What is an IPO stock really? Understanding the mechanism of fundraising through the stock exchange

When discussing investments, people often think of stock markets and volatile price charts on monitors. But in reality, creating sustainable profits doesn’t necessarily require waiting for old companies to release shares. Buying IPO shares is one way investors can participate in a company’s growth from its early stages. According to statistics, some IPO stocks can increase in value by up to 200% in a short period. So, if you don’t yet know what an IPO is, where to look for IPO stocks, and how to reserve IPO shares, this article will provide clear answers.

What is an IPO? Basic Meaning You Need to Know

IPO (Initial Public Offering) is a financial mechanism that companies use to open their shares to the public for the first time. The main purpose is to raise additional capital from general investors to expand the business, develop products, or manage operations.

Besides being a fundraising channel, issuing an IPO offers several other benefits for the company, such as building brand credibility, increasing access to future funding, and creating tools for employees to own shares. This means IPO shares are not only good for the company but also beneficial for the overall economy.

Who Are Involved in the IPO Process?

Getting an IPO stock listed on the market isn’t something a company can do alone easily. Many organizations and individuals must collaborate. The Securities and Exchange Commission (SEC) is the main agency that reviews and approves, while the Stock Exchange of Thailand (SET) acts as the securities trading center.

In addition to government agencies, there are valuation consultants, legal advisors, auditors, securities depositories (TSD), and underwriters (Underwriter) who help ensure the IPO process runs smoothly. Underwriters, in particular, play a key role in distributing IPO shares to the general investors.

Pros and Cons of Investing in IPO Stocks

Advantages investors should know:

First, investing in IPO stocks is reassuring because the company is under the supervision of the SEC and the stock exchange, meaning financial and operational data must meet standards. Investors can make informed decisions.

Second, during favorable economic conditions, IPO stocks often offer high short-term profit opportunities. Sometimes, stock prices can double or more within a few weeks.

Third, for long-term investors, IPO stocks provide opportunities for analytical gains without complex technical strategies—just study the company’s profile thoroughly.

Disadvantages to watch out for:

One downside relates to the company itself, which must disclose all financial data, including profit and loss statements and tax information. This information can be exploited by competitors.

Financially, companies planning to go public incur significant costs, including legal consulting, auditing, underwriter fees, and other registration-related expenses.

For founders (Founder), there is a risk of losing control, as once the company is listed, the board of directors may have the authority to remove founders if they believe management isn’t aligned with the company’s direction.

What Qualifications Must a Company Meet to IPO?

The SEC and the stock exchange have set strict conditions for companies seeking to IPO, including:

Structural and Status Requirements:

• Must be a public limited company or a legal entity established under Thai law.
• Have a stable business structure, especially in finance.
• The shareholder’s equity must be at least 300 million THB.

Operational Performance:

• Must have a good operating history of at least 3 years, with one of the following criteria:
  • Net Profit Criterion: In the last 2 or 3 consecutive years, the company must have a total net profit exceeding 50 million THB, and in the latest year before filing, net profit must be over 30 million THB.
  • Market Capitalization Criterion: In the latest year, the company must have a market cap exceeding 7,500 million THB.

Governance:

• Must have an independent director, an audit committee, a strong internal control system, and no conflicts of interest.

Preparation:

• Must establish a statutory reserve fund as required by law.
• Appoint a recognized securities registrar.
• Prepare a shareholder register, deposit shares into a dematerialized system.

Where Do IPO Prices Come From?

One common question investors ask is, “Where do IPO share prices come from?”

IPO share prices are set based on valuation assessments by underwriters (Investment Banking) or financial advisors, using a method called “Book Building,” which surveys demand from large investors beforehand.

Most IPO prices are set relatively low to ensure a high conversion rate (Conversion Rate) and to stimulate investor interest. The difference between the par value (Offering Price) and the first-day market price is often significant, which is why IPO investors tend to realize high profits.

How Do IPO Stocks Benefit the Economy?

Raising funds through IPO not only helps companies grow but also positively impacts the overall economy.

For example, if a high-potential tourism company receives support via IPO funding, it can expand significantly, leading to the creation of new industries, employment, and future profit-sharing benefits.

Conversely, companies without access to capital may face obstacles and be unable to fully realize their potential, which could hinder long-term economic progress.

Steps to Prepare for an IPO

Before a company can release IPO shares to the market, several preparation steps are necessary:

First: Study regulations and consult with financial advisors for guidance.

Second: Prepare complete documentation, convert from a limited company to a public company, and appoint specialists.

Third: Set IPO share prices through the Book Building process and conduct publicity.

Fourth: Establish a statutory reserve fund, appoint a registrar, prepare the shareholder register, and deposit shares into the dematerialized system.

Final step: Submit a filing for approval to the SEC and wait for approval.

This entire process can take several months, depending on the company’s complexity and the cooperation of involved parties.

How to Reserve IPO Shares: Two Methods

( Method 1: Purchase IPO Shares in the Primary Market )Primary Market###

This involves buying shares directly from the company through a sale announcement by SET or the company’s website. Interested investors can reserve within the specified period.

The key point is that IPO prices are usually set quite low, below the expected market price. Therefore, investors who reserve during the primary market often gain good profits if the company successfully lists.

( Method 2: Purchase IPO Shares in the Secondary Market )Secondary Market###

After the company is listed on the stock exchange, investors who missed the primary market still have the opportunity to buy shares via the secondary market, where trading occurs between investors. The company does not receive additional funds.

However, IPO stock prices in the early days of the secondary market tend to be highly volatile and often much higher than the primary market price. Investors should choose their entry timing wisely.

Example of Setting an IPO Price

Let’s look at an example: a company with a founder owning 100% of the shares, with:

Original scenario (before IPO):

• Founder’s shares: 1,800,000 shares
• Par value: 2 THB per share
• Total investment: 3,600,000 THB

At IPO:

• The company issues an additional 800,000 shares at 15 THB per share
• Funds raised: 800,000 × 15 = 12,000,000 THB
• Founder’s share value now: 1,800,000 × 15 = 27,000,000 THB

Final outcome:

• Total shares: 2,800,000
• Founder’s ownership: 64.29%
• IPO investors’ ownership: 35.71%

Afterward, the company’s shares will be listed on the stock exchange, and both founders and IPO investors can sell their shares on the secondary market (Secondary Market).

Where to Find IPO Stocks?

If you’re interested in studying upcoming IPO stocks, visit the Thailand Securities Exchange (SET) website. It lists companies under review (Upcoming IPO) and newly listed companies.

On the SET website, you will find:

• IPO offering prices and par values
• In-depth information about each company, such as fundraising objectives
• Offering period
• Total fundraising amount

Downloading attachments or visiting each company’s link will help you understand the business context before making investment decisions.

Summary: What Is an IPO Stock and Are You Ready?

IPO stocks are financial tools that enable companies to go public and investors to join the business adventure. Buying shares during the primary market often offers high profit opportunities, but it requires knowledge, understanding of the company, and wise decision-making.

The key point to remember is that there is no “expert” or “non-expert” in IPO investing. What matters most is thorough study, understanding the business, and making informed choices. The more you learn, the higher your chances of success.