Introducing IPO stocks for beginners - Why are they worth following and how can they raise funds?

Many investors look for IPOs because they want high short-term returns, but they don’t really understand what this type of fundraising is and how risky it can be. This article will help you understand the entire process, from basic definitions and how to find information, to strategic investment planning.

What does IPO stand for? - What is it?

IPO stands for Initial Public Offering, which means offering securities to the public for the first time. Usually, an IPO is driven by a company’s desire to raise additional funds to expand its business.

Companies aiming for an IPO must convert from a limited company to a public limited company. At the same time, it opens the opportunity for the public to own a part of the company. Additionally, it enhances the company’s credibility and brand recognition in the market.

Why do companies choose IPO? - How does this diversify funding support?

The main purpose of an IPO is to raise funds from various sources, but there are other benefits as well:

Reasons for going public:

• Raise capital for business development
• Improve creditworthiness for bank loans
• Establish long-term financial stability
• Motivate employees and management through stock purchase plans
• Enhance industry reputation and acceptance

Pros and cons of investing in IPOs that traders should know

Advantages for investors:

First, investors gain confidence because the company is regulated by the Securities and Exchange Commission of Thailand and the Stock Exchange of Thailand. Continuous financial disclosures allow investors to monitor the company’s status transparently.

Another point is that IPOs often occur during bullish market periods, meaning if you buy early, short-term returns can be substantial. Stock prices often increase 100-200% within the first few months.

For long-term traders, IPOs are a good choice because you follow the company from the start. If the company succeeds, your returns will grow along with their development projects.

Risks to watch out for:

Companies going public must disclose all financial data, including revenue, costs, and profit/loss figures, which competitors can potentially exploit.

The IPO process is costly, involving expenses for internal system upgrades, financial advisors, accountants, and legal services, making it difficult for small companies to afford.

Owners must share ownership with new investors, which means they have less decision-making power. Additionally, owners face potential control issues if the board of directors differs from the original management.

Another key point is the “Lock-up Period,” during which owners cannot sell their shares. Typically, this period lasts about 1 year, with gradual sales allowed after the first 6 months, not exceeding 25% of the restricted shares.

What qualifications must a company meet to get approval for an IPO?

The Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET) set strict standards for companies seeking an IPO.

Basic requirements:

• Must be a public limited company or a legal entity established under Thai law
• Must have a minimum of 300 million THB in shareholder equity before fundraising

Financial requirements:

• Use net profit criteria: net profit for 2-3 consecutive years totaling at least 50 million THB, with the latest year showing over 30 million THB profit
• Or market capitalization criteria: market value based on latest year’s market price exceeding 7.5 billion THB

Management criteria:

• Company must have operated for more than 3 years under the same management team for at least 1 year
• Must have independent directors as required
• Must have an Audit Committee
• Must have no conflicts of interest as per regulations

Documentation requirements:

• Financial statements must be audited and approved by a certified auditor
• Must establish a provident fund as per law
• Must appoint a share registrar from the Securities Depository Center (TSD)

How long does the IPO preparation process take?

This process typically takes between 6 months to 1 year, depending on the company’s efficiency and cooperation among involved teams.

Preparation steps:

Step 1 - Study regulations and contact financial advisors Companies need to review all requirements and hire a Financial Advisor to guide them through the process.

Step 2 - Prepare documents and upgrade internal systems Prepare key documents such as financial statements, business information, and improve internal controls.

Step 3 - Convert to a public limited company Apply for conversion with the Ministry of Commerce to obtain the status of a public limited company.

Step 4 - Set IPO price and promote awareness Consult with investment banks to determine an appropriate price and start publicity campaigns to generate interest.

Step 5 - Establish provident fund and appoint share registrar Set up a provident fund and appoint a share registrar from TSD.

Step 6 - Submit application to SEC Submit all required documents to the SEC for approval to offer IPO shares.

Who are involved in the IPO process?

The IPO involves multiple parties, each with key roles:

SET (Stock Exchange of Thailand): Acts as the trading center and provides related services.

Ministry of Commerce: Responsible for converting limited companies into public companies.

Auditors: Verify and certify the accuracy of financial statements according to accounting standards.

Valuers: Assess the value of assets involved in market transactions.

Legal advisors: Provide legal counsel and prepare necessary documents.

Underwriters/Investment banks: Assist in selling IPO shares to the public and distribute shares.

Financial advisors: Guide throughout the IPO process.

TSD (Securities Depository Center): Acts as the share registrar and custodian.

SEC: Reviews qualifications and grants approval for the IPO offering.

How is the IPO price determined? Who decides and why?

Setting the IPO price is a critical task because it impacts investor interest and the success of the fundraising.

Factors considered:

• Company performance
• Industry and current market conditions
• Investor demand during Book Building
• Comparison with competitor prices
• Growth potential of the company

Generally, investment banks set the IPO price below the expected market price to attract interest and send positive signals, often leading to a “pop” in stock price on the first trading day.

Where can I find IPO information?

Investors interested in IPO data can visit the Thailand Securities Exchange (www.set.or.th) to view upcoming listings.

On the website, you will find:

• List of companies planning to go public ((Upcoming IPO))
• Newly listed companies ((Newly Listed))
• IPO price ranges
• Par value of shares ((P/V))
• Subscription periods

You can also download attached documents for detailed information, such as fundraising objectives, offering periods, and total fundraising amounts.

How to subscribe to IPO shares - two main methods

Method 1: Subscribe during the primary market - before listing

This is the best way for retail investors because the set price is usually lower than the expected market price.

Companies will offer shares according to SEC regulations and announce via the SET website or company website. Interested investors can subscribe through brokers within the specified period.

Advantages include the IPO price being significantly lower than the market price, offering high profit potential, especially if the stock surges 100-200% within days of trading.

Method 2: Buy after listing - in the secondary market

Once listed, IPO shares are traded like other common stocks.

In the secondary market, prices fluctuate based on supply and demand. Investors who missed the initial subscription can buy shares here, but must accept that prices may be much higher.

Example scenario: Founders’ IPO and ownership changes

Suppose the founders initially invested as follows:

• Number of shares: 1,800,000
• Par value: 2 THB/share
• Total investment: 3,600,000 THB

When the company goes IPO: The company issues an additional 800,000 shares at 15 THB/share:

• Funds raised: 12,000,000 THB
• Founder’s share value: 27,000,000 THB ((1,800,000 × 15))
• Founders’ ownership percentage: 69.23% ((1,800,000 ÷ 2,600,000))
• IPO investors’ ownership percentage: 30.77% ((800,000 ÷ 2,600,000))

After listing: Both founders and IPO investors can trade shares on the stock exchange. However, founders are subject to a “Lock-up” period of about 1 year, during which they cannot sell shares.

The general public can buy shares on the secondary market, but the company does not receive additional funds—only ownership transfers.

How does IPO impact the economy? - Positives and negatives

Positives: When promising companies go public and receive additional capital, they can develop their business, create jobs, and contribute to economic growth. For example, a tourism company receiving funds can expand services, generate employment, and increase revenue.

Negatives: If a company fails to raise sufficient funds, its business may stagnate, limiting growth and losing competitive opportunities.

How should you prepare if you need to invest in IPO?

Steps to follow:

1. Study company information - Read the Prospectus published by the company to understand its business, financial health, and fund utilization plans.

2. Understand the subscription process - Learn how to subscribe through your broker and note important dates.

3. Have an investment plan - Decide how much to subscribe and when to sell.

4. Follow updates - Keep track of news and information about the company to make informed investment decisions.

5. Invest only what you can afford to lose - IPO stocks carry risks similar to other investments, so only allocate risk capital.

Summary

IPO stands for Initial Public Offering, a key mechanism for companies to raise funds and for the public to own a stake in the company.

IPO stocks can be an attractive investment, especially for those seeking high returns, but understanding the risks and conducting thorough research are essential.

The keys to successful IPO investment are education, planning, and accepting that all investments carry risks. The more you learn and understand, the higher your chances of success.