Taking the first “LEAP”
■ The LEAP market is Bursa’s third market, after the Main and ACE markets.
■ Cloudaron will be the first company to list, with market cap of RM85m.
■ LEAP offers SMEs fund raising access, but limits participants to sophisticated
investors.
■ A strong share price performance by Cloudaron could attract more SMEs to list.
Bursa Malaysia’s new Leading Entrepreneur Accelerator Platform (LEAP) Market will see its first listing tomorrow, just slightly over two months after the Prime Minister launched it during Invest Malaysia KL. The LEAP Market is a new market offered by Bursa to provide SMEs with greater fund raising access and visibility via the capital market, though the market will only be accessible to sophisticated investors.
Third market in Bursa Malaysia
The LEAP market is Bursa Malaysia’s third market after the Main and ACE markets. The Main market is mainly for established companies with track records to raise funds. The ACE Market which stands for ‘Access, Certainty, Efficiency’, formerly known as MESDAQ, is an alternative sponsor-driven market designed for companies with growth potential. The ACE Market was derived together with the unification of the Main and Second Board into the Main Market of Bursa Malaysia on 3 Aug 2009.
Cloudaron to be the first listing on the market
Singapore-based IT solution provider Cloudaron Group will become the first company to list on LEAP market. The group is issuing 50m new shares, representing 6.4% of the company’s enlarged share capital, at an issue price of 11sen for a total value of RM5.5m, ahead of the listing. It plans to use the funds raised for working capital and expansion of its business to Indonesia and the Philippines. Based on its IPO price, Cloudaron will have a market cap of RM85.3m.
Profitable company that generates bulk of revenue from Singapore
Cloudaron is controlled by its managing director and chief executive officer, Ong Chang Jeh, who owns a 34.3% stake, and chairman Datuk Larry Gan Nyap Liou, who holds an 8.1% stake. For FY3/17, Cloudaron posted a net profit of S$1.72m (RM5.2m), on revenue of S$22.9m (RM69.6m). The group generates 81% of its revenue in Singapore and has an orderbook of S$4.1m as at end-Jun 2017.
The advantages of LEAP market
The LEAP market offers small and medium enterprises (SMEs) in the early growth stages a way to raise funding through the capital market due to its less stringent listing requirements compared to the Main and ACE markets. Bursa Malaysia is the single approving authority for listing, which could accelerate the processing time to raise capital and list. The market could also serve as a feeder to the ACE or Main markets.
Potential challenges facing the LEAP market
The key challenges facing the LEAP market in our view, is liquidity, as the market is restricted to sophisticated investors, such as high net worth individuals that own assets of more than RM3m or with an annual income of more than RM300,000 or a combined RM400,000 for husband and wife, and corporate bodies with net assets of more than RM10m. This will reduce the number of investors that can participate in the market.
Figure 1: Number of companies listed on the Main and ACE market
Minimal impact on KLCI
A strong share price performance by Cloudaron tomorrow could attract more SMEs to list on LEAP and liven up the Malaysian stock market. However, it is not expected to have a major impact on the market, as the LEAP market is small relative to the combined market capitalisation of all the companies listed on the main and ACE markets of RM1.83tr. Maintain KLCI target of 1,790 points (16x P/E) and our top three picks continue to be Axiata, Tenaga and Gamuda.
source: CMB Research – 3/10.201
