On January 26, 2024, KJTS Group Berhad hit the ground running as it launched on the ACE Market, kicking off the year's IPOs. Specializing in construction, the company quickly became the center of investor attention, securing an impressive subscription rate over 30 times higher than anticipated. On its first day of trading, the company's shares surged by 85.19%, continuing the Malaysian IPO market's hot streak into 2024.

Investors impressed by the Malaysian IPO scene might be considering a slice of the action. But before diving in, a solid grasp of the IPO landscape is crucial. This article will guide you through:

1. An overview of IPOs and their advantages.

2. The three main listing markets for IPOs in Malaysia and their entry criteria.

3. The IPO process.

4. How investors can get involved in IPOs.

1. An overview of IPOs and their advantages.

An IPO, or Initial Public Offering, is when a company offers its shares to the public for the first time through a stock exchange.

After an IPO, a company transitions from being privately owned, perhaps by just one or a few individuals, to being a publicly listed company with many shareholders. Once listed, all investors can freely trade the company's stock on the exchange. If a company lists on the Malaysian Exchange, we refer to it as a Malaysian IPO.

So, what are the benefits of an IPO?

For the company, the first benefit of going public is the ability to raise a significant amount of capital by issuing shares. This capital can be used to expand operations, develop new products, pay off debts, or for other developmental needs. At the same time, IPOs offer existing shareholders, like company insiders or early investors, the opportunity to more easily liquidate their shares. The second benefit is increased visibility and influence. As a listed company, it gains more exposure, and its products and brand receive a certain level of endorsement, potentially attracting more customers.

Because of these benefits, companies might price their stocks with a discount at the IPO. This presents a potential investment opportunity for public investors.

If the stock's price rises from the discounted IPO price to its normal value or higher post-listing, investors could profit. However, if the stock performs poorly after the listing, there's also a risk of loss.

2.The three main listing markets for IPOs in Malaysia and their entry criteria.

In Malaysia, there are three distinct market segments on the stock exchange, catering to companies of varying sizes and industries. To pursue an IPO, a company must first choose a suitable market, as each one has different listing requirements and thresholds.

The Main Market has the highest entry barriers, with specific demands for revenue, profit, and market capitalization. It also has the strictest requirements regarding the percentage of shares held by the public and Bumiputera (indigenous Malaysians). As such, only relatively large and mature companies qualify to list on the Main Market.

The ACE Market, designed for emerging businesses, has lower entry criteria. There are no specific performance or market capitalization requirements, and the rules regarding public and Bumiputera shareholding are more relaxed compared to the Main Market. Companies on the ACE Market are typically smaller but may have higher growth potential.

The LEAP Market has the least stringent requirements, imposing no conditions on performance or market capitalization and no Bumiputera shareholding mandate. The minimum public shareholding requirement is the lowest at 10%.

The specific entry barriers for each of these three markets are detailed in the following table:

3. The IPO process.

For a private company to go public through an IPO, it generally involves several key phases:

Stage 1: Preparation

The company onboards a team of pre-IPO advisors, which typically includes investment banks, accounting firms, and legal firms. These experts help the company shape its share structure for the public market, perform thorough due diligence, and get all the necessary documentation ready for the IPO.

Stage 2: Regulatory Review

Once the prep work is wrapped up, the company submits its IPO documentation to the regulatory bodies and the Malaysian Stock Exchange. This submission kicks off a review period, which can last from 8 to 24 weeks. Concurrently, the company might embark on a series of presentations to institutional investors, facilitated by the investment bank. This is when company leaders showcase the business's operations and future outlook. It's also during this phase that the initial stock price is often ballparked.

Stage 3: Share Subscription

At this point, the company rolls out its IPO Prospectus and continues to engage institutional investors to secure their commitments. The company also opens up a portion of its shares for public investors to subscribe to. This whole offer and booking period usually spans about two weeks.

Stage 4: Official Listing

If everything goes according to plan with the stock subscription, about two weeks after the offer period ends, the company can make its market debut. The listing day is marked by a ceremonial bell-ringing at the Malaysian Stock Exchange. At the stroke of 9 AM MYT (Malaysia Time), company executives and board members strike a gong as a symbolic gesture, celebrating the successful transition to a publicly listed entity.

4. How investors get involved in IPOs.

For everyday investors looking to get in on a new Malaysian stock IPO, the action happens mainly during the subscription and the actual listing stages.

Here's what investors need to know during the subscription phase to qualify for new stock purchases:

• Only Malaysian citizens aged 18 and above can take part in an IPO.

• They should not be directors, employees, or direct family members of a securities service firm.

• They need a Direct CDS account—not a Nominee account—with a broker, as IPO shares must be registered in their own name.

• They must have enough money in their bank account to buy a minimum of 100 shares.

Having qualifications doesn't mean one must invest, though. New stocks can bring surprises or disappointments upon listing, so investors should weigh the IPO's prospects carefully. Considerations include:

• The mood of the current market for new stock issues. A buoyant market can mean better chances of a stock performing well.

• The fundamentals of the stock: How well-positioned is the company in its industry? Is it growing fast? Is it making good profits? Strong fundamentals might lead to stronger IPO performance.

• The stock's valuation: Overpriced stocks might not do so well once they hit the market.

If an investor decides to subscribe, the results of who gets shares are released two days before the stock starts trading. It's important to check if you've won the allocation.

Once the stock is live, those who secured shares can decide whether to sell or hold, based on their strategy. Investors who didn't get shares—or couldn't subscribe for the IPO—can choose to buy on the open market once the company goes public. Just remember, new stocks can be quite volatile in the beginning, so it's wise to stay mindful of the risks.

Summary:

An IPO is a company's first sale of shares to the public, allowing it to raise funds and boost its brand. Investors can gain potential returns through IPOs.

IPOs target different markets, such as the Main Market, ACE Market, and LEAP Market, each with varying listing criteria. Companies choose based on their situation.

The IPO process mainly includes preparation, regulatory review, share subscription, and official listing.

Investors who qualify can subscribe during the IPO and may sell their shares post-listing.