Getting to Know IPOs: Investment Strategies for New Stocks in the Thai Market

If you are interested in entering the stock market to generate long-term returns, What is an IPO has become an important question. Since newly listed stocks often have high growth potential, with some prices skyrocketing by 200% in a short period. This article will provide a comprehensive guide to understanding IPOs, from their meaning and reservation methods to selecting good stocks.

What is an IPO? Basic understanding for investors

IPO or Initial Public Offering is the process of offering a company’s securities to the public for the first time, primarily to raise funds for business development and expansion. Additionally, an IPO provides an opportunity for the general public to become shareholders and to build brand awareness that can influence the company’s future.

Launching an IPO is a significant step indicating that the company has met certain standards and is now ready to open its doors to Thai and international investors.

Why reserve IPO shares? Learn the advantages and disadvantages

Advantages investors gain from IPOs

• Protection from regulatory agencies: All IPO companies must undergo scrutiny by the SEC and the Stock Exchange of Thailand (SET) very strictly
• High profit opportunities: During an economic uptrend, IPO prices tend to rise rapidly in the early stages
• Stable long-term investment: If you believe in the company’s business structure, holding IPO shares can be suitable for long-term ownership
• Easy analysis: IPO stocks do not require complex strategies; simply study the company’s fundamentals

Disadvantages that IPO companies face (Impacting investors)

• Disclosure of information: IPO companies must publicly disclose financial data, profit and loss statements, and taxes, which competitors might exploit
• Setup costs: IPOs involve high expenses, including advisory fees, audit costs, and internal control system expenses
• Loss of control: Company owners may no longer make decisions as before, due to considerations for public shareholders
• Sale restrictions: Founders and existing shareholders are prohibited from selling shares for one year, known as the Silent Period

Conditions companies must meet to go IPO

Basic requirements

Companies wishing to go IPO must comply with conditions set by the SEC and SET:

• Business status: Must be a public limited company or a legal entity established under Thai law
• Registered capital: Shareholders’ equity must be at least 300 million baht
• Operational history: Must have been operating continuously for at least 3 years under the same management and directors

Profit evaluation criteria

IPO companies must meet one of the following criteria:

Net profit criterion: Over the last 2-3 consecutive years, total net profit must exceed 50 million baht, with at least 30 million baht in the most recent year before filing

Market capitalization criterion: In the latest year, market capitalization must exceed 7,500 million baht

( Regulatory and management requirements

• Establish an independent committee and an audit committee
• Create a provident fund as required by law
• Appoint a securities registrar from the Securities Depository Center )Thailand### Limited (TSD)
• No conflicts of interest

Preparation process for companies going IPO

All companies must undergo a lengthy and complex process before IPO:

1. Study regulations: Consult financial advisors for guidance
2. Prepare documents: Gather financial data, financial statements, and other relevant documents
3. Transform the company: Convert from a limited company to a public limited company
4. Determine share price: Through valuation (Valuation) and interest survey (Book Building)
5. Establish funds: Set up reserve funds and appoint a registrar
6. Register shares: Deposit shares into a dematerialized system
7. File for approval: Submit filings to the SEC to offer IPO shares

Key players in the IPO process

Successful IPOs involve many professionals working together:

• SET: The stock exchange and related services
• SEC: The regulatory authority overseeing share offerings
• Financial advisors (FA): Provide guidance throughout the IPO process
• Underwriters (Underwriter): Help distribute IPO shares
• Auditors (Auditor): Audit financial statements according to standards
• Legal advisors: Offer legal guidance and prepare documents
• Valuers (Valuer): Assess asset values involved
• TSD: Prepare and manage shareholder registers

How is IPO share pricing determined?

Setting the IPO price is a crucial step because it affects investor interest and overall success.

Most IPO companies set a lower price range for demand surveys (Book Building) to gauge how much investors are willing to pay. If the price is too high, interest may decline, making it difficult to raise the targeted funds.

Financial advisors and investment banks (Investment Banking) ensure that the IPO price is appropriate for both investors and the company.

Where to find IPO stocks? Essential information sources

To research upcoming IPO stocks, investors can check:

• SET website (www.set.or.th): Lists companies awaiting registration (Upcoming IPO) and newly launched IPO stocks
• Company websites: Provide details on fundraising, par value, and offering periods
• Brokerage firms: Offer information and assist with IPO share reservations

On the SET website, you can see:

• IPO prices and par values for each stock
• Company insights
• Offering periods
• Fundraising objectives
• Expected trading volume

How do IPOs impact the economy?

When companies go public and use funds for business development, it often positively impacts the country’s economy. For example:

If a tourism company conducts an IPO to expand, it may create more jobs, develop tourist areas, and generate income for the country. Investors also benefit from returns.

Conversely, if a company lacks financial support, it may face expansion difficulties, leading to missed opportunities for both the business and the economy.

How to reserve IPO shares: Practical guidelines for investors

There are two methods for reserving IPO shares; investors can choose based on their preferences:

( Method 1: Reserve IPO shares before market listing )Primary Market###

This occurs when the company announces an IPO for sale via:

• SET website
• Company website
• Brokerage firms

During this period, interested parties can reserve shares at the set price (IPO price), which is usually lower than the expected market price. Reserving in the Primary Market often yields good returns because of the lower price, and early reservers usually get the shares they want.

Important to know: IPO prices are lower than the Par Value (share price at company establishment) because the business is still new. Once listed, the price may increase significantly.

( Method 2: Buy IPO shares after market listing )Secondary Market###

After the company is listed, shares are traded on the stock exchange:

• IPO investors who bought initially can sell their shares
• New investors or those who missed the Primary Market can purchase
• Prices can be highly volatile, often much higher than the IPO price

Warning: Buying on the Secondary Market carries higher risks, as prices can rise rapidly or fall sharply.

Concrete example: How ownership proportions change

( Initial situation

Founder owns 1,800,000 shares at Par Value 2 baht/share )Invested 3,600,000 baht###

( When the company conducts an IPO

The company issues an additional 800,000 shares at an IPO price of 15 baht/share:

The value of the founder’s shares increases from 3,600,000 baht to 27,000,000 baht )1,800,000 × 15###, even though the number of shares held remains the same.

( After IPO completion

• Shares are registered on the SET
• Founders and IPO investors enter a Silent Period )for 1 year(, during which they cannot sell shares to protect mutual interests
• New investors can buy and sell on the secondary market )Secondary Market###

Summary: Smart ways to invest in IPO

IPO is not as complicated as many think. The key is study thoroughly, understand the company’s structure, assess risks, and make decisions based on real data.

If you are just starting out or feel unsure about stocks, investing in IPOs is similar to other learning processes. The more you learn, the higher your chances of success. Profits will follow, and when you gain profits, no one will say you are not skilled. However, losses are also part of investing. Therefore, prepare from the beginning, choose good IPO stocks, and start your investment today.