IPO Stocks This Month - What Beginners Need to Know?

When it comes to investing, many people think of the stock market. But in reality, income can be generated from investments starting with an IPO if you understand how it works well.

What is an IPO? Why do companies issue IPO shares?

IPO (Initial Public Offering) or the first time a company offers its securities to the public to raise additional funds for business expansion. It also provides an opportunity for the general public to become part-owners of the company, while simultaneously increasing brand awareness.

Statistics show that some IPO stocks can increase in price by up to 200% in the initial period, which has attracted many investors to participate in this format.

Pros and Cons investors should know

Advantages:

• Protected by the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand
• If entering during an economic uptrend, short-term profit opportunities are very high
• Analysis is less complicated than regular stocks, but it’s important to study the company’s profile thoroughly
• Suitable for both short-term and long-term investors

Disadvantages:

• The company must disclose financial information publicly, which competitors might exploit
• Requires a large budget for preparation (consulting fees, audit costs, etc.)
• Founders may lose control of the company as they need to respond to the board of directors and shareholders
• In the initial phase, price volatility is quite noticeable

What qualifications must a company meet to offer an IPO?

A company seeking an IPO must be a limited public company with a solid financial standing, with at least 300 million baht in shareholders’ equity. It must also have three consecutive years of operational results and meet SEC profit criteria.

There are two main criteria to choose from:

• Net profit criterion: Over 2-3 consecutive years, total profit must exceed 50 million baht, and the most recent year’s profit must be over 30 million baht
• Market value criterion: Market capitalization exceeding 7,500 million baht

Additionally, the company must establish a provident fund, appoint a securities registrar, and have an independent director.

IPO share subscription process - 2 methods

Method 1: Subscribe to IPO shares before entering the market (Primary Market)

This is the first channel where investors can buy shares directly from the company through SEC offerings. The price during this period is quite low (the IPO price set), and once the shares enter the market, the price often rises. If you reserve during this period, the profit opportunity is very high.

Share subscription can be done via:

• SET website (Stock Exchange of Thailand)
• Company’s website
• Various brokerage firms

Method 2: Buy IPO shares after registration (Secondary Market)

Once the company is listed on the stock exchange, existing investors can sell their shares on the market. You can buy from them, but the price will often be much higher than the IPO price, sometimes significantly.

Who is involved in the IPO process?

Several parties are involved in the IPO process:

• Stock Exchange of Thailand (SET) - the trading center
• SEC - reviews and approves IPOs
• Auditors - verify financial statements
• Legal advisors - provide legal guidance
• Underwriters (Underwriter) - help sell shares to the public
• Financial advisors (FA) - provide guidance throughout the IPO process

How is the IPO price set?

The IPO price is often set below the expected true value to attract investors. The pricing process is called Book Building, where financial advisors survey investor demand and determine an appropriate price.

The lower IPO price compared to the actual value is one reason why IPO stocks tend to rise rapidly once they enter the market.

Where can you find IPO stock information?

You can study IPO stocks via the SET website, which displays:

• List of companies under consideration for IPO (Upcoming IPO)
• Companies that have launched new IPOs
• Trading prices and PAR prices
• Information files for each company

From here, you can download detailed data such as fundraising objectives, offering periods, trading volume, and more to assist your investment decisions.

Example of shareholder proportion change

Suppose the founder owns 1,800,000 shares at 2 baht each (total investment of 3,600,000 baht).

When the company issues an IPO:

• Additional 800,000 shares are released at 15 baht per share
• Raising 12,000,000 baht in capital
• The founder’s share value becomes 27,000,000 baht (15 x 1,800,000)

After IPO:

• Founder owns 69.23% of the company
• IPO investors own 30.77%

How does an IPO affect the economy?

An IPO helps promising companies obtain funds to develop their business, leading to job creation, industry growth, and profits for investors and the country.

Conversely, if a company lacks funds, it may not grow and could miss development opportunities.

Summary

This month’s IPO stocks could be a good opportunity for you. But remember, investing requires knowledge and understanding. The more you study about IPOs, the higher your chances of success.

Applying for IPO shares is not difficult; just understand the process and study the company profile thoroughly. Everyone can trade and potentially profit from it.