IPO Prospectus for Beginners: What New Malaysian Investors Must Know
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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What is an IPO Prospectus?: Investing in an Initial Public Offering (IPO) is often a hot topic amongst retail investors on Bursa Malaysia.
When a company announces its listing, there is often a phenomenon where investors scramble to apply for the shares, hoping the price will surge on the first day of trading.
However, behind the excitement and market hype, there is one critical document that is frequently overlooked or glossed over by new investors: the IPO Prospectus.
Buying IPO shares without reading the prospectus is like buying a second-hand car without inspecting its engine first.
You might be lucky and the car runs perfectly, or you might suffer major losses when the engine breaks down in the middle of the road.
In the investment world, the prospectus is that "engine manual". It is a roadmap that tells you where the company wants to go, where it came from, and what obstacles it might face.
This article, "Introduction to IPO Prospectus Malaysia", is specifically designed as a comprehensive guide to help you understand this thick document.
We will dissect the prospectus structure, understand how to read critical sections, and avoid common mistakes often made by beginners.
For beginners who are still unclear about what an IPO is, you can refer to our previous article here: What Is an IPO or Initial Public Offering?
Before we go further, we need to understand the basic definition of this document in the context of the Malaysian capital market.
In brief, an IPO prospectus is an official legal document issued by a company that wishes to offer securities (shares) to the public.
It is not merely a marketing brochure or an attractive company profile. It is a disclosure document that must be prepared in accordance with the law.
Its primary function is to provide complete, honest, and transparent information about the company to potential investors. This enables investors to make informed decisions.
In the prospectus, the company must disclose everything -- from the profits generated, debts incurred, who the true owners are, right down to the risks that could cause the company to go bankrupt.
In Malaysia, the issuance of prospectuses is strictly regulated under the Capital Markets and Services Act 2007 (CMSA).
Before a prospectus can be distributed to the public, it must be registered with the Securities Commission Malaysia (SC).
Many new investors mistakenly assume that when the SC approves or registers a prospectus, it means the SC has confirmed that the share is "good" or "safe". This is a misconception.
The SC's role is to ensure that the company has complied with the prescribed standards for information disclosure and corporate governance.
The SC ensures the company does not conceal material facts. However, the SC does not assess whether the investment will be profitable or not.
Evaluating the profit potential is your responsibility as an investor.
You can download and read the Prospectus Exposure -- RESOURCES on the official SC website.
The prospectus is a mandatory requirement for listing on Bursa Malaysia, whether on the Main Market or ACE Market.
For the LEAP Market, a similar document known as the Information Memorandum is used, but for public retail investors, the prospectus is the document you will encounter on Bursa Malaysia's website or through investment banks.
Without an approved prospectus, no IPO can be conducted.
You can download the official prospectus of soon-to-be-listed companies for free here: IPO Summary
Why should you go through the trouble of reading a document that sometimes runs into hundreds of pages? The answer is simple: Capital Protection.
Out there, you might hear rumours or analysis from "stock gurus" on social media. Such information may be biased or inaccurate.
The prospectus is the only source of official and legally accountable information.
If the company's directors provide false information in the prospectus, they can be prosecuted in court. Therefore, the information within it is the most reliable compared to third-party sources.
Every investment carries risk. The prospectus allows you to weigh the risks you will face against the potential returns.
Is the company worth its price? Is the price expensive (overvalued) or cheap (undervalued)?
The answers lie in the financial statements and business strategies presented.
The prospectus reveals who is steering the company. You can examine the background of the Board of Directors and Key Management. Do they have a good track record? Are there conflicts of interest (for example, the company renting a building from the CEO's spouse at an inflated price)? This transparency is important to ensure you are not investing in a company managed unethically.
For this beginner IPO guide, understanding the document structure is the first step. Although each prospectus may have a slightly different arrangement depending on the investment bank that prepares it, the majority of prospectuses in Malaysia follow the standard format set by the SC Equity Guidelines. Here are the key segments you must know:
Usually located at the beginning, this is the "Executive Summary". It encompasses the entire key content of the prospectus in 5 to 10 pages. For investors wanting a quick overview, this is the first section to read. It contains a summary of the business, finances, and use of proceeds.
This page lists technical information: Registered office address, company secretary's name, the investment bank managing the IPO (Principal Adviser), auditors, and lawyers. Although it appears mundane, it confirms the company's legitimacy.
Here the company tells its origin story. How long have they been operating? How did they start? A long track record usually instils greater confidence compared to a company that has only been established for a year or two.
This is the "heart" of the prospectus. It answers the question: How does the company make money? Here you will find:
The company will break down their revenue by segment (e.g., manufacturing vs distribution) and geography. The growth strategy (Future Plans) section describes what they will do in the next 2-3 years. Will they open a new factory? Enter another country's market? Or launch new products?
This section is packed with numbers. It presents Audited Financial Statements for the past 3 to 4 years. You need to look at:
This is the most "frightening" but most important section. The company must list all possibilities that could cause the business to fail. Examples of risks include dependence on a single major customer, raw material price fluctuations, changes in government policy, or foreign currency risks.
Who were the company's owners before the IPO? And how much of their shareholding remains after the IPO? You can see whether the original owners are "cashing out" a large portion of their holdings or still holding a majority stake (skin in the game).
This is a critical section. What will the money collected from public investors be used for? Generally, it is divided into three categories:
This section explains how many shares are being offered, the price per unit, and the allocation for retail investors (Malaysian Public), institutional investors, and directors/employees (Pink Form).
Does the company plan to pay dividends? Some companies set a dividend policy (e.g., 30% of net profit will be distributed), whilst some companies (especially high-growth companies) may not promise any dividends in order to reinvest profits.
This is an independent report prepared by a market research firm (such as Frost & Sullivan, Smith Zander, etc.). It provides data on industry size, competitors, and industry growth projections. This helps investors understand how to read an IPO prospectus from a macroeconomic perspective.
Complete profiles of board members and senior management. You can review their academic qualifications, work experience, and tenure of service in the company.
Is the company being sued? Or is the company suing another party? Any ongoing court cases that could have a material impact on the company's finances will be disclosed here.
Shows the total number of shares issued before and after the IPO. This is important for calculating the company's Market Capitalisation.
Although rarely stated explicitly as "Our P/E Ratio is 15x", you can calculate it using the Earnings Per Share (EPS) data and IPO offer price provided.
Having the structure in hand is one thing, but knowing how to analyse it is a different skill altogether. Here is a step-by-step approach to dissecting a prospectus:
Read the "Business Overview" section. Ask yourself:
Go to the "Financial Information" section.
This is a signal of management's intent.
Do not skip this section. Look for risks specific to the company, not general risks (such as global economic risks).
Use the basic Price-to-Earnings Ratio (P/E Ratio) formula.
P/E = IPO Share Price / Earnings Per Share (EPS)
Compare the IPO's P/E with the industry average or competitors already listed on Bursa Malaysia.
To understand a Bursa Malaysia prospectus more clearly, let us examine a few case studies from companies that have been successfully listed. (Note: These are historical reviews based on their prospectuses at the time of launch, not current buy/sell recommendations).
When MR D.I.Y. launched their prospectus, one of the key strengths highlighted in the "Business Overview" was their massive operational scale and highly recognised brand.
Farm Fresh is a classic example of a company with a "Grass-to-Glass" business model.
As a credit reporting agency, the CTOS prospectus was very unique.
Many new investors end up with losses or disappointment because they make simple mistakes when examining this document.
Investors often only read the "Growth" and "Profit" sections, then become overly optimistic. They fail to see risks such as dependence on a government licence that needs to be renewed every year. If the licence is not renewed, the business ends. The risk section is your "reality check".
Sometimes, companies present "Pro Forma" financial statements (adjusted with certain assumptions) that may look more attractive than the actual "Audited" statements. Investors need to be astute in distinguishing actual figures from simulated figures.
Just because you recognise the brand does not mean the stock is good. There are companies with impressive brands but bleeding financial statements (losses) or excessively high debt burdens. The prospectus reveals the true financial health behind a popular brand.
Seeing a company repay bank debts using IPO funds is often viewed as entirely negative. This is not necessarily true. If the company pays off debt to reduce interest costs (interest saving) and improve the balance sheet so it can borrow again for future projects, it could be a wise move. Context matters.
Understanding how to read an IPO prospectus is not an enjoyable process like watching a stock chart go green.
It demands time, focus, and a bit of mental sharpness. However, the prospectus is your only line of defence against making blind investment decisions.
As a new investor, do not follow the crowd or friends who invite you to buy an IPO simply because "it will definitely profit".
The history of the Malaysian stock market has proven that not all IPOs deliver positive returns.
There are those that fall below the offer price (IPO price) on the first day of listing due to weak fundamentals that were actually already clearly displayed in the prospectus.
Make it a habit to download the prospectus from the Bursa Malaysia website. Start by reading the Prospectus Summary, understand the Business Model, check the Risks, and scrutinise the Use of Proceeds.
By doing so, you will not only become a wiser investor, but also an investor who sleeps more soundly knowing where your money is placed.
The best investment is an investment in knowledge. The prospectus is a free textbook provided by the company for you -- so make the effort to read it.
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An IPO prospectus is an official document that must be published by a company before listing on Bursa Malaysia. It contains comprehensive information about the business, financials, risks, and use of proceeds collected from investors.
IPO prospectuses can be downloaded free of charge from the official Bursa Malaysia and Securities Commission Malaysia websites before the application closing date.
The most important sections include the Prospectus Summary, Business Model, Risk Factors, and Use of Proceeds. These sections provide a clear picture of whether an IPO company is worth investing in.
IPOs can fall below the offer price due to weak fundamentals, which are actually already displayed in the prospectus. This is why it is important to read the prospectus before applying for an IPO.
After understanding how to read a prospectus, the next step is to prepare an account to apply for IPOs.
Open your CDS account via Register CDS Account with Mplus to start applying for IPO shares on Bursa Malaysia.
New to investing? Download the Free Stock Basics Ebook to understand the fundamentals of stock investing before you begin.
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