Despite market uncertainty amid the rise in local Covid-19 cases, the initial public offerings (IPOs) slated for this year are expected to be well received by the investment community.
The month of October will see five companies making their debut on Bursa Malaysia, of which one, MR DIY Group (M) Bhd, will be listed on the Main Market.
According to Rakuten Trade Research vice-president Vincent Lau, this is evident in the oversubscription rates of the public portions of IPOs to be listed this month.
“Investors will continue to favour high-yielding assets like equities given the greater liquidity and low interest rate environment.
“The reinstatement of the conditional movement control order (CMCO) in Kuala Lumpur, Putrajaya, Selangor and Sabah from October 14 until October 27 will result in more working from home arrangements — which may see more investors punting in the stock market, ” he said, adding that the impact on the economy and businesses from the CMCO will not be as severe compared to a nationwide lockdown.
Solar energy services provider Samaiden Group Bhd achieved an oversubscription rate of 65.91 times for the public issue of 61.155 million new shares at an issue price of 48 sen per share.
On the other hand, cable manufacturer for power distribution and communication Southern Cable Group Bhd’s IPO for the public portion of 40 million shares at an issue price of 34 sen apiece was oversubscribed by 10.5 times.
Lau noted that there should be another one to two more Ace Market IPOs scheduled before the year end, though it remains to be seen how soon the approvals for the prospectuses can be obtained.
Pending the relevant approvals and market conditions, these IPOs could be postponed to next year, which is expected to be a recovery year.
“Should there be a change in government, the prospects for next year remain intact as the ruling government will continue to inject stimulus packages or come up with measures that are investor friendly. As such, IPO activities should pick up next year, ” he said.
MR DIY’s listing will mark the largest in three years, as the group looks to raise a total of RM1.5bil based on an issue price of RM1.60 per share.
This implies a market capitalisation of RM10bil. The public issue will entail 188.4 million new shares.
TA Securities in a research report forecasts that MR DIY will see a decline in earnings by 18% to RM260.4mil in financial year 2020 due to the negative impact from the MCO and temporary closure of selected stores from March until May this year.
However, the group’s earnings are expected to spike 66.5% and 22.2% in FY21 and FY22 to RM433.5mil and RM529.6mil, respectively, on the back of new stores expansion.
“At IPO price of RM1.60 per share, MR DIY is priced at a trailing price-earnings ratio of 31.6 times calendar year (CY) 2019 earnings.
“We value the company at 25 times CY2021 earnings per share, arriving at a fair value of RM1.73 per share, ” said TA Securities.
As of Sept 6,2020, MR DIY has 674 stores and an estimated market share of 29%.
The group has been growing its store network at a compounded annual growth rate (CAGR) of 34.4% between 2016 to 2019, from 244 units in 2016 to 593 units in 2019, spanning across Peninsular Malaysia, East Malaysia and Brunei.
It was previously reported that MR DIY will be adding some 307 stores over the next two years across all of its different brands – MR DIY, MR Toy and MR Dollar.
Source: The Star