Are IPO stocks the way to go? June 19, 2017

To date, there have been 8 equity IPOs in 2017 as shown in the table below. All of them showed positive results if we compare the IPO prices to the first day closing price.

Does this mean that buying shares through IPO will equate to investment profits?

Are IPO stocks the way to go?
Source: SGX; Retrieved 19/6/17

I personally feel that investors should not blindly chase after IPO stocks, as they do not necessarily equate to profits. Instead, investors should consider factors such as the fundamentals of the company, the nature of business, the reasons and purpose of IPO, as well as growth drivers for the company before making their investment decision. Investors should note that, unlike in recent cases, there have been IPO counters that have opened and traded below their IPO price in the past, and took a while for them to reach their IPO price, if ever.

In the cases of IPO stocks trading higher on the first day, it indirectly shows that investors feel these stocks were undervalued and hence were willing to buy the shares at higher than IPO prices. All of the 8 IPO stocks in 2017 so far were also oversubscribed during the subscription period. This could also indicate that investors may have faith in IPO stocks, as it reflects that demand is higher than supply. The degree of oversubscription of the IPO stocks might also provide some indication to market sentiments and interest in the new listings.

In my opinion, investors can consider the following factors before investing into new IPO stocks:

1) The degree and reason for oversubscription

These would indicate public interest, and the supply and demand gap. For example over the past 2 weeks in which 3 counters had their IPO. Sanli was 12.8X oversubscribed, World Class Global was 2.1X oversubscribed, while HRnet was 15X oversubscribed. However HRnet has a number of cornerstone investors, which may be the reason why it was so highly oversubscribed. Thus the oversubscription level might have some correlation with the first day price performance of these IPO stocks, where Sanli rose 66% as opposed to World Class Global’s increase of 5% when comparing IPO price to first day closing price.

2) The type of industry it is in, and the degree of competitiveness in the industry

Investors might be more interested in IPO stocks in new industries such as HRnet which is the first recruitment firm to be listed, however, there will be a lack of data for investors to compare and gauge the firm’s performance. Competition level in the industries of new IPO stocks will also affect confidence in the counter’s ability to perform.

3) The reason for the IPO

The purpose for the IPO would allow investors to understand how the proceeds from the IPO would be utilized. For example, IPO to allow for expansion using the proceeds for asset acquisition or new projects would be more appealing to investors compared to using the proceeds to reward existing shareholders and employees. For example, HRnet’s reason for IPO is more about providing liquidity to employees rather than raising cash to acquire new business, thus it might be the reason behind the smaller price movement in the first trading day of only a 2% increase compared to its IPO price.

4) Growth potential of the company

Growth potential is related to scalability of the company and how the IPO proceeds will be utilised. The market potential for the company to expand domestically and/or internationally will affect how investors rate the short and long term growth prospects of the company. Utilization of the IPO proceeds will then give investors a clearer picture on how the management of the company is growing the company and how efficient the new fund injections will be used.

Going forward, the IPO market in Singapore remains interesting, with at least 3 counters scheduled to IPO in the near future, including Singtel’s fibre broadband unit- NetLink Trust, Malaysian online marketing Company- Shopper360, and Singapore e-commerce company- Y Ventures Group.

Should you want to know more information on the markets or what to look out for, you can speak to a Dealer at a Phillip Investor Centre near you.


These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject tIceberg Research strikes again with another Short Report o change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

About the author

Mr Siew Wei En Samuel
Equity Dealer

Mr Siew Wei En Samuel - Equity Dealer, POEMS Dealing (Toa Payoh), Phillip Securities Pte Ltd

Mr. Samuel Siew currently provides dealing services to over 10,000 trading accounts and is part of the POEMS Dealing, the core in-house dealing department of Phillip Securities Pte Ltd. Apart from his Dealing role, he also gives training seminars to further enrich his clients’ financial knowledge.

Samuel often conducts Market Outlook/ Educational/ Product seminars monthly for clients and Tertiary Institutions in both English and Chinese. He believes in value investing, and focuses on stocks with good company fundamentals, as well as dividend paying stocks. Samuel regularly provides market commentary for Lianhe Zaobao, Capital 95.8FM and 938 Live FM.

Samuel holds a Bachelor of Degree of Commerce with a Double Major in Marketing & Finance from Curtin University.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you