The global economy is starting to shows signs of strength following years of uncertainties and volatility driven by major events such as US’ General Election and UK’s surprise Brexi.
This year, global economic experts and agencies predict that 2017 is a year of recovery for most major economies, including Malaysia.
The International Monetary Fund (IMF) in its World Economic Outlook report last month, said that it expected global growth to rise 3.6 per cent in 2017 and 3.7 per cent in 2018. For Malaysia, it expected Malaysia’s economic activity to expand 5.4 per cent in Malaysia.
In the second quarter of 2017 (2Q17), Malaysia recorded a growth of 5.8 per cent, supported by domestic and improved external sector.
For corporate Malaysia, Bank Negara Malaysia (BNM) in its 2Q17 Quarterly Bulletin saw that equity indices improved in 2Q as businesses in advanced economies continue to record improvements in corporate profits.
“Broad-based growth improvements in many economies around the world also provided tailwinds to global stock markets.
“Volatility in the global financial markets was lower as developments during the quarter were largely within market expectation,” BNM said.
The global market’s recovery is also clearly reflected in the performance of Malaysia’s bourse.
BNM pointed out that in 2Q17, the domestic equity market saw higher non-resident holdings at 23 per cent of the total equity market capitalisation.
“Along with global equity markets, the FBM KLCI rallied by 1.4 per cent in 2Q17 to end at 1,763.67 points. Technology, construction, financial and consumer sector stocks had driven gains in the market.
“The average price-to-earnings (PE) ratio for the FBM KLCI stood at 16.8 times, comparable against a long-term average of 16.5 times,” BNM reported.
“In addition, trading liquidity in the capital markets was sustained with the bid-ask spreads for MGS and FBM KLCI at 0.1 and 0.5 per cent of mid-price, respectively.”
During Invest Malaysia 2017, Datuk Seri Najib Tun Razak said, Malaysia’s capital market increased by nine per cent to a level of RM3.1 trillion in the first six months of this year, and now ranks fifth in Asia relative to GDP.
“In fact, in the equity market there were net inflows of RM11 billion in the first half of 2017, compared to RM3 billion of net outflows during the whole of 2016.”
He further pointed out that Malaysia is also home to the largest number of listed companies in Asean.
“At US$29 billion, Bursa Malaysia also recorded the highest amount of funds raised in the last five years in any country in our ten nation association,” he added.
With that, BizHive Weekly explores Bursa Malaysia’s performance so far this year and efforts that are being made to reinvigorate the exchange’s activity.
Bursa Malaysia: Recovering from 2016’s low
Since the beginning of the year, Bursa Malaysia Bhd (Bursa Malaysia) recorded steady growth thanks to the support of improved market activities.
In the third quarter of 2017 (3Q17), the exchange recorded a 17 per cent year-on-year (y-o-y) increase in its profit after tax and minority Interest (PATAMI) to RM167.8 million for the nine month financial period ended September 30, 2017 (9M17).
This is compared to RM143.5 million registered in the same period last year.
In a statement, Bursa Malaysia’s chief executive officer Datuk Seri Tajuddin Atan said the growth in PATAMI was attributable largely to the increase in both trading and non-trading revenue.
“The equity market remained buoyant up to end of 3Q17. The benchmark FBM KLCI registered a 6.9 per cent gain in the first nine months of 2017 on the back of overall positive market sentiment and net inflows from foreign investors.
“Increase in listing fee collections from higher and larger initial public offerings (IPOs) and new structured warrants listed, together with processing fees earned from corporate exercises, contributed to the increase in non-trading revenue.”
Favourable market conditions also contributed to improved market activities as the period under review, the average daily trading value (ADV) for the Securities Market’s On-Market Trades (OMT) increased 24.8 per cent to RM2.3 billion.
The Average Daily Contracts (ADC) traded for the Derivatives Market stood at 58,817 contracts – a marginal increase of 0.2 per cent.
Positive momentum to continue
In a report, MIDF Amanah Investment Bank Bhd (MIDF Research) believed that this positive momentum on Bursa Malaysia would continue until the end of 2017.
“Bursa Malaysia’s 9M17 operating revenue recorded an increase of 8.9 per cent y-o-y to RM392.1 million. This was in parallel with its 3Q17 where operating revenue reached RM122.6 (9.7 per cent y-o-y). The topline improvement was primarily driven by higher securities trading activities.
“We noted that the annual ADV traded (OMT) for 9MFY17 was RM2.3 billion, the highest since FY07,” it highlighted.
It also pointed out that there is upward support to earnings from Listing and Issuer Services as well as Depository Services segments.
“For 9MFY17, ADC traded appeared almost flat at 58, 817 contracts in comparison to the same period last year. However, the demand for FCPO continued to be resilient recording a growth of 6.2 per cent y-o-y to 49, 943 contracts,” it added.
It also noted that Bursa Malaysia’s performance for 3Q17 is in line with its expectations.
Nevertheless, an upward adjustment to its FY17 and FY18 earnings estimates are necessary, it said, given Bursa Malaysia’s improving performance so far.
“We believe an upward adjustment to the FY17 and FY18 earnings is justified, given Bursa Malaysia’s overall positive performance thus far.
“This is further supported by our in-house economic forecast, expecting a positive macroeconomic performance for the rest of the year and 2018.
“This view will translate to better stability in the Malaysian economy, which will further boost investors’ confidence. Additionally, trading activities in FY18 is expected to trend higher stemming from a long-term structural demand in the local market,” it opined.
Stronger fund raising activities
In its report on Malaysia’s economic performance for 2Q17, the Ministry of Finance reported that fund raising activity in the capital market remains active in 2Q17.
“Gross funds raised in the capital market rebounded significantly by 19 per cent to RM56.9 billion (compared to RM48 billion in 2Q16),” it reported.
It pointed out that the funds in 2Q17 raised in the equity market increased significantly by 71.8 per cent to RM3.5 billion (2Q16: -37.4 per cent; RM2.1 billion), driven by five new listings of IPOs during the quarter with one notable IPO issued in June, the largest since 2012.
IPOs raised this year have been far better than 2016, as according to Bursa Malaysia, a total of RM7.4 billion IPOs have been raised within 9M17 compared with RM0.5 billion recorded in the same period last year.
This was driven by mega listings such as Eco World International Bhd (EWI) which raised RM2.58 billion proceeds from its IPO and Lotte Chemical Titan Holding Bhd (LCT) which clocked in a RM3.45 billion proceeds from its listing.
LEAP offers SMEs access to capital market
In terms of listings on the local bourse, while better than last year, 2017 is set to be yet another laggard year for the number of IPOs as compared with its performance half a decade ago.
At the time of writing, only 11 new listings have been recorded so far this year. Nevertheless, a handful of listings are expected to occur before the end of this year, driven by the recovery of sentiments in Malaysia’s economy as well as Bursa Malaysia’s efforts to improve its IPO pipeline.
In addition, IPOs raised this year have been far better than 2016, as a total of RM7.4 billion IPOs have been raised within 9M17 compared with RM0.5 billion recorded in the same period last year.
In a bid to further spur the number of listings this year, Bursa Malaysia launched a new board called the ‘Leading Entrepreneur Accelerator Platform (LEAP)’, or the LEAP Market, which went live just last month.
With the support of its partners Malaysia Digital Economy Corporation (MDEC), Malaysian Technology Development Corporation (MTDC), SME Corporation and the Bumiputera Agenda Steering Unit (TERAJU), this third new board was developed as an alternative fund-raising platform which offers the chance for small and medium enterprises (SMEs) to raise funds from the capital market for their business expansion.
In other words, Bursa Malaysia is offering the opportunity for companies that are too small for the Main Market or ACE Market, to trade on the stock exchange via the LEAP Market board.
“The LEAP Market is an alternative capital raising platform for SMEs which is the first of its kind in Asean. It is designed to address the funding gap for SMEs and make it easier for them to take their businesses to the next level through raising funds in the capital market. It also provides investors with a new investable asset class.
“The availability of such a platform would further aid the development of SMEs and support broader economic activities,” said Tajuddin Atan, during the launch of the new board.
Giving a platform for SMEs to grow
In its Annual Report for 2016-2017, SME Corp viewed this new market favourably as it further recognises the importance of SMEs and their significant contribution to the country’s gross domestic product (GDP).
To note, SMEs’ contribution to the economy to date stands at 36.9 per cent. This was why Bursa Malaysia hoped to attract the most promising small companies to list their shares.
“As the start-ups and small businesses grow, some of them would eventually move up to the bigger boards on Bursa Malaysia.
“While SMEs can still choose to get listed on the ACE Market, the LEAP Market offers several advantages. It has been formulated as a sponsor-driven market which is regulated on a ‘lighttouch’ basis, but balanced by prudential standards.
“Bursa Malaysia is cutting the red tape and regulatory burden to lower the entry barrier for cost-conscious smaller businesses,” it said.
The LEAP Market equivalents can be found in several countries such as South Korea, Taiwan, China and India. However, Bursa Malaysia is the first Asean stock exchange to launch such market.
In the LEAP Market, Bursa Malaysia’s approved advisers will play a more active role in identifying the companies to be listed and guiding them through their journey as a listed company.
In the Main and ACE Markets of Bursa Malaysia, the advisers are restricted to only investment banks and certain securities firms.
However, the LEAP Market expands the number of advisers to other firms which hold Corporate Finance Adviser (FA) licenses regulated by the Securities Commission (SC), such as boutique advisory firms.
The approved advisers to this market include Kenanga Investment Bank Bhd, M&A Securities Sdn Bhd, Mercury Securities Sdn Bhd, TA Securities Holdings Bhd, Crowe Horwath Advisory Sdn Bhd, DWA Advisory Sdn Bhd, WYNCorp Advisory Sdn Bhd, and many more.
During its launch, it was announced that 11 companies showed interest in listing on the LEAP Market. Within the last two months, two companies have made their debut on the LEAP Market; namely Cloudaron Pte Ltd and Red Ideas Holdings Sdn Bhd.
For investors, due to the risk involved in investing on young companies, the LEAP Market is intended for more sophisticated investors or high net-worth entities or individuals.
However, it opens the opportunity for these investors to broaden their investment options in a transparent and regulated environment.
The LEAP Market also offers the possibility for sophisticated investors to stay ahead by investing on a company on the LEAP Market that could eventually succeed and make its way onto the ACE or Main Market.
Objectives of LEAP Market
• Supports the national development agenda of SMEs ?
• Creates a platform for SMEs and companies to raise funds
• Provides an alternative and complementary platform for sophisticated investors to invest in the growth of SMEs and companies
• Provides Sophisticated Investors access to a wider pool of potential investments
Benefits of LEAP Market
• Alternative platform to raise funds
• Facilitative rules & regulations and lower cost of compliance
• Enhanced visibility/profiling
• Early exposure to prepare for a potential listing on the ACE/Main Markets
• Potentially unlock shareholder value
• Price discovery therefore easier to undertake mergers and acquisitions
For Sophisticated Investors:
• Greater price discovery/transparency
• Capitalise on the potential growth of a LEAP Market company
• Ease/flexibility of divestment of their investments
• Early investment which may yield high returns when companies on the LEAP Market potentially list on the ACE/Main Market
• Access to a wider pool of potential investments
• Access to additional revenue stream for new segments
• Enhanced visibility/profiling
• Facilitative rules & regulations and lower cost of compliance
• Capitalise on the potential growth of a LEAP Market company
• Ease/flexibility of monetising shareholder value for their clients
• Potential to guide issuers-clients to graduate to the ACE/Main Market
Requirements for SMEs to list on the LEAP Market
• A public company incorporated in Malaysia
• Has a clearly identifiable core business
• 10 per cent public shareholding spread at the point of admission only
• Meets the suitability assessment by an approved Adviser.
More listings to revive IPO pipeline in final lap of 2017
With just over a month to go until the end of 2017, news are rife with reports of more listings to be recorded either by this year or the beginning of next year.
At the beginning of this year, Sime Darby had announced that it planned to create three stand-alone business; plantation, property, and trading and logistics.
From that, it had revealed plans to list its plantation and property businesses.
Earlier this year, independent power producer (IPP), Edra Power Holdings Sdn Bhd, which was formerly owned by 1Malaysia Development Bhd, was reported to have the intention to list on the Main Board of Bursa Malaysia this year.
It aimed to raise one of Malaysia’s biggest IPOs to date, at RM5 billion from its listing exercise.
Analysts viewed that Edra would be a ‘blockbuster’ IPO with cornerstone fund managers such as the Employees Provident Fund, Retirement Fund Inc, Tabung Haji and Khazanah Nasional Bhd being ‘hungry’ now given the pent-up demand for new listings.
“It will be a much sought-after flagship listing which would also attract retail investors to be involved as shareholders in the company,” an analyst told Bernama earlier this year.
Wholly owned by China General Nuclear Power Corp (CGN), Edra has linkages with local and international utility companies. It has investments of more than 25 gigawatts in clean and renewable energy projects.
The projects include wind, solar, hydro, gas-fired, efficient coal fired and fuel-cell powered projects in China, South Korea, Singapore, UK, France and Australia.
Meanwhile, for the LEAP Market, following its launch, Bursa Malaysia revealed that three companies are expected to list on the new board by year-end.
To date, no details have been released on the third possible company to be listed on the LEAP Market this year.
“There are some issues that need to be addressed by these companies before going for listing. To be listed it is more than just doing business. You should organise your business and iron out matters such as the company structure or tax matters,” Tajuddin Atan had told reporters earlier this year.
Aside from Cloudaron and Red Ideas which have successfully listed on the LEAP Market, Agrofresh International Group Sdn Bhd, Polymer Link Sdn Bhd, Trustgate Bhd, Accent Wellness Global Sdn Bhd, East West One Group Sdn Bhd, Macfeam Sdn Bhd, Upstream Downstream Process & Services Sdn Bhd, ProEight Sdn Bhd, and Safetyware Sdn Bhd have expressed their interest on listing on the new board.
Looking further ahead, 2018 is expected to be a more vibrant year for Bursa Malaysia with the new LEAP Market.
One of Bursa Malaysia’s partners; Malaysian Technology Development Corporation Sdn Bhd (MTDC), has already identified 11 companies with potential to be listed on Bursa Malaysia’s Leading LEAP Market next year.
Chief executive officer Datuk Norhalim Yunus said the identification process would be conducted together with KAF Investment Bank Bhd which would act as the adviser.
“The 11 companies are recipients of our Business Expansion Fund and we will assess their qualification for listing under this strategic cooperation with KAF Investment,” he told a press conference after an MoU ceremony between MTDC and KAF Investment.
Better year for Bursa Malaysia
Overall, 2017 is expected to be a better year for the local bourse.
While Bursa Malaysia remains cautiously optimistic on its performance this year, Tajuddin Atan said, “Bursa Malaysia will continue to create a vibrant and sustainable capital market ecosystem to provide more opportunities for fund-raising and trading activities for all our stakeholders.”
Analysts are more positive on Malaysia’s equity market given its performance so far this year.
AmInvestment Bank Bhd’s research arm (AmInvestment) explained that it is positive on the equity market in Malaysia, driven by an expected earnings growth of 8.2 per cent in 2018 for the FBM KLCI, underpinned by a projected GDP growth of 5.5 per cent.
“We expect trading activity in the securities market to be supported by Bursa’s launch of the LEAP, the Mid and Small Cap Research Scheme and new IPOs such as Sime Darby Plantation and Sime Darby Property which are expected to be listed by year-end.
“We maintain our DATV assumptions of RM2.25 billion and RM2.20 billion for the securities market in FY17 and FY18 respectively,” it said.