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| Posted: 17 Jun 2011 06:17 PM PDT THE ACE Market and companies listed on it have been making the news of late for all the wrong reasons. News flow on the weak performance of recently-listed companies on ACE, still largely perceived as a listing avenue for tech-heavy high-growth firms, has led to intense scrutiny as well as criticism of the alternative market. However, there are many examples of companies which have used this platform to list and fared well in terms of growth and moved on to the higher league, the Main Market. Most of them are technology-based or trading/services firms. As at mid-June this year, some 23 companies have made the migration; ten are listed under the trading/services sector, nine under technology, three under industrial products and one under consumer products. The dominance of technology-based stocks is a reflection of the ACE Market itself, where more than half the companies listed are technology-based. JobStreet Among the more prominent transfers is JobStreet Corp Bhd, which was listed on the old Mesdaq Market in 2004 with venture capital backing from Walden International. The company moved to the main board in December 2007. JobStreet's chief financial officer Greg Poarch tells StarBizweek in an email reply that being a public-listed company (PLC) helped in the areas of investor relations, corporate governance, compliance and financial discipline. "Aside from providing funding that enabled us to expand regionally, Walden also helped us to instil financial discipline, corporate governance, accountability and prepare for life ahead as a PLC," he notes. Poarch adds that the listing was an important exit strategy for JobStreet's early investors to realise their investment and for new investors to participate in the company's further growth. "Some Internet business models like ours when executed well can generate high margins, high returns on equity with high free cashflow," he says. But Poarch says that Internet or tech-based businesses still need to be nurtured like any other business. "There needs to be financial discipline and cost control (for example prudent marketing spend), performance-based remuneration structure, prudent management team, re-investment into research and development (R&D) among others," he says. Another ACE Market migrant is Green Packet Bhd, a mobile broadband networking solutions provider listed on the Mesdaq Market in 2005, and which transferred in July 2007. While still a loss-making company, group managing director (MD) and chief executive officer (CEO) Puan Chan Cheong noted in a recent media briefing that losses have narrowed year-on-year with the company on-track to achieve EBITDA or earnings before interest, taxes, depreciation and amortisation break-even target by year-end. Scicom (MSC) Bhd, a contact-centre outsourcing service provider which moved to the Main Market in March last year, is another company which has done well. The company listed on the Mesdaq Market in 2005, a record year of listings when 46 companies were brought to market, has been profitable over the past five years to 2010. Scicom's chairman Krishnan Menon had said that the company expects revenue to come from the outsourcing, education and customer relationship management sectors in tandem with the company's growth strategy for the domestic and regional markets. Kellington For Kelington Group Bhd, the first company to list on the ACE Market in late 2009 and which is seeking a transfer to the Main Market, the enhanced profile from listing helped in bids for larger projects. "With our enhanced profile, we were able to bid for larger projects such as our breakthrough project with Semiconductor Manufacturing International Corp, the largest wafer fabrication foundry in China," the company's chairman cum CEO Raymond Gan says. He adds that the listing on the ACE Market has been a learning experience in managing a PLC, which is vastly different from running a privately-owned firm. "The new status requires a lot more discipline in the management to instill good corporate governance practices to shareholders. Anyway, this will definitely prepare us well for our potential graduation to the Main Market," Gan says. He adds that a transfer to the Main Market will give investors the right perception of the company's track record. Kelington has for three consecutive financial years to Dec 31, 2010 achieved an aggregate audited consolidated net profit of RM23.24mil, which fulfills the RM20mil criteria for a transfer. Besides the better market positioning, Gan says the transfer will provide the company wider access to the capital market and the financial institutions for funding purpose in the event of any mergers and acquisitions(M&A) or future business expansion plans. He says that regulators and the investment community need to be well-informed in order to be able to distinguish a good business model from a bad one. "The companies seeking listing on the ACE Market must be able to build a unique selling proposition or acquire competitive advantages to ensure their business viability. Besides that, the risks involved needs to be mitigated as well," Gan says. Grand-Flo Grand-Flo Solution Bhd group president cum MD Derrick Tan says besides the image boost, the listing enabled the company to penetrate into bigger accounts both domestically and regionally. "The proceeds generated from our listing and the funds raised from the capital market from time to time enabled us to achieve good growth through M&A activities, consistent R&D and internal organic growth," he says. Tan stresses that growing from a small to a larger and more sustainable set-up takes time with no short-cut to success even in the high-growth industries. "You've to move one step at a time, put strategies in place and get them executed one by one. Along the way, we may make some mistakes, but we learn fast, do some corrections and move one step ahead," he says. The remaining good ones MyEG Services Bhd, Notion Vtec Bhd and Daya Materials Bhd are some of the other ACE Market-listed firms which have been transferred to the Main Market. However, there are also companies that remain listed on the ACE Market which have done reasonably well. Chief among them are REDtone International Bhd and Digistar Corp Bhd, both well-known names. Privasia Technology Bhd, which took over the listing of loss-making Airocom Technology Bhd in May 2009, has posted net profits for the financial years ended Dec 31, 2009 (FY09) and FY10 of RM1.06mil and RM4.67mil respectively. Privasia's CEO Puvanesan Subenthiran says being listed has given the company, whose clients include Westports Malaysia Sdn Bhd and Pos Malaysia, the added advantage in market profiling. "The opportunity to be listed on the ACE Market of Bursa Malaysia has definitely assisted us in raising our profile among our clients, investors and stakeholders," he says. Puvanesan says the news surrounding the recent listings on the ACE Market were more exception than the rule. "I think the ACE Market has many good profitable companies. To write off the entire board due to a few bad apples is unfair to some really good and growing companies," he adds. Puvanesan believes that the success of a company is not determined by the type of shareholders it has. He thinks that venture capital-backed firms may have a slight advantage. "Privasia started off with self-funding. However it is undeniable that the venture capital-backed companies may have a slight advantage in terms of having expertise to advise them on financial aspects and industry performance," Puvanesan says. He points out that companies, whether listed on the ACE or Main Market, will have better chances of survival if they build on their core competency, focus on forward vision and have a disciplined approach to resources management. Related Stories: |
| Posted: 17 Jun 2011 06:13 PM PDT The alternative market has drawn harsh scrutiny due to some bad apples. IN an efficient stock market environment, a company's share price would generally be driven by its core fundamentals such as its financial performance and outlook, business prospects and management quality. But in reality, there's really no clean-cut equation that could perfectly explain the "buy and sell" forces that ultimately determine the movement of a company's share price. Financial markets are as much a place for investment as it is for speculation, as other factors such as sentiment and greed also come into play. Be that as it may, the recent rout of some newly-listed shares on Bursa Malaysia's ACE Market has revived concern among certain quarters of the investing public over the quality of companies going on the board and their vulnerability to speculative activities. At the centre of attention have been the performances of XOX Bhd and MClean Technologies Bhd counters. XOX fell on its debut last Friday to 52 sen, representing a discount of 35% from its initial public offer (IPO) price of 80 sen. A day before listing, the mobile virtual network operator announced it made a net loss of RM1.67mil for the quarter ended March 31, 2011. XOX continued its slide over the week, closing at 44 sen yesterday. MClean, which came to the ACE Market last month, had also failed to impress, with its share price ending yesterday's trade at 23 sen, almost half of its IPO price of 52 sen. The Singapore-based precision cleaning service provider for hard disk drives also reported a net loss for the quarter ended March 31, 2011 of RM196,000. "No doubt, such cases would somehow strengthen the perception of some parties that the relatively easier' requirement for listing on the ACE Market has opened the floodgates to some poor quality companies to go on board. But this perception may not necessarily be true all the time," an investment banker tells StarBizWeek. "And to be fair, the initial quarterly financial results should not be taken as the absolute test of the quality of a company," he adds. Volatile trade There have been seven new listings on the ACE Market so far this year, four of which have been trading at a premium to their offer prices. XOX and MClean are among the three currently trading below their IPO price. The other is industrial labels and nameplates manufacturer Ideal Jacobs (M) Corp Bhd. But what sets Ideal Jacobs apart is that it made a net profit of RM371,000 for the quarter to March 31, 2011, and this was announced five days before the company went on board on May 18. On its debut, Ideal Jacob saw its share price trade at an intra-day high of RM1.10, which was 307% above its IPO price of 27 sen, before closing at 43 sen that day and ending up at 25 sen yesterday. The perception that many ACE Market listed shares are generally more susceptible to manipulation stems from the fact that these companies have relatively smaller share base and market capitalisation. "Prices of some of these stocks can see significant movements in intra-day trading, and for no particular reason at that ... needless to say, therefore, there is a strong perception that speculative trading among these stocks is quite prevalent at times," an analyst explains, pointing to recent movements of Tricubes Bhd and Ingenuity Solutions Bhd. Loss-making Tricubes has seen significant activity in its share price and heavy trading volume since the announcement of the controversial 1Malaysia email project in April. The counter of Ingenuity Solutions last month also witnessed similar activity, triggering an unusual market activity query from Bursa Malaysia. These scenarios, however, are not unique to Malaysia. ACE Market equivalents in other parts of the world, such as Singapore Stock Exchange's Catalist and Hong Kong Stock Exchange's Growth Enterprise Market, or GEM, are also subject to such volatility while many of the companies listed on these exchanges are also trading below their IPO prices. Nevertheless, these alternative markets have been widely accepted as critical components of the capital markets in their countries. Playing its ACE ACE Market is Malaysia's version of the alternative market. It was created in August 2009 to succeed the Mesdaq Market. The latter, launched in October 1997, was targeted mainly at high-growth and technology-based companies for listings, while the improved ACE Market is open to companies of all sizes and from all industries. ACE Market generally has less stringent requirements for listing compared with that of the Main Market of Bursa. For instance, there is no minimum operating track record or profit requirement and no minimum IPO price for listings on the ACE Market. The removal of these entry barriers has made it easier for SMEs (small and medium-sized enterprises) and smallish, but fast-growing companies to tap the capital market for funds. "SMEs are the backbone of Malaysia's economy; there's certainly a need to provide a less complicated' avenue for the industry to raise capital so that they can continue to grow," says Mayban Ventures Sdn Bhd director of private equity Andrew Ho. According to SME Corp Malaysia, SMEs represent about 99% of total business establishments and account for 56% of total employment in the country. The segment's contribution to Malaysia's gross domestic product (GDP) at 31% currently is still relatively low compared to that of most other industrial and developing countries, whose SMEs typically account for 40%-60% to their GDP. But this only means that there is ample room for SMEs in Malaysia to grow. SME Corp believes that the industry would grow at 8.5% this year, superseding that of the country's official GDP growth target of 6%. "The creation of the ACE Market hence is in line with Malaysia's economic aspiration and needs; by virtue of it being an easily accessible avenue for SMEs to raise capital for expansion, it is actually helping the country to fuel its economic growth," a market observer explains. Caught in the middle Still, there are some who question whether the Malaysian venture capital industry, which is a growing alternative source of financing to many start-up and small companies in the country, could have been a better source for some ACE Market-listed companies. "Not really. A bulk of companies making their debut on the ACE Market are SMEs that have already surpassed the minimum criteria imposed by venture capitalists. Many of these companies simply do not fit into venture capitalists' profile. "So, where can they raise funds to support their expansion if we do not provide an alternative market like ACE? They are too big for venture capitalists and too small to qualify for listing on the Main Market. Without capital injection, these SMEs cannot move into the big league'," says the investment banker. Venture capitalists defend the need for the ACE Market for two main reasons to provide an additional option to exit their investments and an avenue for further fund-raising to support their existing investments. This in turn will encourage further venture capitalists' activities and investments in start-ups. As Mayban Ventures Sdn Bhd's director of private equity Andrew Ho puts it, "Venture capitalists and entrepreneurs need a vibrant ACE Market and the stock market in general, as this will promote further entrepreneurial activities through better and more efficient allocation of resources." "The existence of ACE Market is not for venture capitalists alone. It is definitely one of the options for us to exit, but not the only avenue. ACE Market in Malaysia is more for SMEs to raise funds to finance their companies' expansion," Teak Capital managing director Chok Kwee Bee says. On venture capitalist-funded companies that have graduated to public listed status, Chok says the number is still relatively small compared with the number of companies that have done it on their own. Nevertheless, she says, "When we make our investments in those companies, we obviously do our due diligence to understand the company's prospects going forward." It is often argued that listed companies that have been venture capitalist-funded tend to fare better as they have been subject to financial discipline and accountability. Companies that have been funded by venture capitalists include JobStreet Corp Bhd and REDtone International Bhd. However, analysts argue that a company's success ultimately depends largely on the entrepreneurial skills of the management, and not merely on financial discipline and accountability. "The perception that the ACE Market comprises mainly poor quality companies is not entirely justified," an investment banker argues, pointing to the encouraging number of ACE Market-listed companies migrating to the Main Market over the past few years as testament that there are many good companies on ACE. Statistics show that of the more than 150 companies listed on Bursa's alternative market since its inception, around 23 have already migrated to the Main Board after meeting certain criteria, including a proven track record of profitability. These companies include JobStreet, Green Packet Bhd, TMC Life Sciences Bhd, Perisai Petroleum Teknologi Bhd, Three-A Resources Bhd and Notion VTec Bhd. "The numbers show there have been many fundamentally-sound companies that began the public-limited-company' life at ACE-level only to keep proving themselves and graduating to the senior market'," says Minority Shareholder Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon. Needless to say, there have also been some bad apples listed on ACE, but their numbers are relatively low compared to those that have done well by migrating to the Main Market. Based on Bursa Malaysia's data, so far, eight ACE companies have been de-listed due to their consistently poor financial performances and irregularities. Cyclical nature of businesses While the success rate of ACE companies migrating to the Main Market is encouraging, many industry observers believe it would not be sensible to introduce a time frame to pressure companies to perform and migrate to a higher level. "Imposing a time frame within which they are required to migrate to the Main Market would put restrictions on them, and regulators could be seen as interfering in the companies' business planning," an industry observer says. "Such restrictions will also indirectly penalise the companies by making their shares more vulnerable to potential selldown towards the maturity period if those companies still can't meet certain requirements when in fact the time given to them is insufficient in the first place. "Some companies may take a longer gestation period; hence, they should be given enough latitute to grow at their own sustainable pace," he adds. In reference to new listings on the ACE Market, a market observer says "investors should give a longer time frame, depending on the type of business and industry that the company is in, before determining whether the company is of good quality or not." Growth companies at initial stages of their lifecycles which is usually the case for ACE Market listings tend to lack an impressive track record to boast about. Hence, it is unfair to use share prices as an absolute gauge of the quality of the companies. "Share prices are not a reflection of the quality of listed companies," a market observer says. "Investors need to recognise that there are many types of businesses that are at various stages of their lifecycles. Judge their performances based on whether these companies' businesses have grown over the years and whether their earnings have improved," he adds. To be fair, stock markets worldwide are now in the wrong cycle. Understandably, the prevailing poor sentiment would continue to put downward pressure on many shares. "Let's face it: we're not in the best of shape rising inflation, the euro debt crisis and continued uncertainties about the prospects of developed economies will continue to haunt stock markets worldwide," an analyst says. Accountability of gatekeepers Under the regulatory framework for the ACE Market, sponsors (comprising mainly investment bankers) will have to be appointed by companies seeking admission to evaluate their suitability. Essentially, these sponsors have taken the Securities Commission's (SC) role as the gatekeeper under the framework for ACE Market listings. The main role of sponsors include conducting, actively participating in and overseeing the preparation and due diligence process for the ACE companies' public documents. Also, the sponsors must maintain regular contact with the companies, including being available at all times to advise and guide the companies. A sponsor is tied to an ACE company for at least three years after listing. "Given the reputational risk attached, a sponsor would have to be more discerning in choosing which companies they are sponsoring," says a corporate observer, adding that the onus is on sponsors to ensure that good companies are listed on the ACE Market. The SC and Bursa Malaysia, as regulators of the country's capital market, stand ready to take stern action against sponsors if they were found to be negligent in carrying out their duties as the main gatekeeper. Penalties could range from merely administrative action to criminal charges. It is understood that the SC will soon introduce a "thematic-inspection" scheme, whereby the faults of sponsors will be highlighted specifically on the SC website. This method has already been deployed by the Hong Kong Stock Exchange to apply pressure on sponsors. No hidden skeleton? The pledge for ACE Market listings is clear to be a transparent process based on the principles of full disclosure. It is understood that SC and Bursa have been particularly hard on compelling potential listings to abide by those principles. A former investment banker attests to that: "Disclosure-based regime is actually harder on the regulators; while sponsors are the main gatekeepers, the regulators still play their roles in ensuring that all parties involved have disclosed all the necessary information such as potential risks and other operational issues and challenges on their documents or prospectus." It is understood that there have been cases where the SC has even called for prospectuses of several new listings to be rewritten due to "inadequate disclosure" before those prospectuses are released to the public. "ACE Market is indeed supported by a strong regulatory framework. As we see it, there is certainly no let up in this area," an analyst says, pointing to the case of Focus Point Holdings Bhd as an example. Listing of the optical product and service provider was halted at the eleventh hour in July last year and deferred to a later date. According to the SC then, the deferment was to allow the company to address certain allegations against it. To recap, prior to Focus Point's original listing date, reports came out that as at the end of 2009, 38 of the company's 64 eyecare centres were found to have been dispensing contact lenses over the counter without an optometrist or an optician qualified to prescribe or dispense them. The regulators then decided to defer the company's listing to give it time to inform the market about the impact of the new finding on its business going forward. The company subsequently announced that it had ceased the prescription and dispensing of contact lenses from outlets that did not have either an optometrist or an optician qualified to prescribe or dispense contact lenses, and got listed at the end of August last year. Anti-dumping There are also concerns over the "oversubscription" claims by new listings, which lends the impression that their shares are in high demand. Investor education is necessary in such instances, an investment banker points out, as people have understand that the "oversubscription" claim actually only refers to the portion made available to the public, and in most cases, this portion could be just a small fraction of the entire issuance. "In many of these listings, the bulk of shares being issued or offered for sale are going to parties under a private placement, whereby it isn't clear who these parties are," an analyst explains. In the case of XOX, which reported an oversubscription of 13.2 times, only 7.5 million shares out of the 46.8 million IPO shares were made available to the public. The remainder were allotted for private placement and business associates. MClean, which reported an oversubscription of more than 100 times, had only 2.7 million shares allotted to the public. The other tranche, involving 12.7 million shares, was offered for private placement and business associates. Ideal Jacobs, which saw an oversubscription of 315 times of the two million shares offered to the public, had 28 million shares offered for private placement. The analyst says that in most cases, parties under private placements of shares are not captured under the moratorium rules. MSWG's Bushon concurs, saying: "Most of the selling was done by placement investors dumping their shares on opening day. A moratorium should be considered in such instances." This phenomenon seemed akin to what hit some China-based companies listed on Bursa over the last one year. Take Multi-Sports Holdings Ltd for instance. The company's shares tanked after its debut in August 2009, falling 59% below its IPO price within a month, due mainly to the heavy selldown by its second largest shareholder, GuoLine Group Management Co Ltd, a company linked to tycoon Tan Sri Quek Leng Chan's family. GuoLine, which initially held a 15% stake in Multi-Sports, started to sell its shares in the open market 10 days after the stock's debut and ceased to be a substantial shareholder less than a month after the listing. With Bursa having put in place strict real-time surveillance, an officer reiterates, "We cannot tolerate manipulation of shares. We place great emphasis on maintaining market integrity and ensuring investor protection." "Nevertheless, we are also aware that we need to strike a balance, in that we cannot be too overly stringent, otherwise our action will stifle the capital market's growth." Buyers beware All said, spotting a company with great potential requires intensive research and due diligence. As experts argue, as long as one enters the market with one's eyes wide open and is ready to do the homework, there is always a chance that one could uncover some gems and interesting opportunities. "Stock markets are a casino tell me which market isn't? This is particularly true for emerging growth markets, so investors should know what they are investing in," an analyst says. In the case of ACE Market-listed companies, no profit track record implies uncertainty of the future performance of the company. Herein lies the risk to investors. "These growth companies are early-stage companies and investors must evaluate thoroughly whether they are able to take the risk of getting into such companies," Bushon advises. So, the decision is really in the investors' hand. "We believe all that is necessary has already been disclosed in the companies' documents. Investors should make informed decision by studying the prospectuses. "It's like betting on a particular company. Who knows the returns for taking the risk can be rewarding. As they say high risk, high return'," says a market observer. Related Stories: |
| Media awards see best entries from small budget category Posted: 17 Jun 2011 05:21 PM PDT THE Media Specialists Association (MSA), which is organising the 7th annual Malaysian Media Awards (MMA) this year, believes that some of the best and most innovative campaigns will come from entries competing for the "Small Budget (under RM100,000)" category. "We have a small budget category and (the entries for this category) are often the most innovative," MSA organising committee chairman Andy Miller told StarBizWeek on the sidelines at the one-day judging session yesterday. "(When investments are limited), it's a bit of a bonus because the ideas actually end up being more crisp, simple and good," said Miller, who is also Vizeum Malaysia chief executive officer. A record total of 335 entries were received for this year's MMA. Following the judging process, there will be a total of around 126 finalists competing in 12 different categories, Miller said. The final closing date for submissions was May 27. "All of the finalists will receive certificates," Miller said. The categories are Best Use of Television, Best Use of Newspapers, Best Use of Magazines, Best Use of Radio, Digital (online/interactive/mobile), Digital Search, Sponsorship, Out of Home Media, Point of Sale, Branded Content on TV, Small Budget (under RM100,000) excluding digital and Integrated Media Campaign. On another note, Miller said he was "overwhelmed" by the standard of entries for this year. "We have 40 judges looking at each of the entries to evaluate the solution, execution and results (of the campaign)." According to Miller, entries are judged on media strategy (40%), execution of strategy (30%) and the results received for the brands involved (30%). He also says the participating agencies are encouraged to submit videos of their work. "We encourage them to submit videos because it helps to tell a story. Also, having a video helps us to store in our library for future reference." The awards night will be held on July 1 at One World Hotel in Petaling Jaya with the theme "Black & White Glam". Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
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