 towers, making it the eight largest towerco in the world according to a report from The Edge.
Axiata has been heavily rumoured to be exploring the potential of listing Edotco and should they go through with it, the bank is expecting its IPO to do very well as previous acquisition of Edotco stakes have seen rich valuations.
Currently, Edotco’s other stakeholders are Innovative Network Crop of Japan (INCJ) at 22 per cent, Khazanah Nasional at 11 per cent and Malaysia’s national pensioner fund (KWAP) at 5 per
cent.
“KWAP’s acquistion of its stake edotco in April 2017 values its equity at US$1.5 billion, based on the same benchmark set for the private placement to INCJ and Khazanah back in December 2016.
“However, based on an average FY18F EV/EBITDA of 16 fold for the five largest global listed tower companies and assuming a debt of US$500 million, we estimate that Edotco could easily be valued at US$2 billion,” explained the bank in an Axiata company report.
Wave of insurance IPOs?
In a bid to help uplift the domestic insurance industry, Bank Negara Malaysia (BNM) issued a directive last year that required all foreign insurers to cut their stakes in their local units to 70 per cent.
The directive has prompted a rush from foreign insurers like Prudential, Great Eastern Holdings, Tokio Marine Holdings and Zurich Insurance to find ways of divesting their current stakes in their local units to meet the 70 per cent maximum stake and submit plans to a regulator before a June deadline.
While there have been no official statements for any of these insurers on how they will divest their stakes, reports from various new sources have suggested that Zurich and Prudential are both mulling over the prospect of either a stake sale or an IPO.
In several Bloomberg reports, it was reported that Prudential has started meeting with banks for a potential US$500 million to US$1 billion IPO of its Malaysian Unit – Prudential Assurance – after struggling to get the valuation its wants through a reported sale with KWAP.
Similarly, Reuters has also reported that Zurich has also been attempting to sell its 30 per cent stake to KWAP for a $435 million but should the sale fall through; a potential IPO of 30 per cent of its stake is estimated to be able to fetch up to US$100 million.
Market leader Greater Eastern Life Assurance Malaysia Bhd is also rumoured to be looking for a 30 per cent sale to the Employees Provident Fund (EPF) but no salient details have emerged on whether the sale will go through or whether the group might consider other options like an IPO.
And besides foreign insurers, some local insurers have also been looking to list on Bursa as several new sources and analyst reports have implicated that Malayan Banking Bhd (Maybank) is currently in the process of preparing to list its insurance arm, Etiqa, later this year.
In a report by CIMB Research, it was detailed that Etiqa’s potential listing is expected to garner a market capitalisation of between RM5.3 billion and RM10.7 billion upon listing – based of a price-to-book value (PBV) of between 1.4 to 2.8 times.
Based off this, Etiqa’s closest competitor would be Syarikat Takaful Malaysia Bhd (STMB) who has a market capitalisation of RM2.76 billion going by a share price of RM3.40 ad a PBV of 2.8
1. Binasat Communications
Starting off the year’s round of IPOs is Binasat Communications Bhd (Binacom) which made its debut on the ACE market of Bursa Malaysia at 59 sen – a 13 sen premium above its issue price of 46 sen per share.
The telecommunications support services provider’s IPO was oversubscribed by 34.23 times and comprised of 85.979 million public issue shares and 40 million offers for sale shares at 46 sen a piece.
In total the group managed to raise a total of RM39.53 million, of which RM14.24 million has been earmarked by Binacom to set up teleports, while RM10.5 million will be used as working capital.
The remaining RM14.8 million will be utilised to enhance the group’s fibre optic network installation and commissioning services capability, regional business expansion, particularly into Vietnam, Myanmar and Laos, as well as listing expenses.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Bincom represents a cheap entryway into the highly competitive telecommunications sector as half of the group’s earnings are dependent on telecom projects flow which tends to
fluctuate.
“We expect the group’s top-line to perform better than the country’s GDP growth in FY18. However, its staff costs and depreciation are expected to trend higher in tandem with the higher project flow coupled with more assets acquired.
“All in, we expect the group’s net profit to grow by 3 per cent in FY18 to RM10.3 million, on the back of 6.8 per cent year over year (y-o-y) climb in revenue coupled with similar GP margin of 37 per cent,” the research arm shared in a company report.
Despite its rather promising outlook, the group’s stock soon succumbed to selling pressures and is now trading below their IPO listing price of 46 sen.
Believing that the group’s earnings growth outlook is still very much intact with its teleport facility expected to commence operations in 4QFY19, analyst Rakuten Trade Sdn Bhd (Rakuten Trade) asserts that the recent sell-down has made the stock very attractive and has reiterated their ‘Buy’ call with a target price of
RM0.55.
For dividends, Kenanga research has shared previously that they are expecting Binacom to declare a dividend per share (DPS) of 0.8 sen or a 1.7 per cent dividend yield for FY18, while Rakuten Global is expecting the group to announce a dividend yield of 4.5 per cent for FY19.
Starting off in Malaysia on March 17, 2017, Binacom has grown in a mid-sized company involved in the provision of supporting services for VSAT Network Engineering Services, Mobile Network Engineering Services, Fiber Network Engineering Services, Satellite Hub/Teleport and Digital Satellite News Gathering (DSNG) services.
Aiming to be a leading provider of satellite, mobile and fibre optic network support services, Binacom has reportedly installed over 6,000 Very-mall-aperture terminals and 10,500 base transceiver stations (BTS) around the country to date.
2. JM Education Group
JM Education Group Bhd (JM Education) debuted on the LEAP market of Bursa Malaysia as its third listing on February 8 at 53 sen – an 8 sen premium to its issue price of 45 sen.
The private education service provider’s IPO which saw placement of 6.8 million ordinary shares or about 10 per cent of the company’s enlarged issued share capital, managed to raise RM3.06 million which will be used to repay bank borrowings, listing expenses, used as working capital and used to finance its expansion and marketing expenses.
Soon after its IPO, the group’s share price saw a dip to 49 sen the following week but quickly rebounded to a steady 55 sen the week after. Since its rebound, the stock has seen little fluctuation in prices.
JM Education is an educational counselling and student placement service provider to over 140 local and overseas educational institutions – mainly in Austrlia, the UK and the US. Additionally, the group is also involved within the Technical and Vocational Education and Training (TVET) segment where it provides TVET programmes through its subsidiary – Miraj Academy Sdn Bhd.
According to various sources, the group’s educational counselling segment currently makes up over 80 per cent of revenue while its TVET segment makes up the remaining 20 per cent.
For growth, JM Education has guided that they will be focusing mainly on their educational counselling business by utilising part of the IPO proceeds raised to open two more branches in Johor within the 24 months and to upgrade some of their existing facilities. Currently, the group has 9 branches scattered around Malaysia.
And not forgetting the TVET segment, the group’s managing direct The Cheong Hua has also guided that JM Education sees growth potential within the segment and will be growing organically with new TVET programme offerings while keeping an eye out for ventures with other foreign TVET providers.
Between 2014 to 2017, JM Education have successfully sent approximately 4,000 students to more than 100 institutions in various countries, while its TVET segment has seen 300 graduates.
3. Metro Healthcare
Metro Healthcare Bhd (Metro Healthcare) who is primarily involved in the provision of women’s healthcare became the fourth member of Bursa Malaysia’s LEAP market on February
26.
The group’s IPO placed 20.08 million shares or 10.01 per cent of the group’s enlarge issued share capital at 23 sen per share to raise RM4.62 million.
Of this, RM3.42 million has been earmarked by the company for business expansion to Johor Bahru and Melaka while RM300,000 will be used for its marketing and accreditation program.
According to The Edge Markets, the group plans to set up a new women’s clinic in Johor, and acquire SSH Care Sdn Bhd, which has a women’s clinic in Melaka, to be upgraded to a reproductive medicine ambulatory care centre.
With the new facility in Melaka, Metro Healthcare is expecting to be able to increase their current capacity of about 1,000 in-vitro fertilisation (IVF) cycles by about 300 cycles.
Starting their IVF services arm, Metro IVF, in 1999, the group has managed to become a pioneer of IVF centres in Malaysia with their first IVF baby delivered in 2000. For 2017 alone, the group boasts a total of 600 completed
cycles.
For earnings growth, it is understood that Metro Healthcare is expecting to be able to achieve more than 10 per cent y-o-y revenue growth for FY18.
And since its listing, the group has seen its share prices remaining steady above a 30sen threshold.
4. Wegmans Holdings Bhd
Innovate furniture maker Wegmans Holdings Bhd debuted on the ACE market on March 6 at 29.5 sen, 0.5 sen higher than its offer price of 29 sen per share.
The IPO saw a placement of 100 million new shares of which 25 million was made available to the Malaysia public. And with a value of RM125.7 million received from the public for the 25 million shares made available, the IPO saw an oversubscription rate of 16.35 times.
Despite the strong debut, the stock soon saw some selling pressures as its share prices have fallen around 13 to 15 per cent from its listing price of 29 sen. Analysts suggests that the pressures may stem from the strengthening ringgit which would play unfavourably to Wegmans as they are primarily involved in overseas exports. In a company report, Kenanga Research detailed that 67 per cent of all sales by Wegmans are from their overseas sales which are mainly to Japan, the United States, the United Kingdom and Australia.
While the strengthening ringgit may weaken Wegmans overseas sales, Kenanga Research points out that there is still room for much growth for the furniture maker as the furniture imports sector in their main target countries are forecasted to continue growing.
Looking to grow aggressive grow its business, Wegmans has guided that they will be utilising RM11 million from their RM29.0 million raised proceeds to construction a new factory to double production capacity, and another RM11 million to purchase new equipment and machinery to increase automation and drive better efficiencies and functionality. The remaining proceeds will be used for working capital and financing the listing expenses.
For earnings forecast, Kenanga research is expecting flattish revenue in FY18 due to the group’s current capacity approaching full utilisation and lower export conversion due to stronger ringgit. Meanwhile, sales and marketing cost are expected to trend higher in tandem with the effort to build greater brand awareness as the group expands.
“All in, we expect the group’s core PATAMI to dip by 18.9 per cent in FY18 to RM11.8 million prior to a surge of 39.4 per cent in FY19 to RM16.4 million – on the back of 30.4 per cent revenue growth underpinned by higher factory’s production capacity,” said the research arm. For dividend yield, Kenanga Research is expecting Wegmans to continue rewarding its shareholders with a 3.4 and 4.5 per cent yield in FY18-19.
5. QES Group
QES Group Bhd (QES) debuted on the ACE market on March 8 at 22 sen – 3 sen higher than its offer price of 19 sen a share.
The group is principally involved in the distribution of inspection, test and measurement equipment, materials and engineering solutions. It also manufactures optical inspection equipment, automated handling equipment as well as advance wafer measurement systems (AWMS).
Under the IPO, the group issued 151.66 million new shares, which represented 20 per cent of its share capital, to the public, selected investors and eligible directors and staff. The exercise also included the sale of 75.38 million of its existing shares or 10 per cent of its enlarged share capital to selected investors. The IPO was oversubscribed by more than 19 times and managed to raise RM28.82 million of proceeds.
Of that amount, QES has guided that it intends to use RM8.3 million to purchase demonstration equipment for its distribution division and RM4.8 million to develop three key products – Fully Automated Vision Inspection System (FAVIS), Automatic Wafer Packing System (AWPS) and Automatic Wafer ID (AWID).
According to Kenanga Research, should the commercialisation of these products become successful, they will likely become pillars of growth for the group’s manufacturing division and lend support to the their 2-year sales compound annual growth rate (CAGR) forecast of 16 per cent and higher gross profit (GP) margin of 38.1 per cent.
Overall, the research arm is projecting that the group will be able to register a 2-year core net profit CAGR of 15 per cent with key earnings assumptions stemming from it 2-year revenue CAGR of 13 per cent in its distribution division in tandem with the positive outlook in the test and measurement market; its maiden FAVIS, AWPS and AWID machines contribution in FY18-19; and core net profit margins assumptions of 7.9 to 8.0 per cent in FY18 to FY19.
7. GDB
Listing onto the ACE market on March 27, construction player GDB Holdings Bhd (GDB) saw a lacklustre start as it closed its first day at 32.5 sen – 2.5 sen lower than its initial offering price of 35 sen.
Despite the lacklustre start, the IPO itself was oversubscribed and saw 12.5 million new shares made available to the Malaysian public, 15 million made available to eligible directors and employees, and 97.5 million made available by way of private placement to identified investors.
All in, the group’s listing exercise saw RM43.75 million raised in proceeds, of which RM24.67 million has already been allocated for capital expenditure, RM15.58 million earmarked for working capital, and the remaining used to finance listing expenses.
Founded in 2013 by former Putrajaya Perdana construction veterans Cheah Ham Cheia and Alexander Lo, GDB has managed to make a name for itself in a short amount of time as it has already completed 4 major projects totalling RM645 million.
Currently their orderbook stands at RM845 million which provides earnings visibility for the next 2 years while its net profit margins remains higher than the industry average at 7 per cent and its EPS growth continues to double digit of approximately 20 per cent of FY18 and FY19.
A week after its listing, the stock saw some share price weakness as it closed at 29.5 sen for the week ending on March 30. However, it soon saw some rebound to a steady 32.5 sen.
6. Nova Pharma
Pharmaceutical and biotechnology solutions provider, Nova Pharma Solutions Bhd (Nova Pharma), debuted onto the LEAP Market on March 9, at 22.5 sen – 2.5 sen above its offer price of 20 sen.
It raised close to RM2.5 million in proceeds and has guided that it intends to use RM1.46 million to expand its business and working capital while the remaining RM1 million will be used for listing expenses.
For expansion plans, Nova Pharma intends to establish new offices overseas, mostly in Taiwan and Indonesia where the group has already established a presence in.
Taiwan especially will be a large focus for the group has they see huge potential in country due to the Taiwanese Government ambitions of transforming the country into a biotechnology and medical research and development hub in Asia.
Most recently, the group has just finished designing a dengue facility in Taiwan is has already secured two more projects, one in Taiwan and one in Malaysia. The two projects are expected to uplift the group’s tender book to RM10.14 million.
And looking to newer pastures, the group has also guided that they intend to venture into the provision of turnkey projects which they have experience in, and are also considering expanding into other countries in SEA within 2020 to 2022.
8. Polymer Links Holdings Bhd
Listing onto the LEAP market just last Friday, Polymer Link Holdings Bhd, manufacturing company for compounded and non-compounded plastic powder, was listed at 12 sen and closed the trading day at 16 sen per ‘share.
The IPO has placed out 46.29 million shares at 12 sen each to raise RM5.55 million which has been earmarked for general working capital, payment of shareholders’ advances and listing expenses. For expansion and growth, the group aims to expand their dealings into the US market as their main objective is to sell their manufactured goods to US companies.
For now, the group’s main source of income is from its largest customer – Outback Philippines – who has contributed to 88, 93.6 and 90.6 per cent of the group’s total revenue for FY15, FY16 and FY17 respectively.
More upcoming local listings
On upcoming listings, freight and logistics player Tri-Mode System (M) Bhd (Tri-Mode System) is scheduled to list early next month on the ACE Market.
Its IPO is expected to see an institutional offering of 30.71 million shares at a to be determined price, and a retail offering of 12.497 million shares at 61 sen per share.
Assuming the institutional price will be equal to the retail price of 61 sen, the group is expecting approximately RM26.36 million to be raised and has earmarked 58.8 per cent to be used for the construction of a proposed headquarters and distribution hub and the purchase of prime movers and trailers.
Meanwhile, 19 per cent will be used to repay bank borrowings, 8.9 per cent as working capital and the remaining 13.3 to be used to finance listing expenses.
However, analysts like Inter-Pacific Research Sdn Bhd has valued Tri-Mode System shares at a lower price of 56 sen, based on a 13x of FY19 earnings per share.
While the ascribed PER for Tri-Mode is higher than mid-cap logistic player peers, the analyst argues that it is justified due to the group’s earnings growth potential from its pricing strategy in sea freight rates while also factoring potential downside risks that the stock might see in the long-term.
Meanwhile, the oil and gas (O&G) sector is expected to see some action as Sapura Energy Bhd (SEB) has announced that they are indeed looking into a potential listing of their exploration and production arm.
In a January Bursa filing, Sapura Energy has engaged advisors to evaluate and advices on the potential listing of its E&P business and should any material development occur on this matter, the company would make the necessary announcement in compliance with Bursa Malaysia Securities’ main market listing requirements.
The announcement was made in response to a sudden public interest sparked from a local article that suggested that SEB was seeking a RM7 billion valuation for its E&P business.
The article highlighted concerns of Sapura Energy possibly not being able to list as it may not be able to meet certain listing requirements, such as cashflow related requirements due its heavy RM15.5 billion of debt and orderbook of RM16.6 billion.
Additionally, the article also suggested that Malaysia Airlines Bhd and QSR Brand Bhd — the operator of KFC and Pizza Hut restaurants — might be looking to relist themselves onto Bursa’s main market in the year ahead.
Looking forward, it seems like 2018 will be an exciting year for our IPO market but with only RM156.78 raised from the current round of IPOs so far, it will see be a long way before we beat 2017’s 13 listings that raised a total of US$1.7 billion.