Amidst the political uncertainties in Malaysia, this is a great time for the Malaysian investors to invest in IPOs in Malaysia. This year, in 2019, there are a lot of IPOs in the pipeline which the investors in Malaysia can invest in even after the shock that came in the form of election results last year. The IPOs which are in the pipeline are better in terms of size and also much more in numbers than the previous year.

According to Datuk Muhamad Umar Swift who is the CEO Bursa Malaysia BHD, there has been already 2 IPOs in the ACE Market and 3 IPOs in the LEAP Market. Thirteen more IPOs are in the pipeline and they are approved. The two biggest IPOs this year would be QSR and Leong Hup International BHD according to Umar. For the QSR brand is seeking for a price-earnings ratio of thirty times while the latter one is looking for twenty times PE ratio.

The fast-food restaurant chain business QSR is aiming for about $488 million of capital arrangement from their IPO while the poultry business – Leong Hup International is targeting a $600 million.

As per Robert Huray, the CEO of RHB Investment Bank, with the calming down of political disturbance in the country, it can be expected to see a lot more IPO listing this year. He expects that there will be large IPOs in multiple numbers to get listed in 2019.

At the end of the 2018 and beginning of 2019, the market sentiment improved which has been proved by the 38% rise in the DPI Holdings Bhd on January 7th and its IPO was oversubscribed by twenty-three times. Another IPO in the beginning months of this year which had a great response was Gagasan Nadi’s IPO which was 20 times over subscribed. All this raise the DPI by 30% on the consecutive days.

Bursa IPO Performance History

Bursa IPO Performance in the last few years has been very sporadic. Since the year 2012, the market had seen a few IPO listing with the Felda Global Ventures Holdings IPO of $3.1 billion and then there was IHH Healthcare IPO of $2 billion. Astro Malaysia also raised $1.5 billion but the numbers were few and also large IPO were rare. In 2017, there were a total of 12 IPO listing with the highest of 3.77 billion ringgit or $877.15 million IPO of Lotte Chemical Titan Holding on Bursa Malaysia. The total worth of the 12 listings in the year 2017 was 7.2 billion ringgit which was close to $1.8 billion.

In the year 2018, the highest IPO was of MI Equipment which is an engineering firm producing semi-conductors raised $48 million in the month of May and the IPO was oversubscribed but only by 1.16 times. However, in the last twenty years, 2018 saw the lowest IPO offerings and investment ever with just $170 million.

At the beginning of this year, Leong Hup International offered $250 million IPO out of its $600 million targets. Leong Hupipo Bursa Malaysia is the biggest IPO in the last 2-3 years which was oversubscribed as well by 20 times as mentioned above. This IPO paved the way for the investors to invest in IPOs of their country and also showed the investors response to the IPOs. This also helped in understanding the fact that investors are hungry for IPO and that gives SMEs the confidence to come up with IPOs in this year and in the upcoming year.

Development of IPO in Malaysia

To begin with the IPO Process in Malaysia, first lets us understand what an IPO is. IPO or Initial Public Offering is a process where a company which was earlier not listed on Bursa offers their shares to the public for buying. The public buys the share and the company gets money for the same and this way they raise the capital for their business and its expansion. IPO is the first time when a company’s share gets listed on a stock exchange. Now let’s see the different steps involved in making of an IPO.

1. Investment Bank Selection-

The company which wants to go for an IPO first needs to hire an Investment Bank that will guide them about the IPO and provide the necessary underwriting services. To select an IB, the criteria that the company must check are:

  • The reputation of the Investment Bank in the country.
  • The amount and quality of research the IB can offer to the company prior to the IPO to understand the investor’s sentiments and anticipate the results of the IPO
  • The IB must have spent good long years in the industry and experience in underwriting  services.
  • The network of the Investment Bank or Distribution that is how many institutional or  retail investors the bank can bring to invest in the IPO of the company.
  • Finally, the company’s relation with the Investment Bank also provides a ground for the  decision.

2. Regulatory Filing and Due Diligence-

Once the Investment Bank is finalized for the IPO, the next step is the underwriting process. The underwriting process is similar to brokerage services but on a large scale, where the IB is the connecting link between the company and the investors who want to invest in the IPO. The IPO Malaysia Requirement includes regulatory filing and due diligence as follows:

  • IB’s commitment to undertake the whole IPO and sell it to the investors and if shares are left unsold, then the firm has to buy those shares.
  • It can be a “Best Effort Agreement” where both the party decides that the IB is not guaranteeing any specified amount of sale of shares. The IB will just work for the selling process without any commitment in terms of numbers of shares sold or amount of capital raised.
  • The IPO can be managed by an individual underwriter or by a team of underwriters (syndicate of underwriters). In this second case, the IPO is managed by multiple IB where one IB is selected as the head of the process. This is mainly done to diversify the risk in the part of the IB of underwriting any IPO.
The following letters and documents need to be drafted by the underwriter:
  • Engagement Letter.
  • Letter of Intent.
  • Underwriting Agreement.
  • Registration Statement.
  • Prospectus.
  • Private Filings.
  • Red Herring Document.

3. Fixation of the Price of the IPO-

Once the IPO approved by the Securities Commission of Malaysia, the date of IPO and the price of the IPO is decided by the firm and the Investment bank. One day prior to the IPO date, the price for the IPO is announced and also the number of shares that will be offered for sale. The price of the IPO depends on the company’s business intents or goals, the market condition at the time of IPO and anticipation of success and failure of the IPO. Often the IPOs are priced at a lower rate to make sure the whole IPO is subscribed or even oversubscribed. It also pays for the risk the investors takes by investing in IPO. If the IPO is under-priced, then the value is expected to increase on the date of offer when it goes on the floor and thus the investors can gain from the same.

4. Stabilization by Investment Bank post IPO-

For a small period of time, the investment bank has the liberty to manipulate the share price and to stabilize the market for the IPO offering.

5. Going for the Market Competition-

As per the Securities Commission, the first 25 days after the IPO is the time when the investors need to abide by the prospectus and the disclosures made by the company and the IB and after that, the price is driven by the market itself.

Finding a Good IPO in Malaysia

There are five essential steps to find a good IPO Malaysia

1. Company Analysis-

The first step involves company analysis. This is the fundamental thing an investor must not skip ever. When a company comes up with an IPO, their underwriter issues a Red Herring. This is a document which contains the past financials of the company along with the future predictions and the goals. The investors need to analyze each of the financial statements and also cross check the details to be assured and after making provisions for the risks involved, the decision must be taken.

2. Management’s Stake-

It is believed that if the management stake in the company’s IPO is large then the management believes in the company’s operations and future forecasts. Company management must have at least 20% of the stake and the higher the better. You need to check how and what number of shares are hold by the top management of the firm and then decide your investment in the IPO.

3. Check the purpose for IPO-

The IPO is done for raising capital and the capital is raised for certain purpose of the business. Before investing in an IPO, you need to know that purpose. If the capital is being raised for the expansion of the business or for its diversification, then it can be a good investment opportunity for you as the company is welcoming growth. However, if you see the company is raising capital for paying off its past dues, then there is no scope for growth using the money raised in IPO.

4. Over-subscription Hype-

Often you must have noticed that IPOs are oversubscribed and there is much hype around the same. If not always but there are few instances when these over subscriptions are planned. Yes, the company can involve private banks, family members and other private investors to oversubscribe their IPO to increase the price of the share. In this case, there is a probability that you lose money if you invest in the IPO. So, before investing you must scrutinize whether the over subscription is for real or not.

5. Peer Valuation-

The best way to gauge the value of an IPO is to do a peer valuation. The peer valuation is the process where you compare the share price of an IPO with the share price of its peer company which is already in the secondary market and trading. This gives a clear idea, where the IPO is under-priced or overpriced. For comparison, you must take into account the book value ratio of both the firms, operating margins of both the companies. If the company has great fundamentals then comparing the IPO cost with the company’s history of earnings and future earnings projections can give you an accurate result.

Risk of IPO investment In Malaysia

Though investing in IPO is a lucrative opportunity for the investors but there are certain risks involved in the same. The risks which are there in an IPO investment are:
  • There is limited information about the company’s stock and its price. Since the share is listed for the first time, there cannot be any price chart of the previous years. This makes the predictions difficult for investors.
  • These are new companies with less reliability with new management and budding managers and executives.
  • IPOs are mostly offered to institutional investors rather than retail investors. This gives less scope for the individual investors to invest in the IPOs.


With the market making space for the upcoming IPO in Malaysia, it is time for the investors to gear up and prepare well in advance for investing in those IPOs. This year already with so many IPOs in the pipeline and more coming up will also help the market to rise and investors will be able to earn profit. While investing in IPO, make sure that you analise all the details about the company and its shares and pricing and also make provision for the risk factors to make your investment full proof.
This guideline is a general guideline prepared by the Multi Management Future Solutions Malaysia team without any personal shareholdings in the above-mentioned companies.

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