WHAT COULD WE EXPECT FROM COMPANIES TO BE LISTED IN LEAP MARKET FROM EXPERIENCES OF OTHER MALAYSIAN COMPANIES THAT ARE LISTED IN SIMILAR SOPHISTICATED MARKETS IN OVERSEAS
- FACTORS THAT APPEAL TO PROMOTERS
Following from previous article, in my opinion, LEAP market is expected to have following appeals to SME promoters: –
- Increasing the ability to access into fund raising more easily, by placement block of shares to new investors to meet future requirements;
- Raising the profile of the business as customers and suppliers generally prefer to deal with a listed company;
- It is relatively cheaper cost to be listed in LEAP market;
- The rules for listing in LEAP market is lesser stringent that the existing ACE markets; and
- It provides an opportunity for early access to the capital market.
Hence, it is likely companies would have chosen to be listed in LEAP even though in appearance it may seem qualified for ACE market but do not meet the more stringent rules of ACE. Such companies, may not qualify for ACE market due to unable to meet the size and profitability records and possibly LEAP market may be a consideration.
Malaysian Investors Looking Abroad Before LEAP Market
Prior to having a LEAP market, some SME companies in Malaysia have resorted to explore listing abroad in similar type of exchanges in overseas, specifically targeted to sophisticated investors that are prepared to take more investment risks.
In 2016, there were two Malaysian companies that were listed in London, AIM and ISDX markets.
A. Green & Smart Holding Plc (GSH)
GSH is involved in the building of gas plants at palm oil mills and capture the gas emitted from the palm oil mills, (i.e. methane) and use the gas to generate electricity and sell to Tenaga. GSH has working agreements with FELDA and FELCRA via GSH’s associated companies, to invest in building bio gas plants at palm oil mills owned by FELDA and FELCRA. Its role is acting as EPCC contractor in building the gas plants at palm oil mills for its associated companies.
The sales of electricity from the power generation plants is accounted in two of its associated companies of GSH whereby the equity ownership is 15% for palm oil mills owned by FELCRA and 25% for palm oil mills owned by FELDA. Besides, GSH also undertakes the commissioning of its own gas plant at the point of listing (i.e. May 2016).
B. DagangHalal Plc
DagangHalal Plc’s core business is providing the halal verification so that a consumer will know that the products bought are from a supplier that possess the halal certification bodies such as JAKIM and other Certification Bodies recognized by JAKIM.
DagangHalal Plc does not provide the halal certification but act as an intermediary to assist consumers to verify that a product has the necessary certification before making a decision to purchase. The certification is by JAKIM and halal certification bodies that has no linkage to DagangHalal Plc.
- HIGH VALUATION COMMANDED AT THE TIME OF ADMISSION IN AIM AND ISDX
From below, we can see that the promoters have managed to command a high price to book valuation in both cases and we may expect to see the same in Malaysian LEAP Market. However, investors shall be cautioned that the liquidities for both companies are extremely low.
- LOW TRADING LIQUIDITY – LESS ACTIVE MARKET
Early accessibility to capital market with high valuation commanded in both cases, may come with a sacrifice, as liquidity is low for a non-active market which is only open for sophisticated investors. This means investors need to have a longer holding period in such market. Tabulated below is the share price for both companies from listing date to present.
A ranking of the two companies that were listed in overseas market in 2016 and the aspiring potential companies to be listed in LEAP based on based on 3 characteristics. Its net assets, revenue and profit after tax prior to listing is as listed below.
If experiences learnt from both cases shall repeat in the LEAP market, we shall expect as follows: –
(a) Companies listed in LEAP may command a relatively higher valuation due to growth potential of such early businesses, but it comes with a considerable business risks as well as business is in still early growth stage
(b) Trading volume of shares is expected to be low (low liquidity)
(c) It is meant for sophisticated investors with a longer holding power, higher disposable income and better appetite for risks.
THANKS FOR READING
This article is prepared by Ong Tee Chin, CFA, FRM, and represents the view of the author. He can be contacted at email@example.com for any further enquiries on the contents of this article. The author wishes to declare that the author does not have any share ownership in any of the companies discussed prior to this and until current date.
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Chartered Financial Analyst
Global Association of Risk Professionals (GARP)