Lacklustre debuts for small IPOs
Written by Joy Lee & Alexander Teo
Thursday, 28 July 2011 11:37
KUALA LUMPUR: Prestariang Bhd made the third lacklustre listing on Bursa Malaysia this week as the ICT services provider followed a string of debut listings that fell below the initial public offering (IPO) price.
The announcement of an RM80 million contract from the Higher Education Ministry prior to its listing — which plumps up its current order book of RM145.29 million — failed to lend it sufficient support. Prestariang rose to an intra-day high of 90.5 sen before it fell 18% to 74 sen at yesterday’s close.
CEO Dr Abu Hasan Ismail was unperturbed and remains confident the stock will rebound and perform over the long run on strong company fundamentals, consistent profit and market rationality.
Earlier in the week, ACE Market-listed PeterLabs Holdings Bhd and Hibiscus Petroleum Bhd saw similar poor performance. Since their listing, PeterLabs has fallen 28% to 21.5 sen and Hibiscus 8% to 58 sen yesterday.
While analysts note that market sentiment has been generally weak due to jitters in the US and European markets,
the lacklustre performance of these counters is mainly attributed to their size.
“
The market is interested in bigger cap stocks and funds are particularly cautious about investing in small-cap stocks due to liquidity issues. And people are not too keen on some of these businesses because they are either very competitive or not exciting enough,” a fund manager said.
The fund manager also noted that
most IPO investors are short-term investors and prone to sell their shares upon listing. Given the low retail participation in the local equity market, there is little demand for these shares.
Prestariang was oversubscribed by 7.1 times while PeterLabs was five times oversubscribed. Other recent listings Hibiscus and Catcha Media Bhd were also oversubscribed by 3.8 times and 10.7 times. “If there is no equivalent demand for the supply of shares upon listing then the price will come down,” he said.
Additionally, there is
a negative perception of these small-caps as few are familiar with their businesses. Of the new listings, PeterLabs deals in animal health and nutrition products and Hibiscus is a special acquisition vehicle with no core business, both unfamiliar to investors.
It does not help that ACE Market listed companies XOX Bhd and Mclean Technologies Bhd posted losses almost as soon as they were listed more than a month ago. XOX posted a net loss of RM1.7 million for 1Q11 ended March while Mclean made losses of RM196,000 for the same period.
Large-cap listings, on the other hand, such as oil and gas counter Bumi Armada Bhd and sugar manufacturer MSM Malaysia Holdings Bhd have enjoyed strong interest to date. Bumi Armada, which was oversubscribed by 9.5 times, has gained 36% and MSM’s share price has surged 53% since listing despite the initial perception that it is a boring stock. MSM’s allure seems to be its defensive nature and good yield. Bumi Armada’s IPO price of RM3.03 was at 17 times historical price-earnings ratio based on earnings per share of 17.6 sen while MSM was listed at a PER of 10.6 times based on its IPO price of RM3.50 and EPS of 33.1 sen.
Apart from weak market sentiment and diminutive sizes, fund managers believe that another deterrent for investors is that
most of the recent listings are considered overpriced.
“Most IPOs were priced at market and issued at double-digit PERs. These valuations are on par with other companies that have been listed for a long time. So it is a question of
why investors should buy a new company at a high price when they can buy into a company that has been traded for some time with a more visible track record at the same valuation. It is unlike the large-caps where people are still interested even if they are expensive,” the fund manager said.
At its IPO price of 90 sen, Prestariang is listed at a historical PER of 11.8 times. ACE Market-listed PeterLabs and Catcha Media were listed at 9.7 times and 12.3 times based on IPO prices of 30 sen and 75 sen respectively, which is relatively high for ACE Market companies, most of which are trading at low single-digit PERs.
“Most issuers are trying to get a good price, and the main concern is that the IPO is well taken up.
There are very few who think about the long-term sustainability of the share price,” he said.
The fund manager noted that the growth prospects of these companies vary from company to company and there may still be upside for these stocks in the longer run.
This article appeared in The Edge Financial Daily, July 28, 2011.
