SELL in May and go away, the old financial adage that investors loosely adhered to seems to be thrown out the window, as far as the Malaysian stock market is concerned.

During more normal times, stock market investors would be selling in May and would come back only in September but there is now a noticeable shift in trends.

As the average daily trading volumes and values moderate to about 5 billion shares valued at RM3bil exchanging hands, it looks like the liquidity-flushed Bursa Malaysia is going through a dry spell, especially if one were to compare it to the peak in August 11 last year when 27.8 billion shares were traded, valued at RM7.8bil.

The softening market is understandable, as market sentiments weaken on the back of expectations of a prolonged economic recovery and the unabating spread of Covid-19 that might lead to extended lockdowns.

So where are the retail investors’ funds? Enter the initial public offering (IPO) mania, the latest trend in the market, shifting from the rubber glove, pharmaceutical and penny stock plays of 2020.

There is a record number of new listings in the months of June and July, which will see a total of some RM5.7bil being raised from investors putting their money into seven companies that are seeking to float on the market.

Construction firm Nestcon Bhd will be listed on the Ace Market of Bursa Malaysia on Tuesday while six more are expected to be listed next month.

The mother of all listings in 2021 would be that of the credit reporting agency CTOS Digital Bhd on the Main Market, said to be by the third week of July. Sources tell StarBizWeek that its prospectus will be launched soon, latest by June 30.

Two other big caps are Yenher Holdings Bhd on July 15 and IGB Commercial REIT on July 30.

The listing of glove maker Harps Holdings Bhd on the Main Market is expected to be around mid-July but sources say this could potentially be some time in the fourth quarter instead, if the group were to adopt its latest financial statements for the second quarter.

Then there are Ace Market entrants Ramssol Group Bhd and Haily Group Bhd on July 13 and July 21, respectively.

This flurry of IPOs has given rise to a new trend of investors holding on to their funds and unloading them at every IPO opportunity.

Disregarding the cross-listing of OM Holdings Ltd and the Leap Market since it is only available to sophisticated or high net-worth investors, there has been one Main Market and six Ace Market listings.

It sounds normal, because Ace Market listings are always there, regardless of whether times are bad or not. But it is the amount of funds being put into the subscriptions for the IPOs that is abnormal.

Disregarding the Leap market, which is meant only for sophisticated investors, the Main Market and Ace Market IPOs have seen retailers pumping in RM472.54mil per IPO on average. This is compared to an average of RM158.62mil per IPO for two Main Market and 10 Ace Market listings last year.

Judging by the trend of the past nine IPOs, prices of the newly listed counters have surged beyond their IPO prices, even if one were to hold them until the end of the first trading day. In that sense, investors view this as a more secure method of putting their money to work rather than to tread the unpredictable stock market.

It is a classic case of hit and run where one rams the IPO with their funds, hits it (when one gets the shares in the balloting process) and runs (when one sells the shares on the listing date to take immediate profit). The returns have ranged from about 5% to more than 150%.

The timing of the IPOs that are taking off is also rather uncanny as Malaysia is staring at a potential extension of the lockdown that is supposed to end on Monday and as international markets become generally weaker during the summer, which could be among the reasons for liquidity being taken off the market.

The listings are also coming in at a time when the Securities Commission (SC) is expected to launch the Capital Market Masterplan 3, which the regulator has previously said to be in the second half of 2021.

It could also be that the IPOs were perfectly timed to take place during this period, to coincide with what was previously expected to be an economic recovery, starting from the second half of 2021.

A senior investment banker dismissed that possibility, saying that the process for each IPO is very long, ranging from nine months to a year at least.

He says the meticulous and unique process for each IPO makes it hard to think about timing the market.

“All the IPOs that we’re seeing right now come in at different timings and for different reasons, ” he says.

While there is a broad-based rush for IPOs among companies wanting to list and also among investors, the investment banker says it was not that much of a mania, if one were to compare it with the United States, the United Kingdom or closer to home, Hong Kong.

“Even Singapore for that matter, it has been a long time since we’ve seen a mania. Probably in the CTOS IPO itself I think that’s quite a mania on its own with the cornerstone investors that are coming in.

“I think it will be a phenomenal one and unprecedented as far as a Malaysia IPO is concerned, ” he says.

A spokesman from the SC tells StarBizWeek that the increased pace of fundraising activities, despite the pandemic, indicates confidence in the capital market and how it effectively provides funding support for companies to grow their business as the economy positions for recovery.

Fortress Capital Asset Management chief executive officer Thomas Yong (pic) says that after the delays in most IPOs last year, it is inevitable to see a pick up in new share offerings this year.

“While business activities are still very much disrupted by Covid-19 restrictions, the pace of vaccinations has also accelerated.

“Equity valuations have also largely recovered from the lows of 2020 and despite pocket inflations, which are largely attributed to supply disruptions rather than overwhelming demand, interest rates are expected to remain low for an extended period of time.

“And with that, the asset price outlook will stay positive, ” he says, adding that investors are aware that IPOs are generally priced with some discounts over the general market because of their inherently short price discovery process.

Yong says the monetisation of these valuation discounts are typically easier when equity outlook remains buoyant and positive.

Selective investors

If there is one thing that investment bankers and equity analysts can conclude about investors in this climate is that they are being extremely selective.

According to an investment banker, the local funds are still very much out there but investors are just unwilling to scour the market for good counters.

“Just look at Pekat Group. That’s RM800mil worth of funds chasing for an Ace Market IPO. The liquidity is still out there but it’s not flowing into the market, at least not directly.

“They are just purely applying for IPOs because if you look at the track records, they are technically free money if you get them. But whether that will translate to long-term or medium-term shareholdings in the share market, the answer is no. At least for now, ” he says.

He adds that the volume of Pekat Group’s shares of 243.3 million on its listing date was relatively small despite the nature of its business and it being a market debutant on Wednesday.

“The volume is relatively small for a new, hot IPO. During normal times, the volume could have easily doubled, ” he says.

Pekat Group debuted at 86 sen on Wednesday and surged to 93 sen, almost triple its IPO price of 32 sen before it ended the day at 81.5 sen. Yesterday, the counter closed at 76 sen. Its IPO attracted RM794.53mil worth of applications for only RM10.32mil worth of shares.

The overall oversubscription for the counter was 75.99 times, apt for the company, which is in the solar power business, which is all the rage in markets globally as environment, social and governance (ESG) developments pick up pace.

“To be fair, the risk of investing in the share market is actually getting higher in light of the World Bank’s lower gross domestic product (GDP) growth projection recently and the ongoing political instability.

“But the prospects are still there. It’s down to how the owner and principal advisers convince the people that these are good shares at a time when investors are being very selective.

“It also depends on the industries. Not all IPOs are hunky-dory, despite the performances of the listings that we have seen recently, ” he says.

A senior analyst said the different buckets and themes that are coming to the market is adding much vibrancy to the IPOs including ESG theme names, those who were resilient through the pandemic and those who benefited, such as Harps.

“The themes are much broader but not everybody in the sector is a winner and that’s why investors are very discerning. Looking at Harps for example, some may think it’s coming in at the wrong time when the average selling prices (ASPs) or rubber gloves are coming down.

“But I believe that when they decided to go for an IPO, they never expected that the ASPs would spike last year, ” she says, adding that this strengthened the group’s cashflows and it is issuing 2.6 billion shares to meet the minimum free float requirement of 26%.

Meanwhile, an SC spokesman says as with all investments in the capital market, investors must be cognisant of the risks and opportunities involved and make informed decisions before investing in IPOs and the stock market.

“Investors are advised to take the time to read the prospectuses for IPOs and understand the nature of the company’s business, the industry the company is operating in, the financials, financial position of the company and its prospects, before investing in the company.

“They should also seek advice from a licensed or registered person if they have queries on their investments. More importantly, they should trade based on fundamentals, and not be swayed by rumours, ” the regulator spokesman says.

Bursa Malaysia says that IPOs, like any other investments, bear risks and advises investors to carefully read and understand the contents of the respective prospectus before investing in an IPO.

“If in doubt, please consult a professional financial adviser. Generally, investors need to understand trading from a fundamental and technical perspective; in short, investors must trade in an informed manner.

“Undertaking proper research and assessment is crucial so that one invests in something which matches their risk appetite and investment goals, ” it adds.

It also tells investors to be wary of promotional hype from unlicensed individuals or companies and should instead, analyse and assess the fundamentals of the company to make informed investing decisions.

A seasoned corporate finance director says that while IPOs are still very hot in the market now, he foresees a slowdown as businesses get plundered by the restrictions due to the pandemic.

“This affects their profitabilities and therefore, their qualification to do IPOs. There are many IPOs in the pipeline, but we’re not sure if they would be able to maintain that level of profits, ” he says, adding that those who have yet to submit their prospectus by August are unlikely to be listed this year.

The SC says domestically, the outlook will depend very much on the containment of the virus and the deployment of vaccines.

“We expect economic recovery to start in early 2022, with continued policy support and gradual resumption in economic activities.

“We expect a healthy IPO pipeline of around 30 for the year as it is still seen as a good way for companies to raise funds to expand their business and also to improve their corporate standing, ” its spokesman says.

Bursa Malaysia says the outlook for IPOs continues to remain encouraging with companies accessing the equity capital market for growth and recovery from the impacts of the Covid-19 pandemic. “We will continue to facilitate a secure and easy access to investment and fundraising through a reliable and resilient market infrastructure, ” it says.

There are four more companies who have since submitted their prospectuses – CEKD Bhd, Ecomate Holdings Bhd, Keyfield International Bhd and Orgabio Holdings Bhd – all for Ace Market listings.

StarBizWeek gathers from sources that CEKD’s prospectus has been approved by the SC, which means that the group can now proceed with the underwriting process.

Meanwhile, an investment banker points out that if the privatisation exercises of MMC Corp Bhd and IJM Plantations Bhd go through, the cash offers to the tune of billions would be channelled back to the minority shareholders providing a further boost to the liquidity out there.

It still remains a question if such a liquidity were to flow back to the market due to the selective nature of investors in this environment, but it is expected to give the IPO scene a strong jolt of excitement.

SOURCE: The Star Malaysia (Royce Tan)