It’s been a tepid year for initial public offerings (IPOs) in Singapore.
According to data from Singapore Exchange Limited (SGX: S68), or SGX, a total of just S$10 billion was raised from IPOs in its fiscal year 2020 (FY2020) ending 30 June 2020.
Interest has remained moribund thus far for FY2021, with the year-to-date amount raised equalling what was raised last year.
By comparison, FY2019 saw a total of S$20 billion raised, twice FY2020’s amount, from IPOs.
That said, there are signs that the IPO market may be warming up again.
As the recovery takes hold across the world, improved sentiment has pushed more businesses to consider tapping on capital markets to raise money.
On the REIT and business trust front, Digital Realty Trust (NYSE: DLR) is mulling a possible US$300 million IPO of 10 of its data centres.
Earlier this month, City Developments Limited (SGX: C09), or CDL, confirmed that it had applied for an IPO of its UK commercial assets, paving the way for the property giant to raise close to S$940 million.
Some IPOs may have the reputation for being overpriced due to heavy marketing and promotion.
However, here are three reasons why I think they are worth a second look.
Strong growth potential
Investors’ concerns about overpricing may be valid in some cases as the aim of the IPO is to price the shares as high as possible to raise the maximum amount of money.
However, this fact alone should not be a deterrent.
Although some companies may come to market at valuations that are traditionally considered lofty, they may possess strong growth potential for years to come.
As such, it may still be worthwhile to consider parking some money in them if you have a long-term investment horizon.
Take Nanofilm Technologies International Ltd (SGX: MZH) for instance.
The group produces proprietary materials with special surface properties and nano-engineering capabilities. Its products are used in the automotive, biomedical and consumer goods sectors, among others.
Nanofilm’s IPO price of S$2.59 priced the group’s shares at around 40 times earnings, based on its 2019’s earnings.
While this may seem expensive, the group’s growth has been impressive.
For its fiscal year 2020, revenue surged by 52.8% year on year while net profit jumped by 61.1% year on year to S$57.6 million.
The total addressable market for Nanofilm’s products is vast, estimated to be around US$455.1 billion by 2023.
Investors who invested in the company at its IPO would have doubled their investment as its shares closed at S$5.22 recently.
Opening up new sectors
IPOs also represent an avenue for investing in new sectors or industries that were previously unavailable.
The Singapore market is limited by its size and also the availability of options for intrepid investors.
Being a REIT hub, SGX tends to attract mostly REIT listings along with the listings of smaller companies.
The good news is that recent IPOs have opened up opportunities for investors to gain exposure to new sectors.
Credit Bureau Asia (SGX: TCU) provides credit and risk information to a client base of banks and financial institutions and is the first such company to be listed on the local exchange.
OTS Holdings (SGX: OTS), a manufacturer of ready-to-eat and ready-to-cook meat products, listed back in mid-June and has surged some 56% above its IPO price of S$0.23.
These two companies are examples of new segments that investors can look at when evaluating attractive investment opportunities.
Expanding the range of options
Finally, IPOs can help to expand investors’ existing range of options.
If Digital Realty Trust’s IPO comes to market, investors will have another pure-play data centre business to invest in other than the current Keppel DC REIT (SGX: AJBU).
And when CDL lists its portfolio of UK commercial assets, it will provide investors with another option other than the current Elite Commercial REIT (SGX: MXNU), which owns a portfolio of 155 commercial buildings across the UK.
Meanwhile, there are rumblings that technology companies such as Grab and Razer (SEHK: 1337) may also be heading to our sunny shores soon.
The ride-hailing and food delivery giant is mulling a secondary listing in Singapore as it awaits approval for its SPAC merger, now delayed till the fourth quarter of 2021.
Gaming giant Razer is also considering dual-listing its shares on SGX to attract new investors and boost trading liquidity.
Get Smart: Exciting times ahead
It’s interesting times ahead as a new crop of IPOs prepare to descend on Singapore.
Not only will these aspirants offer new investment opportunities, but they can also allow investors to ride on booming new trends to grow their investment portfolios.
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Disclaimer: Royston Yang owns shares of Singapore Exchange Limited and Keppel DC REIT.