More small and mid-cap IPOS expected

Investor interest intact despite headwinds

PETALING JAYA: More small and mid-cap initial public offerings (IPOS) are expected to make their way into the local equity market by this year and in 2023.

Despite rising inflation and interest rates, as well as growing recessionary risks, investment bankers are upbeat the IPO market would remain robust notwithstanding such headwinds.

Maybank Investment Bank head of equity capital market Raymond Chooi told Starbiz going forward, small and mid-cap IPOS would continue to drive the number of listings whilst large-cap IPOS look to time the market.

“There are five IPOS which appear imminent based on the recent exposures of their draft prospectuses.

“They are companies involved in construction, engineering services, electronic manufacturing services, the provision of public network systems and facilities, consumer products and industrial products,” he added.

“The domestic IPO market in terms of new issuances has remained robust as small and mid-cap IPOS continue to see local investor interest notwithstanding the market headwinds,” he said.

So far this year, Bursa Malaysia has seen 29 listings, of which four were on the Main Market, five on the LEAP Market and the rest on the ACE Market.

The first half also saw the successful listing of Farm Fresh Bhd which is the largest IPO since July 2021 and garnered a record 30 cornerstone investors.

Chooi said the IPO market has seen a revival of overseas investor appetite in the largecap deals over the past few years with a good number of them participating as cornerstone investors. Overall issuances comprising large, small and mid-cap continue to be well supported by domestic liquidity, he noted.

He expects the type of sectors that would attract local and foreign investors for IPOS are the consumer as well as the digital and technology sectors. The consumer sector is favoured for its quality of earnings and resilience, whilst the digital and technology sector is for investors looking for growth, he said.

As for the performance and outlook of the equity capital market for this year and next, he added that the optimism at the beginning of the year has now tapered, as the potential impact of surging inflation, rising interest rates, lockdowns in China and growing recession risks in developed markets gripped the capital market.

He added that the impact on earnings of companies would be more apparent in the second half of the year and could potentially see operating margins compression across a broad range of sectors.

Year-to-date (y-t-d), only four sectors (financial services, plantation, energy and construction) out of 13 sectors on Bursa Malaysia have registered positive movements, he said.

Chooi said: ”Equity deals have fallen by 47% in value compared to 2021 and IPOS contributed to 42% of the deals y-t-d. We expect more secondary placements to dominate the second half as investors and shareholders look to take advantage of any window of market opportunity.

“Last week we saw some sizeable blocks in the secondary market involving approximately Rm1.68bil,” he said.

On another note, he said y-t-d, the equity market has seen net foreign inflows of Us$1.7bil (Rm7.8bil). If this momentum continues, we could potentially see a year of net foreign inflow, reversing the net outflows since 2018, Chooi said.

He said the Malaysian equity market still offered pockets of attraction, especially sectors with strong fundamentals such as banking, technology and consumer.

“Companies that are able to demonstrate resilience and visibility in earnings during this challenging period are expected to draw the attention of investors, especially in our market that is awash with liquidity.

“We have seen this in some of the IPOS that came to market recently including MR DIY Group (M) Bhd, CTOS Digital Bhd and Farm Fresh, where each had created new benchmarks in demand and valuation,” he added.

“Companies that are able to demonstrate resilience and visibility in earnings during this challenging period are expected to draw the attention of investors.”

Raymond Chooi