The Dismal Landscape For IPOs

I need not really elaborate on the title for this posting. Even though the index hovered around 1,300 which was pretty decent considering the overall scheme of things, IPOs have had a terrible time. However, thats to be expected and the same scenario was replayed in most IPO markets.



The exception was China as it is still a domestic private investor driven market there. Many still think that they have a much lesser chance of losing money in getting "new shares". To them, existing listed shares or old names mean these shares have more capacity to fall, as they do not expect "new shares" to do likewise. They seem to have the belief that new shares mean cheap on issuance and have nowhere to go except up.

Bursa and SC have tightened listing rules somewhat, but that should not explain why many IPOs perform poorly. I can understand that the dismal performance of the China-listed footwear companies may have triggered some negativity towards IPOs as well.


Bracketed is the comparison of current share price to IPO. Subs refers to the over subscription rate for the Public portion only.

ACE

Kelington Group Berhad IPO Px: 0.53 Public: 960,000 Listed: 25/11/2009 Subs: 45x (now 0.73 +37%)

The Black Sheep - DSC Solutions Berhad IPO Px: 0.50 (1 for 1 bonus prior to listing) Public: 1.0m (2m) Subs: 69.85x Listed: 09/12/2009 (now 0.145 -42%)

Oversea Enterprise Berhad IPO Px: 0.23 Public: 12m Subs: 10.29x Listed: 01/04/2010 (now 0.185 -19%)


Main Board: Just the Public portion

Halex 6m public @ 0.78 Subs: 7x (now 0.57 -27%)

Sinaria 6m @ 0.56 Subs: 5.3x (now 0.28 -50%)

Maxis 150m Subs: 2.4x (flat)

Yoong Onn 6m @ 0.88 Subs: 21x (0.87 flat)

JCY 41m @ 1.80 Subs: 3.5x (now 1.50 -16%)

Hock Heng Stone 6m @ 0.55 Subs: 15.5x (now 0.49 -11%)

Seremban Engineering 6.5m @ 0.85 Subs: 9x (now 0.67 -21%)

Masterskill 20.5m @ 3.50 Subs: 1.45x (now 3.96 +13%)

TurboMech 6m @ 0.63 Subs: 14x (now 0.56 -11%)

Sarawak Cable 6m @ 0.70 Subs: 9.5x (now 0.80 +14%)



Obviously, it is not a matter of whether its ACE or Main Board, the performance has been dismal. I think of the lot, I have only recommended to look at Kelington, which has still held up pretty well. I did not like JCY, I did not like Masterskill, and Seremban Engineering was more because of the free shares via Success Transformers. Getting worthy mention was DSC Solutions, which I whacked as nonsensical.

I know for a fact that Bursa and SC have worked hard to get decent listings. In fact, you'd be surprised at how many failed in their IPO submissions over the past 6 months - many were rejected as having a not solid enough business model.

As you can see from above there is no correlation with the over subscription rate and their eventual performance. After a little lull, we now see a number of companies trying to get listed over the next few weeks. To get at companies with good potential, you have to do some homework. One cannot really rely too much on analyst reports as the companies are forbidden by regulations to provide much guidance or proper projections' details prior to being listed.

The table from MIH lists the companies going for IPO listing over the next few weeks. The date in the second last column represents the listing date.

Berjaya Retail Berhad	478	0.50	101.875	7.0	Main	16/08/10			AmInvestment
EA Holdings Berhad	483	0.25	58.0	2.0	ACE	20/07/10			OSK
Ivory Properties Group Berhad	491	1.00	61.069	9.3	Main	28/07/10			AmInvestment
Tatt Giap Group Berhad	495	0.58	28.76 RM10,000 ICULs	6.0 RM10,000 ICULs	Main	22/07/10			Alliance
SCC Holdings Berhad	496	0.78	11.117	2.0	ACE	03/08/10			Alliance
Focus Point Holdings Berhad	497	0.39	57.0	8.25	ACE	27/07/1

Among the upcoming listings, there is one which I think will be a superior performer among the lot. Will let out more details once listing day draws closer. The valuations are too low for the stock (which I like) and the business model should ensure a sustained buying interest for the stock. Stay tune.