Scrutinise the prospectus first

Business fundamentals matter more than fashionable labels and marketing pitches

“We have to make sure that every single word, numbers is verified. Every single statement is verified.”

KUCHING: IPO investors should understand what a company actually does, how it makes money and whether its finances support its growth ambitions before deciding whether to invest.

M&A Securities’ Head of Corporate Finance, Gary Ting said during an episode of ‘Beyond the Prospectus: IPO Is Not a Lottery Ticket’ by Do More and Aurum Digital said the prospectus gave retail investors the information needed to assess a company beyond labels, marketing descriptions or condensed summaries.

Ting said investors could begin with the business overview to understand the founder’s track record and how the company had developed.

“The business overview really tells you how the founder started his business. How does the founder grow the business?” he said during the podcast with Stephanie Ng, Founder of Aurum Story, and Khoo Hsu Chuang, Co-Founder and Host of Do More Media.

The company’s history and milestones, he added, could show how that development had unfolded over the years.

“As a retail investor, I want to look at this kind of thing. The history, how he built the business. What were the milestones achieved over the years,” he said.

But Ting said the business model deserved particular attention because it explained how the company operated and where its competitive strengths lay.

“The business write-up covers the business model, which is, to me, the most important, and talks about the competitive strength of the company,” he said.

Investors should also study the financial section for warning signs, including weak cash flow, and assess the future plans and business strategy to understand how management intended to use the listing as a platform for growth.

“Very weak cash flow,” Ting said, citing it as one of the red flags he would watch for as a retail investor.

He said investors therefore needed to do more reading before making a decision.

Artificial intelligence could help provide a quick snapshot, but Ting said it should not replace the prospectus, where statements and figures were subjected to verification.

“The AI can give you a snapshot of the company.

“We have to make sure that every single word, numbers is verified. Every single statement is verified.

“So obviously that is a very important document with regards to whatever, from A to Z about the company. So you ought to read it basically,” he said.

The same scrutiny applied to how advisers presented companies seeking a listing, Ting said.

“Obviously, one of our key roles is to sell the company. But we have to be mindful that we don’t oversell the company,” he said.

He pointed to artificial intelligence as an example of how a fashionable label could obscure the underlying business.

“If you are probably distributing AI tools, then you’re actually not an AI company,” he said.

Ting said M&A Securities was selective about the businesses it took on, with preference given to companies whose models and growth prospects could be readily understood.

“We, ourselves, in terms of M&A Securities, we try to be quite selective in terms of the type of company that we want to take on,” he said.

He cited Aquawalk, which owns aquariums in KLCC, Phuket and Jakarta, as an example.

“You pay the ticket, you go in and see the fishes. The KLCC is located, to me, at the hub of a tourist destination.

“So it’s bound to have traction. They’re bound to have visitors coming to basically take a look at the aquarium.

“So this kind of business that we try to bring to the market, the interesting ones,” he said.

Beyond distinctive business models, Ting said he was interested in Malaysian companies that had already established markets overseas.

“I’ll be glad if I take on a company that has international markets. Malaysian companies, they’re usually, most of it is basically domestic markets,” he said.

For established exporters, he said the IPO market could provide fresh capital to accelerate their international expansion.

“For this type of companies, I really want to take them on to go for listing, raise more capital, do more overseas sales, do more exports,” he said.

For those interested to hear more about ‘The Real Price of Going Public feat @Aurum Story | Gary Ting’, the podcast is available at https://www.youtube.com/watch?v=DGRs1HzdkxA&t=913s