Singapore losing listings because the market has performed poorly, and valuations are low

WHEN YKGI said early this year that it would list on the Catalist board of the Singapore Exchange, I asked my newsroom colleagues if the company’s Yew Kee Duck Rice was any good.

Much to my disappointment, nobody I asked raved about it. Some people around me could not remember if they had ever tried it, while others had no strong feelings about it.

On a more positive note, I was assured by some of my colleagues that YKGI’s franchised Chicha San Chen tea shops in Singapore are quite popular.

Financial numbers matter a great deal in determining the value of a public-listed company, of course. But being relatable and exciting to investors matters too, especially when companies first come to market.

Even though YKGI has outlined plans to expand its business in Singapore and around the region, the growth potential of its duck rice outlets and franchised tea shops do not appear to have sparked much excitement among investors.

YKGI sold shares at S$0.20 apiece in conjunction with its listing in February. On Friday (Oct 13), the stock closed at S$0.115.

Concerns about the dimming future of the Singapore stock market amid a lack of exciting new listings are making headlines again.

This past week, my colleague at The Business Times reported and commented on the continuing trend of Singapore companies choosing to list in the United States.

Another colleague also examined whether investors should support the listing of livestreaming platform 17LIVE, which plans to combine itself with Vertex Technology Acquisition Corp.

Earlier this month, Minister of State for Trade and Industry Alvin Tan said in Parliament that the government has introduced measures in recent years to draw more companies to the local market.

One initiative announced in 2021 was the establishment of the Anchor Fund @ 65 by Temasek and the government, with an initial tranche of S$1.5 billion. The purpose of the fund is to support high-growth companies pursuing initial public offerings (IPOs), to anchor their listings in Singapore.

Another initiative was the “Growth IPO Fund” created by EDBI, the investment arm of the Economic Development Board.

When it was unveiled in 2021, EDBI said the fund would invest in future market leaders and technology innovators that are two to five years away from a public listing.

Tan went on to say, however, that the government will not make its support for promising companies conditional upon a listing in Singapore. Such an “overly prescriptive approach” might interfere with the ability of companies to achieve their commercial objectives – including obtaining the highest possible value for their shareholders.

Major markets losing listings

It is often pointed out that Singapore is not the only country with a waning stock market. The pace of new listings in major markets around the world over the last couple of decades has fallen behind the pace of de-listings.

Schroders said in a July research note that the number of listings on the London Stock Exchange’s main market had shrunk by nearly 60 per cent between 1996 and 2022, while listings on US exchanges had fallen 40 per cent.

The research house said more than 300 companies joined the US market on average every year between 1980 and 1999, but this subsequently dropped to only 129 companies per year.

Some researchers have attributed this decline in new listings to a change in US securities laws – specifically, the National Securities Markets Improvement Act of 1996 – that increased the supply of private capital available for startups.

The result was that startups are now remaining in private hands for longer, and achieving significantly greater operational scale than their predecessors before going public.

One study published in 2020 found US startups that were at least four years old raised US$1.3 billion in 1995; but this swelled to S$33 billion in 2015 – with much of this capital coming from non-traditional startup investors such as private equity funds, mutual funds and hedge funds.

The study also found that 26 per cent of US startups that raised their first round of financing in 2006 were still private 10 years later. Only 11 per cent of startups that raised their first round of funding in 1992 were still private after 10 years.

Then, there is the disappointing recent performance of prominent tech-enabled companies with links to Singapore that sought listings elsewhere.

For instance, Grab’s current market capitalisation of US$13.3 billion is a far cry from the nearly US$40 billion valuation it obtained when it combined itself with Altimeter Capital in 2021.

Sea’s share price has fallen more than 87 per cent from the peak it set in 2021. Razer was delisted in Hong Kong last year.

Low valuations in Singapore

On the Singapore front, it does not help that many Singapore-listed stocks have delivered relatively lacklustre long-term returns, and some are failing to garner decent valuations.

The government might be right to eschew a prescriptive approach to getting promising companies to list in Singapore; but a prescriptive approach may well be required to push companies that are already listed to address the undervaluation of their shares.

When companies do not trade at healthy market valuations, there is a risk of the interests of controlling shareholders and minority investors becoming misaligned.

This column has previously suggested that market regulators press companies to unlock value and grow their most promising businesses; and require real estate companies to be valued at a minimum of their book value in take-private deals.

A vibrant market where companies are run for the benefit of all their shareholders will naturally become a conducive environment for new listings.

YKGI should widen ownership

What does all this mean for YKGI? With a market capitalisation of only S$48.9 million, the company is unlikely to attract the most risk-averse investors in the market. And, its financial performance since listing has been unimpressive.

For the six months to Jun 30, the company reported an 84.1 per cent decline in earnings to S$0.4 million despite a 10.7 per cent increase in revenue to S$29.6 million. Among the factors that weighed on the company’s profitability were cost inflation, higher employee benefits, and non-recurring listing expenses of S$1.2 million.

YKGI’s controlling shareholder has been buying its shares in the market, though. As at Oct 5, a corporate entity called Seah & Family held more than 79.1 per cent of YKGI’s outstanding shares. This is up from 76.7 per cent when YKGI was listed earlier this year.

While share purchases by insiders are often taken as a positive signal by investors, these purchases of YKGI shares by its controlling shareholder could be counterproductive. A narrowing free-float could well make minority investors wary of being squeezed out in the future.

If the Seahs are committed to YKGI being a public-listed company, they ought to be promoting wider ownership of its shares at this point. A broad base of loyal shareholders is an important element of a listed company’s long-term success.