THE initial public offering (IPO) market appears to be gaining momentum after a four-month hiatus, following the bloodbath in the global financial markets in March.

This month alone, three companies are set to list on the local bourse — Reservoir Link Energy Bhd (July 15), Ocean Vantage Holdings Bhd (July 22) and TCS Group Holdings Bhd (July 23).

Maybank Investment Bank Bhd managing director and head of regional equity capital markets Ramesh Manimekalanandan says there has been greater interest among firms to list because of the positive market sentiment. As global markets rebounded from March lows, corporates have started considering their IPO plans.

“The market recovery is sustainable from the perspective that there has been a return to normalcy. As the equity market is pricing six to 12 months ahead, the expectation is that overall market conditions should continue to [improve],” he tells The Edge.

Another investment banker stresses, however, that the IPO momentum still depends on market conditions.

“But we may see one or two big IPOs coming in. For those that have submitted listing plans such as Mr DIY Group (M) Bhd, there is a possibility the listings will happen,” he notes.

Meanwhile, analysts foresee more listings on the ACE Market in the second half of the year, which will draw retail investors’ interest.

“Upcoming listings are all ACE Market stocks, which are not really on the radar of institutional investors. They are more to do with the retail players,” says Inter-Pacific Securities head of research Victor Wan.

Overall, he sees a growing risk appetite for IPOs, given ample market liquidity and the ongoing recovery. “Sentiment for equities is certainly elevated at this point and that also means that the pricing for IPOs will be fairly strong … It would probably be the right time for companies like Mr DIY to come in.”

JF Apex Securities Bhd head of research Lee Chung Cheng says IPOs are expected to be priced at reasonable valuations, which could attract companies from the construction, oil and gas (O&G), manufacturing and technology sectors.

There have been only seven IPOs this year, of which four were on the LEAP Market. The other three were InNature Bhd on the Main Market, as well as ACO Group Bhd and Powerwell Holdings Bhd on the ACE Market. The last listing was PolyDamic Group Bhd on March 23.

It is worth noting that ACO Group’s share price plunged 42.9% on its debut on March 18 when the equity market suffered a heavy selloff because of the onset of the Movement Control Order (MCO).

Shares in the electrical products distributor have rebounded by 55.4% since, making it the best-performing IPO so far this year.

Body Shop product distributor InNature has been the worst-performing IPO, as its share price has declined about 40% from its issue price of 64 sen. Still, its shares hit a two-month high of 41 sen last week on news that its business gained traction during the MCO.

Among the new IPOs, Reservoir Link Energy registered an oversubscription rate of 11.49 times for its public portion of 14.25 million new shares, despite the low oil prices currently and capex cuts by Petronas. It will raise RM23.42 million, based on its offer price of 41 sen a share, with RM10 million to be used to part-acquire well-testing equipment.

Another O&G services group Ocean Vantage Holdings is seeking to raise RM21.37 million through its IPO at an offer price of 26 sen a share. The Sarawak-based firm will expand its services to include underwater diving and advanced non-destructive testing and inspection services.

Eye specialist service provider Optimax Holdings Bhd is set to launch its prospectus for a public issue of 70 million new shares this Wednesday (July 15).

For TCS Group Holdings Bhd, the listing exercise is seen as timely despite the lacklustre construction sector.

Managing director Datuk Tee Chai Seng tells The Edge in an email reply: “We have been enjoying high growth in our revenue with a CAGR (compound annual growth rate) of 51.2%, from RM103.63 million in the financial year ended Dec 31, 2016 (FY2016) to RM358.42 million in FY2019. We also believe that we have priced ourselves attractively in the current market, with a PER (price-to-earnings ratio) of 5.75 times, based on our latest audited profit after tax attributable to owners of RM15.66 million for FY2019.”

The building and infrastructure construction services provider is expected to raise RM20.7 million from its IPO based on the offer price of 23 sen a share.

TCS’s outstanding order book of RM463.8 million as at April 30, 2020 will provide earnings visibility for the next two to three years. It is also tendering for 10 projects worth a total of RM2.13 million, mainly high-rise residential and landed commercial projects.

“Our growth strategies include strengthening our foothold in the building construction segment by securing more high-rise, purpose-built and institutional buildings. At the same time, we want to expand into infrastructure construction services as well,” says Tee.

He also points out that TCS will continue to improve its net profit margin, which ranged from 4.37% to 8.63% from FY2016 to FY2019.

“In the construction industry, I think a high single-digit percentage is a good level to be [at]. This is also regarded as the norm in the industry,” he adds.

Besides Mr DIY, other listings in the pipeline include Econframe Bhd, Aneka Jaringan Holdings Bhd, Teladan Setia Group Bhd, Samaiden Group Bhd, HPP Holdings Bhd and Iswarabena Group Bhd. These companies have already filed their prospectus exposure with the Securities Commission of Malaysia.

Last year, some RM2.05 billion was raised from IPOs on Bursa Malaysia, with Leong Hup International Bhd accounting for half that amount at RM1.03 billion.

In total, there were 30 IPOs last year: Four were listed on the Main Market, 15 on the LEAP Market and 11 on the ACE Market.

In contrast, only RM195.97 million has been raised from the seven listings so far this year. Still, Malaysia had the second-highest number of IPOs in Southeast Asia in 1Q2020, according to Ernst & Young (EY).

Mr DIY, touted to be one of the largest IPOs in the last three years, has not set its listing date after its prospectus exposure in January.

When contacted by The Edge, the company declined to respond to queries on its listing plan. It has been reported that the home improvement product retailer could be valued at about RM10 billion.

Mr DIY has announced plans to open 100 new outlets this year. As at Oct 31, 2019, it had 566 stores in Malaysia and four in Brunei.

Its net profit for the financial year ended Aug 31, 2019 came in at RM205.71 million on the back of RM1.47 billion in revenue.

EY states that, globally, there was a decline in IPO activity across all regions by deal numbers in 2Q2020, compared with a year ago. However, Asia-Pacific IPO activity remains stable.

In the Asean region, year-on-year IPO volume dipped 12% year to date, but there was a 72% rise in proceeds, thanks to a strong 1Q2020.