How to Analyse IPO Use of Proceeds: A Prospectus Guide for Beginners
Why do you need to learn the technique of studying "use of proceeds"? Investing in an Initial Public Offering (IPO) is often regarded as a "golden ticket" to reap quick profits on Bursa Malaysia. However, the reality is far different. Many new investors ("newbies") end up buying shares in companies that are "all talk and no substance" because they fail to do one fundamental thing: read the prospectus.
Within this document, which can be hundreds of pages thick, there is one chapter that is the most critical in determining where your money goes. That chapter is "Use of Proceeds" or the Utilisation of Funds.
This article will uncover in depth the technique of "use of proceeds analysis" so that you can assess whether a company is genuinely seeking funds to grow and prosper, or is merely looking for a "lifeline" to pay off bad debts.
Newbies who are still confused and wondering what an IPO stock is? Read further here: What Is an IPO or Initial Public Offering?
Introduction: What Is Use of Proceeds?
Fundamentally, Use of Proceeds is the section in an IPO prospectus that details how the company plans to spend the money it will collect from the public (investors) through the issuance of new shares.
Imagine you are lending money to a friend who wants to start a burger business. The first question you would surely ask is: "What are you going to do with this RM10,000?"
If he answers "Buy a fancy stove and open a new stall", that sounds convincing.
But if he tells you "I want to pay off my credit card debt", you would certainly back off.
That is the concept of use of proceeds analysis. It tells you the true intention of the company's management for the funds collected from investors.
Why It Matters
- Growth Indicator: It shows whether the company wants to grow (growth) or merely survive (survival).
- Valuation Determinant: Is the expensive IPO price (PE Ratio) worth it given their future plans?
- Management Transparency: The detail of fund utilisation reflects how meticulous and strategic the management is in planning the future.
Why Use of Proceeds Is a Quality Indicator for IPOs
In the world of professional investing, funds collected from an IPO should serve as "fuel" for the company's growth engine.
Stock analysts look at this section to understand the company's Equity Story.
Connection to Long-Term Strategy (CAPEX vs OPEX)
Quality companies usually allocate the majority of funds to Capital Expenditure (CAPEX). This includes building new factories, purchasing automation machinery, or opening additional branches. These are expenditures that will generate revenue in the future.
Conversely, if a large portion of the funds is used for Operating Expenditure (OPEX) or Working Capital without strong justification, it may mean the company has cash flow problems and needs investors' money merely to pay staff salaries or electricity bills.
Relationship with Risk
How funds are allocated changes the investment risk profile:
- Aggressive: 80% of funds for overseas market expansion (high profit potential, but high risk of failure as well).
- Defensive: 50% of funds to repay bank borrowings (reduces interest costs, stabilises the company, but less drastic growth).
How to Evaluate the Use of Proceeds Table (Step-by-Step)
For newbies, looking at financial tables may be intimidating. Here is a step-by-step guide to studying the use of proceeds analysis table with ease.
Step 1: Look at the Percentage Composition (%)
Typically, this table will have columns for "Amount (RM'000)" and "% of Gross Proceeds". Do not just look at the RM value; look at the percentages.
Ideal Scenario: The majority of funds (>50%) are channelled towards business expansion (Business Expansion/CAPEX).
Cautionary Scenario: If the allocation for "Repayment of Bank Borrowings" exceeds 40-50%, you need to ask why this company has so much debt.
Step 2: Assess the Fund Utilisation Timeline
Each item in the table will have a column for "Estimated Timeframe for Use".
- Short-Term (<12 months): Usually for working capital or debt repayment.
- Long-Term (24-36 months): Usually for facility construction or R&D.
Pro Tip: If a technology company raises funds but will only use them over a 36-month period for R&D, will that technology still be relevant 3 years from now? In a fast-moving sector, an overly long timeline is a risk.
Step 3: Analyse Needs vs Revenue
Is the amount requested logical? For example, if a company wants RM10 million for "Marketing" but their sales revenue is only RM5 million per year, is that marketing campaign realistic or a waste?
Step 4: Compare with Industry Peers (Peer Comparison)
- Construction Company: It is reasonable to use funds to buy heavy machinery.
- Software Company: It is not reasonable to buy land/buildings (they usually rent), but it is reasonable to use funds for R&D and talent acquisition.
If the company's use of proceeds analysis deviates far from industry norms, that certainly raises major questions.
Deep Analysis Techniques
To reach the level of analysis like institutional investors or "Smart Money", you cannot read the Use of Proceeds table in isolation. You need to perform "Cross-Referencing".
Cross-Check with "Business Overview"
Go to the Business Strategies and Future Plans section in the prospectus.
- If the company's main strategy is "Penetrating the Vietnamese market", ensure there is a specific allocation in the Use of Proceeds table for "Expansion to Vietnam".
- If there is none, it means that strategy is just empty talk or there is no concrete plan yet.
Cross-Check with "Financial Information"
Look at the Balance Sheet.
- If in the Use of Proceeds they want to repay RM20 million in bank borrowings, check the Liabilities section. What is the total current debt?
- If the total debt is RM100 million and they are only paying RM20 million, the debt burden is still high.
- However, if the debt is RM20 million and they pay it off in a "lump sum", the company will become "Zero Gearing" (debt-free), which is excellent for future net profits (because they no longer need to pay bank interest).
Check Burn Rate (For Tech/Startup Companies)
For companies that are not yet profitable (common on the ACE Market), use of proceeds analysis is about survival.
- Calculate the average monthly loss.
- Divide the "Working Capital" amount in the IPO by the monthly loss.
- This tells you how many months the company can survive with the IPO money before they need to ask for more money (Rights Issue).
Real Case Study: IPO of Wasco Greenergy Berhad (Energy Sector)
In this section, we will dissect the actual prospectus of Wasco Greenergy Berhad, a subsidiary of Wasco Berhad that was in the process of listing on the Main Market of Bursa Malaysia (at the time this article was being written).
This is a classic example of a "Growth IPO" where the company raises funds entirely for expansion, not to pay off debts.
Actual IPO Information:
- Offer Price: RM1.00 per unit
- Total Public Issue Funds: RM75.0 Million
- Prospectus Date: November 2025
Actual Use of Proceeds Table: Wasco Greenergy Berhad
Based on the official prospectus data, here is the breakdown of where that RM75 million will go:
| No. | Fund Utilisation Details | Amount (RM Million) | Percentage (%) | Category |
| 1 | Business Expansion (Energy Asset Ownership) | 38.2 | 50.9% | Growth (CAPEX) |
| 2 | Operational Facility & Equipment Upgrades | 12.5 | 16.7% | Growth (CAPEX) |
| 3 | Listing Expenses | 9.8 | 13.1% | One-off Cost |
| 4 | Operations Expansion in Indonesia | 5.5 | 7.3% | Market Expansion |
| 5 | Digitalisation & AI Infrastructure | 5.0 | 6.7% | Efficiency |
| 6 | Research & Development (R&D) | 4.0 | 5.3% | Innovation |
| 7 | Repayment of Bank Borrowings | 0.0 | 0.0% | Deleverage |
| Total | Gross Total | 75.0 | 100.0% |
(Data source: Wasco Greenergy Berhad IPO Prospectus, Nov 2025)
You can download the Wasco Greenergy Berhad Prospectus here.
Deep Dive Analysis
As an investor, this is how you should read the table above:
1. Zero Debt Repayment (The Zero-Debt Signal) Notice that the debt repayment item is ZERO (0%).
- Implied Meaning: This is very rare for a Main Market company. It indicates that the company's existing cash flow is already strong enough to sustain daily operations.
- Conclusion: 100% of investors' money is being used for the future, not to pay off past debts. This is a very bullish signal in terms of financial management.
2. Business Model Transition (The Pivot Story) Look at Item 1: RM38.2 Million (50.9%) is specifically allocated for "Asset Ownership".
- Context: Previously, Wasco Greenergy operated largely as a contractor (EPCC) — do the work, get paid once.
- New Strategy: With these funds, they want to build and own energy plants (Build-Own-Operate model). This means they will generate Recurring Income in the long term from the sale of steam/electricity. These funds are transforming the company's DNA from "Contractor" to "Plant Owner".
3. The Indonesian Market Bet A total of RM5.5 Million (7.3%) is earmarked for opening branches and operations in Indonesia.
- Risk vs Return: The Indonesian biomass market is far larger than Malaysia's. Although the allocation amount appears small (7.3%), it is a strategic move to penetrate overseas markets. If successful, the company's profit ceiling will rise dramatically in the next 3-5 years.
4. Somewhat High Listing Costs The listing cost is RM9.8 Million (13.1%).
- Analysis: Typically, listing costs are around 5% to 8%. The figure of 13.1% is considered somewhat high.
- Reasonable Explanation: This likely involves corporate restructuring costs (spin-off from parent company Wasco Berhad) and cross-border legal costs for the Indonesian structure. Although high, it is acceptable as long as it is a one-off cost.
Case Study Conclusion:
Wasco Greenergy's Use of Proceeds profile is "Aggressive Growth". This company is not playing defensively (no debt repayment).
Instead, they are using this RM75 million as "fuel" to transform their business model into an asset owner (Asset Owner) and conquer the regional market.
For beginner investors, this is an example of a prospectus that demonstrates management's confidence in the company's future.
Red Flags: Warning Signs in Use of Proceeds
As a newbie, you must recognise these "Red Flags". If you encounter them, please conduct deeper research or avoid altogether.
Offer for Sale (OFS) vs Public Issue
This is the most important concept.
- Public Issue: New shares are issued. Money goes into the company's account for business use (as in the table above).
- Offer for Sale (OFS): Existing shareholders (founders/early investors) sell their shares to you. This money goes into the founder's personal pocket, NOT the company's.
Red Flag: If the majority of the IPO is OFS and only a small portion is Public Issue. This means the founder is "fleeing" or cashing out, and the company does not receive much money to grow.
Vague Working Capital Allocation
If 50% of funds are allocated to "General Working Capital" without specifics, be cautious.
- Is it for salaries?
- Is it to pay long-overdue suppliers? Good management will specify: "Working capital for the purchase of raw materials for Project X."
Excessive Debt Repayment
If 60-70% of funds are for repaying bank borrowings, this means the IPO is merely a "bailout" scheme by the public to rescue the company from bankruptcy or having its credit facilities revoked by the bank. After the debt is paid, the company may have no remaining funds to grow.
R&D Without Track Record
The company wants to use 30% of funds for R&D on futuristic products, but the company's history only involves selling basic products. This is execution risk. There is a possibility that the funds will be exhausted and the product will not be completed.
Use of Proceeds Analysis Checklist (For Beginners)
Before you press the "Apply" button on the Mplus Global app, check this list first:
- [ ] Growth Ratio: Is more than 50% of funds allocated for expansion (CAPEX, Market Expansion)?
- [ ] Debt Ratio: Is the allocation for debt repayment less than 30%?
- [ ] Clarity: Are the fund utilisation purposes explained specifically or vaguely?
- [ ] Consistency: Is the fund utilisation aligned with the company's "Future Plans"?
- [ ] IPO Structure: Is the "Public Issue" larger than the "Offer for Sale" (OFS)?
- [ ] Timeline: Is the fund utilisation timeframe realistic given the pace of the industry?
- [ ] Listing Expenses: Are the listing costs reasonable (typically 5% to 15% of total funds)?
What Can We Conclude Here?
Analysing an IPO prospectus is not as exciting as watching a stock chart going up, but it is your first line of defence against losses.
The use of proceeds analysis technique gives you a psychological advantage.
When you know your money is being used to build a new factory (which will be completed in 2 years), you will not panic if the share price drops slightly in the first month. You are investing based on fundamentals, not speculation.
When you begin Fundamental Analysis, your mindset now is that of a Business Analyst, no longer a Technical Analysis punter.
Remember this principle: A good company uses the IPO to propel its business forward, whilst a weak company uses the IPO to plug holes and wash away past messes.
Warren Buffett once said:
If a business does well, the stock eventually follows
This means the true value of a stock is determined by business performance, not short-term market sentiment.
If a company has strong fundamentals — increasing profits, stable cash flow, good management, and a growing business model — sooner or later, its share price will reflect that strength.
Conversely, a stock that rises due to hype but is backed by a weak business usually does not last long.
Buffett reminds investors to focus on the business behind the stock, not daily price movements.
As a wise investor, your task is to distinguish between the two through the Use of Proceeds table.
Your Next Step?
If you already understand this concept, I recommend you download a recent IPO prospectus from the Bursa Malaysia website.
Go straight to the "Particulars of the IPO" or "Use of Proceeds" section and try applying the Checklist above. Does the company pass your test? Happy investing with knowledge!
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Frequently Asked Questions (FAQ)
What is Use of Proceeds in an IPO prospectus?
Use of Proceeds is the section in a prospectus that explains how the company will utilise the funds collected from investors through the IPO.
Why is Use of Proceeds important for investors?
This section reveals the company's true intention — whether the funds are being used for business growth or merely to pay off existing debts.
What are the red flags in IPO Use of Proceeds?
Red flags include a high percentage of funds for debt repayment, excessive listing costs, and vague allocations.
How do I check Use of Proceeds before applying for an IPO?
Download the prospectus from the Bursa Malaysia website and look for the "Particulars of the IPO" or "Use of Proceeds" section.
Once you have mastered evaluating Use of Proceeds, you can begin applying for IPOs that meet your investment criteria.
Open your CDS account through Register CDS Account Mplus to start applying for IPO stocks on Bursa Malaysia.
Just starting to learn about stocks? Download the Free Stock Basics Ebook to understand the fundamentals of stock investing before you begin.
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