Malaysian IPO market is recovering from the COVID slump, but risks remain

As the COVID-19 pandemic pounded equity markets, initial public offerings (IPOs) in Malaysia slipped into a coma in the April-June quarter this year. In the three months, not a single company listed on Bursa Malaysia, the national stock exchange.

While recent announcements from several firms suggest a revival in IPO sentiment, it is near certain that deal volumes won’t surpass that of 2019’s. So far this year, only 13 Malaysian companies have listed, putting 2020’s run rate behind that of last year’s 30 IPOs, data from Bursa Malaysia show. Fundraisings from IPOs so far this year stand at a modest $76.54 million, compared with $487.1 million in 2019.

“The timing for listings depends on a company’s financial plans and projections. Each company and the sector in which it operates are unique,” Bursa Malaysia told DealStreetAsia in a statement when asked about the poor sentiment.

Source: Dealogic, Bursa Malaysia

For the entire 2020, the bourse now expects 25 IPOs, as against an initial forecast of 40, Muhamad Umar Swift, CEO, Bursa Malaysia had told reporters in July. “When people are taking companies to the market, they need to be backed by [financial] results. Now with the MCO’s [the government’s Movement Control Order restricting mobility, to contain COVID-19] impact, companies are re-evaluating their business forecasts,” Muhamad Umar was quoted as saying by The Edge Markets in a report on July 28.

Among those who deferred their listing plans was Loob Holding, which owns the popular bubble tea brand Tealive. The company, which was reportedly looking to raise 300 million ringgit from an IPO this year, now has no plans of tapping the equity market till at least mid-2021, DealStreetAsia had reported in July.

“The onset of the Covid-19 pandemic has put on hold existing as well as contemplated IPOs, especially that of large-cap companies,” said Ramesh Manimekalanandan, regional head of equity capital markets at Kuala Lumpur-based Maybank Investment Bank.

Manimekalanandan, though, sees some green shoots of revival: “Given the strong recovery in equity markets, we see more IPOs potentially coming to market this year.”

Waking from the slumber

After the lull in the second quarter, more companies now seem to be tempted to test the market to raise funds. Giving them confidence is the recent recovery in Malaysia’s equity market sentiment.

The benchmark index, FTSE Bursa Malaysia KLCI, has recovered from its March lows. The index had closed at 1219.72 on March 19, a day after the Malaysian government issued the MCO order restricting movement. On Thursday, the KLCI closed at 1515.40, having reclaimed 1500-levels in June itself.

The V-shaped recovery was, in part, thanks to a surge in the stocks of glove makers and also strong participation from retail investors. There is also ample liquidity due to the government’s stimulus packages to help the COVID-hit economy, and low interest rates, which have made bank deposits unattractive.

Among those who are expected to list, and make the most of this market recovery, are big names like the home improvement retailer Mr.DIY Group, glove maker Harps Holdings, and sovereign fund Khazanah Nasional and Dymon Asia Private Equity-backed The Holstein Milk Co, which owns the dairy brand Farmfresh.

Harps Holdings is expected to raise about $500 million as early as next year, while Holstein Milk is said to be weighing its debut share sale sometime in 2021. In August, sources had told DealStreetAsia that Creador-backed credit reporting agency CTOS Holdings, could start its listing process as early as September, with plans to raise as much as $150 million.

Mr DIY, and Holstein did not respond to DealStreetAsia’s query at the time of publishing.

Expand Table

Potential listings in Malaysia 
CompanyNature of Business
Samaiden Groupsolar photovoltaic (PV) systems, power plants, solar energy
Aneka Jaringan Holdingsfoundation construction specialist
Econframe Bhdmetal door frame maker
HPP Holdingsprinting and paper-based packaging
Teladan Setia Groupproperty development
Flexidynamic Holdingsglove manufacturing solution
Mobilia Holdingsfurniture manufacturing
Mr DIY Grouphome improvement retailer
IGB Commercial REIToffice buildings leasing and management
Harp Holdingsglove manufacturing
The Holstein Milkdairy products manufacturing
U Mobiletelecommunications
Source: Malacca Securities, Media reports

“Our IPO pipeline for the year remains healthy, comprising a range of potential large-cap, SME, and REIT issuers. This includes the listing of Mr DIY, which has received approval,” Bursa Malaysia told DealStreetAsia. “In 2021, we expect to see more interest for companies to list on the ACE Market,” it added. (The ACE Market is an alternative market for emerging companies with no profit track record.)

Since April 2020, Bursa Malaysia has witnessed six IPOs, of which four were in the ACE Market. All the listings on the ACE Market opened at a price 50% higher than its IPO price, two of them (Ocean Vantage and Optimax) even listed at over 100% of their IPO offer price, data from the bourse show.

Increased retail participation in the stock market has aided the “fantastic rallies” of recently listed companies, explained Tou Hui Ling, research head at SJ Securities. “In hindsight we could say that now is a good time to launch an IPO.”

However, there are caveats.

Some companies with IPO plans may take a raincheck as they wait for more clarity in the market, said Tou. “We note that businesses may be seeing a negative impact on their (financial) numbers due to COVID-19 and the MCO, which may affect valuations,” she added.

Uncertainties loom

The resilience of the equity market notwithstanding, the recovery is on shaky ground. There are risks stemming from a possible “second wave” of COVID-19 cases, political uncertainties, and slow economic recovery. “Issuers and investors alike are wary of a potential resurgence in COVID-19 cases which has occurred sporadically,” Manimekalanandan said. “This remains the single-largest risk to IPOs in the near term.” 

Malaysia’s economy contracted for the first time since the 2009 global financial crisis in the second quarter. In mid-August, Bank Negara sharply cut its GDP forecast for this year, revising its GDP growth forecast for 2020 to between -3.5% and -5.5%. The central bank had previously forecasted growth of between -2% and 0.5% for the year.

Malacca Securities’ senior analyst Kenneth Leong said the sharp dive in the KLCI index in February-March factored in the economic weakness. However, “if we were to undergo another round of lockdown, this may see companies delay their listings,” he added. He cited the upcoming US election, US-China trade hassles and lacklustre economic recovery next year as risks that could have a negative impact on the IPO market.

Malaysia’s political environment too is a risk factor. The resignation of former prime minister Mahathir Mohamad in February, followed by the equally-unexpected appointment of a new coalition government under Muhyiddin Yassin, has led to instability, noted CIMB Investment Bank Analyst Ivy Ng in a note on July 28.

Nevertheless, from a valuation perspective, Manimekalanandan said Bursa Malaysia remains “relatively attractive” for issuers and this is most obvious in the glove manufacturing sector where Malaysia dominates on a global scale.

The Securities Commission Malaysia announced in July an enhanced IPO framework for listings on the main market of Bursa Malaysia, in a bid to improve the efficiency of IPOs. The new norms will take effect on January 1, 2021.

“There are government initiatives to make listings more affordable, such as the deduction of up to 1.5 million ringgit for listing expenses for SMEs and technology-based companies (in some cases). Such efforts will help spur IPO activities on Bursa Malaysia,”  said the bourse, with confidence.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.