Aztech's IPO shows appetite for growth even as rotation into value strengthens
THE recent IPO of Aztech Global might trigger some nostalgia among long-time participants of Singapore's capital markets.
A manufacturer of smart devices such as security cameras, climate control mattresses and GPS dog collars, Aztech Global is an upgrade of a company that was first listed here in 1994 and whose fortunes reflect shifting trends and investor sentiments.
In 2006, what was then known as Aztech Systems had applied to move its listing from Singapore's secondary board to the mainboard. That year, Aztech's profit nearly doubled as the group cashed in on demand for routers and Skype-enabled digital cordless phones.
Shareholders didn't know it then, but Aztech was approaching its zenith: 2006 marked the peak for Aztech's bottom line, and in 2007 it achieved its highest market valuation before its eventual delisting in 2017.
The years 2006 and 2007 were also boom years for the Singapore Exchange (SGX), and for capital markets globally.
Data from the World Federation of Exchanges shows the total value of equity trading on the SGX in 2007 hit an all-time high of US$397.7 billion. New listings that year had a market value of US$18.8 billion, also an all-time record.
Globally, Bloomberg data shows, there were 2,516 listings in 2007 valued at US$422 billion. That number of listings was the highest since 2000, when there were 2,573 listings valued at US$275.3 billion. The value of listings in 2007 is still the largest on record.
The exuberance was wiped out in 2008, when the US sub-prime mortgage bubble burst and Lehman Brothers filed for Chapter 11 protection.
Market watchers have begun drawing parallels: 2021, they say, is looking a lot like 2008, or 2001.
In spite of the Covid-19 pandemic, last year's global new listings were valued at US$353.1 billion - the second-highest number on record.
The IPO mill is still turning. For the year to March 12, 777 new offerings have been announced with a total value of US$243.8 billion.
Jitters
At the same time, there are definite jitters. Market watchers have pointed to the recent divergence between the Dow Jones Industrial Average and both the Nasdaq Composite and Nasdaq 100 indices.
On Monday, March 8, the Dow Jones Industrial Average ended the day up nearly one per cent while the Nasdaq Composite fell 2.4 per cent. The last time the Dow gained at least 0.5 per cent and the Nasdaq lost 2 per cent was exactly 20 years ago - on March 8, 2001. Meanwhile, the Dow has diverged the most from the Nasdaq 100 since 1993.
This divergence is a signal of investors' shifting preferences: for value stocks over growth; and for old economy plays that will rise on a recovery, over tech stocks that may be approaching peak valuations.
Aztech's IPO performance is a sign of these times.
Market watchers had said the demand for the IPO was strong. The company received subscriptions for 18.4 times the number of shares available in the public portion of its offer and 16.4 times the number of shares available in its placement.
Early on its first day of trading, pent-up demand appeared to support the stock. Aztech rose as high as S$1.42, up 10.9 per cent from its IPO price of S$1.28. But it was downhill from there, with the stock ending the day just a cent up at S$1.29.
Jeffrey Halley, senior market analyst at Oanda, had suggested Aztech's IPO buyers were looking for a quick buck, and abandoned the counter when it seemed unlikely to rise further.
None of this is an indictment of Aztech, which is significantly different from the company that delisted in 2017.
When growth from tech products such as Skype phones and WiFi signal extenders failed to materialise, Aztech had branched into construction materials, property development, ship repairs and roast meats. But the diversification did no favours for the stock.
Those unrelated businesses are not in the newly listed Aztech. Instead, the company now serves the red-hot Internet of Things (IoT) market. And if projections about the IoT market are to be believed, Aztech has a significant runway for growth.
All the same, investors should remember that markets are cyclical and that each cycle bears some resemblance to the last.
