How to Analyse IPO Use of Proceeds: A Prospectus Guide for Beginners
•By Mahersaham Team
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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?
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.
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.
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.
How funds are allocated changes the investment risk profile:
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.
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.
Each item in the table will have a column for "Estimated Timeframe for Use".
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.
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?
If the company's use of proceeds analysis deviates far from industry norms, that certainly raises major questions.
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.
Cross-Check with "Financial Information"
Look at the Balance Sheet.
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.
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:
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.
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%).
2. Business Model Transition (The Pivot Story) Look at Item 1: RM38.2 Million (50.9%) is specifically allocated for "Asset Ownership".
3. The Indonesian Market Bet A total of RM5.5 Million (7.3%) is earmarked for opening branches and operations in Indonesia.
4. Somewhat High Listing Costs The listing cost is RM9.8 Million (13.1%).
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.
As a newbie, you must recognise these "Red Flags". If you encounter them, please conduct deeper research or avoid altogether.
This is the most important concept.
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.
If 50% of funds are allocated to "General Working Capital" without specifics, be cautious.
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.
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.
Before you press the "Apply" button on the Mplus Global app, check this list first:
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!
Through the Mahersaham Pendrive, you can position yourself as a trader and investor who is one step more advanced than everyone else.
This investment knowledge can not only help you find additional sources of income for yourself and your family. Not only that, you can teach this financial knowledge to future generations.
Trust us, with the packed knowledge from this pendrive, just one look and you can already identify whether a stock is good or not, whether an investment is a scam or legitimate.
Wealth may run out, but knowledge that is practised will last forever.
Get yours before stock runs out.
Use of Proceeds is the section in a prospectus that explains how the company will utilise the funds collected from investors through the IPO.
This section reveals the company's true intention — whether the funds are being used for business growth or merely to pay off existing debts.
Red flags include a high percentage of funds for debt repayment, excessive listing costs, and vague allocations.
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.
Further reading: