Analysts: IPO market positive, Lotte Chemical Titan isolated case

PETALING JAYA: Analysts insist the local stock market is flush with liquidity despite the downsizing of Malaysia’s biggest initial public offering (IPO) this year, Lotte Chemical Titan Holding Bhd, opining that it should be viewed as a standalone case.

The IPO market is seen to remain buoyant in the second half of the year.
In fact, analysts said, there is more than sufficient liquidity in the domestic financial system and capital market for financial offerings, including IPOs.

For MIDF Amanah Investment director of corporate investment banking Sherilyn Foong, what really matters, especially in the larger offerings, are valuations and future growth prospects of companies.

She told SunBiz that the IPO pipeline for the second half of the year is seen to be better than that of last year, as more company debuts are expected compared with the same period of 2016.

Areca Capital CEO Danny Wong, meanwhile, said the market is flush with liquidity and low deposit yields, a phenomenon which should be positive for IPOs.

“It is sentiment that drives demand and supply. Moving forward, I hold my view that more IPOs will come,” he noted.

To date, more than RM3.53 billion has been raised from eight IPOs on Bursa Malaysia, in which Eco World International Bhd’s offering was the biggest, raising RM2.58 billion earlier this year.

In 2016, less than RM1 billion was raised from the 12 new listings on the local stock exchange, the lowest since the global financial crisis in 2008-2009.

Nevertheless, Wong remarked that the IPO market was slow in the first half of the year, with only three main board listings – Eco World International Bhd, Serba Dinamik Holdings Bhd and KIP Real Estate Investment Trust (KIP REIT), while the rest were on the ACE Market.

“It is slow to me as I expected a better IPO market this year. I see many investors are getting more aware of the valuation,” he said.

Of the eight companies listed in the first half, four are still trading below their IPO prices, namely glove-dipping lines manufacturer HLT Global Bhd, plantation firm Matang Bhd, KIP REIT and Eco World International.
Wong explained that the after-market performance of new IPOs depends on the company’s long-term business and earnings prospects.

“Generally investors nowadays look for more fundamental stocks, for long-term investment, typically those with generous dividend policies. I expect a similar trend for the second half of 2017, though I’d like to see more,” he said.

There are a few IPOs in the pipeline this year, but all eyes are on integrated petrochemical producer Lotte Chemical Titan, the biggest IPO since 2012. It is scheduled to be listed next Tuesday.

With the reduction in the IPO’s size by a fifth as well as a cut in the offer price from RM8 to RM6.50 per share, gross proceeds to be raised will be reduced to RM3.77 billion from RM5.92 billion. Lotte Chemical Titan is offering to buy back shares of retail and non-cornerstone bumiputra investors due to the cuts.

RHB Research Institute Sdn Bhd Malaysia research director Alexander Chia said Lotte Chemical Titan’s IPO size and share price cuts do not reflect the market, but is due to overvaluation.

“If you price an IPO at an unattractive level, then nobody is going to take it up. I think in Lotte Chemical’s case, they realised that the original pricing was not attractive for investors, so they had to re-evaluate their pricing,” he said.