The Star Online: Business
The Star Online: Business |
- New IPOs see lacklustre demand
- Fund managers say investors should wait for selling to subside
- S&P downgrades US credit rating from AAA for 1st time in history(update)
| New IPOs see lacklustre demand Posted: 05 Aug 2011 06:50 PM PDT The last three companies to list on the Bursa Malaysia have seen their share prices trade below their listing prices. While some analysts attribute this to the weaker market sentiment globally, as investors trade cautiously on renewed concerns over a possible global economic slowdown, others say a company with strong fundamentals and business operations coupled with good shareholder backing will likely buck the overall trend to see a share price upside. OSK Research director/research head Chris Eng says investors can expect market volatility on the local bourse to continue until the end of this year but was optimistic that the local benchmark, FTSE Bursa Malaysia (FBM) KLCI, would move towards 1,680 by year-end. "We are still optimistic about the short-term prospects but feel that the focus will be on better known stocks. Looking past year-end, there is a concern over the general global economy and if a recession may take place. So we are cautious about the subsequent six months, with there being high risks of the market re-tracing its steps," he adds. Twenty-five companies have listed on Bursa Malaysia as of year-to-date, with 15 companies on the Main Market and 10 companies on the ACE Market. Based on Bursa Malaysia's IPO performance table, roughly half of the listings this year are trading below their listing prices, indicating a lacklustre demand for new IPOs. Analysts attribute the subdued interests in these stocks to several reasons, which include the type of companies that have listed as well as the volatile market conditions causing investors to focus on blue chip stocks that will ride out the volatility. When markets are volatile, investors are better off holding their positions on stocks that have an existing share price performance than betting on new companies that are just about to list. For instance, Ideal Jacobs (M) Corp Bhd shot up 307% to an intraday high of RM1.10 within its first day of trade in May before retracing its steps to end at 43 sen on its first day close. While the company's listing price was 27 sen, it has since fallen below the price and closed at 25.5 sen as of Thursday. All three companies that listed in the last two weeks Hibiscus Petroleum Bhd, Peterlabs Holdings Bhd and Prestariang Bhd closed at a discount on their first day of trade and are currently are trading below their listing prices, in line with the overall weaker market sentiment. An analyst says that special purpose acquisition company Hibiscus is the first of its kind to debut on the local bourse and as such, investors would tend to shy away from a company with no operations or income-generating business at the point of the IPO. "The reason for such a company undertaking an IPO is to raise funds to buy operating companies or businesses. While Hibiscus plans to use the proceeds to establish itself as an oil and gas exploration and production company, investors will typically opt for companies that already have a proven track record," he adds. Hibiscus, which raised RM235.17mil from its fund raising exercise before it listed on July 25, has seen its share price shed 7.2% against its listing price, ending at 58 sen on Thursday. Another concern among investors would be the potentially limited upside in share price appreciation for newer and relatively unknown stocks. Kenanga Research, in its IPO note on Prestariang issued July 26, valued the stock at RM1.07, a potential 19% gain from its IPO price of 90 sen based on targeted financial year 2011 (FY11) price to earnings ratio of 11 times with 9.7 sen earnings per share. "We think the valuation is fair, judging from its closest peer Century Software, which is currently trading at similar FY11 PER and geared towards government contracting," the report says. Century Software Holdings Bhd, a financial management software solutions provider, was one of the first few companies to list at the start of this year. At an issue and offer price of 93 sen, the stock is currently trading at 66.5 sen per share. It should be noted here that since its listing, Century Software has announced a bonus issue as of April. While some IPOs have not shined upon their debut on the local bourse, there are those that have seen significant share price appreciation. Such is the case with MSM Malaysia Holdings Bhd, the sugar-refining arm of Felda Group, which has continued to trade above its listing price of RM3.50 while Bumi Armada Bhd, which listed at RM3.03, has moved upwards. As of market close on Thursday, MSM Malaysia gained some 54.57% to RM5.41 from its listing price while Bumi Armada added 34% to RM4.06. A foreign research analyst says these companies do well on their first day of trade due to strong demand from institutional investors wanting to buy into these companies, especially if they have missed out in securing placements during the bookbuilding exercises. That naturally creates a strong demand in terms of volume traded over the first few days of these companies listing on the local bourse and with institutional investors buying in, provides a share price support for these stocks. Meanwhile, Kenanga Research associate director Chan Ken Yew says that companies in an expansion mode and looking to raise funds will likely to proceed with their listing plans. However, companies with strong fundamentals and are well-known to the investing fraternity will likely be well-received should they seek a listing over the near term, say analysts. Media reports have indicated that other impending listing include Pavilion real estate investment trust (REIT), Axis Global Islamic REIT and Gas Malaysia Sdn Bhd. It was reported that MMC Corp Bhd was keen to list Gas Malaysia this year, after securing approvals from other key shareholders, which include Petronas Gas Bhd and Shapadu Group. Gas Malaysia is the sole distributor and retailer of natural gas to non-power companies in the country which consume less than two million mmbtu per day. Aside from this, government-linked investment companies are expected to divest their stakes in government-linked companies, which will also translate to the listing of several firms on the local bourse. The Government has indicated that seven companies will be listed under the divestment programme, of which the MSM Malaysia listing in June had incorporated four of the seven listings under the programme. Market talk also has it that the government's printer Percetakan Nasional Malaysia Bhd, which is currently a wholly-owned unit under the Finance Ministry, may be listed. Full Feed Generated by Get Full RSS, sponsored by Used Car Search. |
| Fund managers say investors should wait for selling to subside Posted: 05 Aug 2011 06:49 PM PDT PETALING JAYA: Fund managers and analysts are mixed in their view on the market following a 513 point drop in the Dow Jones Industrial Average. They felt caution was still the predominant theme of the market and it would be better for investors to wait for the selling to subside. Some are worried that demand destruction from developed markets will hurt exports especially the electrical and electronics and crude palm oil (CPO). More than 20% of CPO goes to Europe. Net exports account for about 25% of gross domestic product. Hong Leong Asset Management Bhd executive director and chief executive officer Geoffrey Ng said the sell-off in the United States and the market rout in Asia which collectively erased in excess of US$1 trillion in capital value was similar to panic selling in May 2010. "The selling that is occurring now is orderly. Unlike the flash crash in May 2010 that severely shook confidence in the market itself, today's selling is met with sufficient liquidity as to not result in dramatic price falls, although a 5% retracement in a day is dramatic enough," said Ng. Two things may occur from here. Firstly, Ng said that markets could be overly pessimistic of the recently reported economic numbers from most countries which have been below expectations. This may be a possibility due to severe supply chain disruption resulting from the massive earthquake in Japan in March. "Manufacturing output was severely curtailed in the following months, with far reaching implications to manufacturing activities around the world. The lack of production activity and consumption thereafter may be blamed for the poor quarterly GDP numbers that is scaring the markets today," explained Ng. Secondly, if markets are proven right, and the global economy is decelerating faster than expected, then the risk of recession increases dramatically. This may force the governments to act again to inject liquidity into their respective monetary systems in order to keep the pace of economic activity from failing further. "In the near term, this will help stabilise markets and hopefully mend frayed consumer confidence to motivate consumption again," he said. "Yes, the sell down that we are experiencing now is unnerving." Ng said the events unfolding could be a continuation of the rebalancing of world consumption that started with the Global Financial Crisis in 2008. "Emerging economies that are rich with population, commodities, national savings and consumption ability are now refocusing their efforts toward building their own consumer base by normalising wages, improving infrastructure and moving up the value-added chain. This rebalancing is not in a straight line, and will have times of immense volatility such as recent times," he said. Meanwhile, OSK Research Head Chris Eng feels the market is in a "touch and go" situation, and he will be closely looking at how the Dow Jones closed on Friday night. "If the Dow Jones rebounds by 2% in its Friday closing, then there is still hope. If however it does not rebound, then things will start getting a little iffy. We would then downgrade Malaysia to a neutral, and suggest switching to defensive stocks," said Eng. He acknowledged that Malaysia was still a very defensive market, but however this won't prevent it from falling. "Looking into 2012, we are going into an environment of subsidies increasing and interest rate normalisating. Fundamentally, everything will be more challenging," said Eng. Another research head felt that there was not much to look forward too. "Look at the problems happening in Europe. You have four to five countries facing difficulties to raise money because their credit worthiness is suspect. So, we're going to see borrowing cost increase in an environment where interest rates are also high. Things can only get more difficult." A trader from JP Apex Securities said: "Don't buy now, as people are still in selling mode. But perhaps in one to two weeks time, things will die down. Look at the strength of the US Dollar today. It has rebounded back to RM3.01 from RM2.90 last week. This shows that people still see US as a safe haven." He added that Malaysia was not affected as there were hardly any foreigners in the market. "The Malaysian economic fundamentals are still the same and have been priced in," he said. Full Feed Generated by Get Full RSS, sponsored by Used Car Search. |
| S&P downgrades US credit rating from AAA for 1st time in history(update) Posted: 05 Aug 2011 06:08 PM PDT WASHINGTON: Credit rating agency Standard & Poor's on Friday downgraded the United States' credit rating for the first time in the history of the ratings. The credit rating agency said that it is cutting America's top AAA rating by one notch to AA-plus. The credit agency said that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation. A source familiar with the discussions said that the Obama administration feels the S&P's analysis contained "deep and fundamental flaws." S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade to AA would occur if the agency sees less reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period. S&P first put the government on notice in April that a downgrade was possible unless Congress and the administration came up with a credible long-term deficit reduction plan and avoided a default on the country's debt. After months of wrangling and negotiations with the administration, Congress passed this week a debt reduction package that averted a possible default. In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan. S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon." - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by Used Car Search. |
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