People are often excited with new things because some of them believe that these things will bring better opportunities, makes them feel good or even might work better than the old ones (our brains are made to be attracted this way via substantia nigra/ventral segmental area or the midbrain’s novel stimuli). For example, most girls are very excited when there is a new make-up line coming and make-up lovers including bloggers start to hype the new products because they think that this will be much better as compared to the previous ones. However, the company who owns these products wouldn’t actually know the real ROI of the new line unless it’s officially released. In the stock market, we don’t need a new make-up line to be out to make the investors excited even before the actual launching, announcing an “IPO” months or even years before the target date often do the trick to the retail investors and traders.
What is an “IPO”?
Initial Public Offering or commonly known as IPO (stock market launch) is a process wherein a private company sells or offers new shares to the public for the first time a.k.a. “going public.” These IPOs are often issued to expand by either smaller, younger companies or by a large privately owned companies who are seeking to become publicly traded.
Instead of going out and getting a loan from banks, companies decide to issue stocks for different reasons such as the following:
1. Raising money for capital expenditure like company expansion, diversification, etc
2. Fund research and developments
3. Pay off existing company debts
4. Build up credibility as being a publicly traded company can be considered as a major achievement and statement and to gain the benefit of getting listed
5. Exit route for existing investors (promoters or strategic investor)
6. Liquidity to existing shareholders
A company should make a solid foundation first before the IPO because not all private companies are qualified for an IPO. In addition, the company must need to prove that their company is profitable enough before they can qualify for it.
What are the IPO advantages and disadvantages for a company?
Advantages
1. Financial benefit
2. Public awareness
3. Exit strategy for founding individuals
Disadvantages
1. Legalities, accounting, and marketing costs to comply with regulatory requirements
2. Ongoing requirement for a company to disclose any financial and business information to the public
3. Time, effort and attention to details required from the senior management and stakeholders
4. Added pressure to target and get the short-term results
Choosing an IPO stock is just like choosing your friends – you have to pick the right ones if you want long-term success. But why do you need to which one would work best? Because IPO is also risky just like other investments, the market is unpredictable, and you don’t know when the stock prices will rise or fall.
Should you buy it?
Buying shares from an IPO would require a lot of courage, insights, and time to review and decide which company suits you best depending on your risk appetite and the possibilities of the performance of the IPO stocks that you will choose as there are some that are will underperform in the market. For retail traders, it is quite challenging to buy IPO shares as we likely have to wait until the public offering is complete and the share of stock is available to purchase from online brokerage companies. Mostly, large institutions are ones who are able to get it because of their ability to purchase huge amount of shares in no time.
These are the companies reported to be keen on going public in PSE this year 2019:
1. Del Monte Pacific Ltd
Del Monte Philippines (owned by Campos family) – one of the major food players in the country with its products consisting of canned fruits, drinks, sauce, and condiments. Last 2018, Del Monte planned to sell P587.437 million secondary shares at P29.88 per share but the plan was cancelled due to the volatility of the market last year and the IPO was scheduled to push through this year, 2019. The money that they will accumulate from IPO will be used to partially prepay or repay loans amounting to P6.8 billions, other payables at P3.54 billion and another proceed will be for its refinancing needs of P6 billion.
2. Cal – Comp Technology (Philippines)
Cal – Comp Technology, a consumer electronics manufacturing giant is a subsidiary of New Kinpo Group (NKG) which is the largest Taiwanese investor in the Philippines. The company is planning to sell P378 million shares with an over-allotment option up to P19.8 million shares at P17.00 each. The funds will be used in financing new equipment and strengthening the company’s presence in the Philippines. The IPO is expected on the second half of 2019.
3. Fruitas Holdings Inc. (FHI)
Fruitas is one of the leading food cart businesses in the Philippine market. Fruitas’ first kiosk was opened in SM Manila and eventually expanded its company by opening branches in different places and is now considered as the fastest growing food cart business in the country. The business carries several brands such as Fruitas Fresh from Babot’s Farm, Buko Ni Fruitas, Fruitas Ice Candy, De Original Jamaican Pattie and Juice Bar, Juice Avenue, The Mango Farm, Buko Loco, John Lemon, Black Pearl, Shou, Friends Fries, and Halo-Halo Islands. The company is planning to push through with their P2 billion initial public offering to support its plan of expanding its stores annually.
4. Philippines AirAsia Inc.
Philippines AirAsia Inc. is a low-cost airline based at Ninoy Aquino International Airport (NAIA). The company postponed its planned IPO last 2018 due to unfavourable market conditions. The airline is planning to gather $250 million in IPO to use for its expansion.
Summary
Investing in the IPO shares can be risky because there are some instances where the prices of the stocks could go higher than the expected target IPO price or sometimes, fall on its first day launch due to fluctuations, vulnerability, market conditions, and the company itself, and in that case, you have to do your research carefully before investing.
