Rising SGD benefits fresh IPOs of Malaysian firms down south

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THE Singapore dollar touched a multi-year high against the ringgit at RM2.6662 to S$1 last week. It has appreciated 3.7% against the Malaysian currency over a 52-week period, 6.5% over two years and 10% over a five-year period.

Malaysian companies that have just listed on the Singapore Exchange (SGX) recently would have benefited from the increase in the value of monies raised compared with companies listed on Bursa Malaysia. This benefit would be more apparent for companies that intend to expand beyond Malaysia.  

The ringgit’s bearish trend comes amid the slide in crude oil prices, which has raised concerns about Malaysian government revenue and the Malaysian government’s ability to meet its fiscal deficit target of 3% for 2015. Oil revenue makes up about 30% of total Malaysian government revenue.

With the ringgit susceptible to crude oil price movements while the Singapore dollar continues to strengthen, Malaysian companies with overseas aspirations might be spurred to list on the SGX instead of Bursa, say market observers.        

They note that three Malaysian companies have listed on the SGX’s Catalist board recently, the equivalent of Bursa’s ACE market. They are business consultancy and legal advisory firm Zico Holdings Ltd (listed Nov 11), eye specialist ISEC Healthcare Ltd (Oct 28) and glove maker UG Healthcare Ltd (Dec 8).   

While the reasons for choosing to list in Singapore are various, the fact is the monies raised there can now be employed more usefully, given the appreciation of the Singapore dollar over the last few weeks.   

In its initial public offering in October this year, ISEC Healthcare raised gross proceeds of S$19.6 million (RM52.2 million), of which S$13.8 million has been earmarked for business expansion in the Asia-Pacific region.

When the stock was listed on Oct 28, the exchange rate was RM2.5708 to S$1, which meant that S$13.8 million was equivalent to RM35.48 million. Now that the ringgit has depreciated to RM2.658 to SG$1, RM35.48 million would only be worth S$13.34 million had ISEC Healthcare listed on Bursa.    

ISEC Healthcare, which does business in Indonesia, Myanmar, Taiwan and China, said the international profile of the SGX was one reason it chose to list in Singapore.

“We did consider listing in Malaysia but listing in Singapore was a natural step for us. Half our revenue is derived from Singapore; we have a base there too. Singapore is known as the financial hub of Southeast Asia and it (listing on SGX) would give us international visibility, in line with our explicit target [of international expansion]. We will have the opportunity to engage with more foreign institutional funds [there],” ISEC Healthcare CEO Wong Jun Shyan tells The Edge.

He adds that more than 70% of the company’s revenue will eventually be derived from outside Malaysia and Singapore.

However, despite a general perception that the SGX provides companies a better international profile, higher valuations are more likely on Bursa.

A banker says that companies could reap higher valuations on Bursa because local institutional funds, especially government-linked funds, are mandated to invest mostly in local equities. This has often been given as the reason for Malaysia’s stock market premium compared with its neighbouring countries.

For example, Seremban-based glove maker UG Healthcare Ltd recently listed on the SGX Catalist board. UG Healthcare, with a market capitalisation of S$45.13 million, commands a price-earnings (PE) ratio of 7.8 times, based on its net profit of S$4.9 million for the financial year ended 2014.

This valuation is deemed low compared with the broad-based FTSE Bursa Malaysia Emas Index’s PE ratio of 15.5 times, as well as that of the rubber glove companies listed on Bursa that range between 12.8 times and 24.78 times.

However, the rubber glove players listed on Bursa are much larger than UG Healthcare, which explains their premium valuation.

The smallest rubber glove producer on Bursa, by market capitalisation, is Supermax Corp Bhd, which is valued at RM1.35 billion, and which posted a net profit of RM119.7 million for FY2013.     

By comparison, ISEC Healthcare is doing fairly well with its Singapore listing. The eye specialist commands a handsome PE of 28.2 times, with a market capitalisation of S$106.4 million.

Perhaps due to its potential for explosive growth from a low base, ISEC’s valuation is also higher than its Singapore peers, such as Cordlife Group Ltd and Healthway Medical Corp Ltd.   

Zico Holdings on the other hand, is seen as the first of its kind to list on the SGX. There are no comparable companies to it either on the SGX or Bursa.

Zico Holdings, which reports its financials in ringgit, commands a historical PE ratio of 27.8 times, based on its FY2013 earnings of S$4.36 million (at an exchange rate of RM2.65 to US$1) and a market cap of S$121.5 million.  

A market observer says Zico Holdings could yet see more benefits from listing in Singapore, given its plans to broaden its consultancy and advisory business in the region.

Interestingly, Zico Holdings did not have a public issue, but instead offered its shares to specific high-profile investors such as Tan Sri Azman Yahya and Datuk Seri Nazir Razak.

This article first appeared in The Edge Malaysia Weekly, on December 15 - 21, 2014.