Roadshow guide to Kuala Lumpur

While the Asia-Pacific equity market is still dominated by the big three of Hong Kong, Singapore and Tokyo, a fourth city is moving up the agenda of issuers searching for capital. In the IR Magazine Global Roadshow Report 2013, which was based on a survey of more than 800 investor relations professionals, Kuala Lumpur is named the fourth most popular roadshow destination in Asia for Asian companies. And when you take all global destinations into account, the city still ranks a respectable ninth among Asian issuers.

 

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The rise of KL, as the city is often known, was flagged in the previous year’s report when Asia-based respondents named it the number one ‘new city’ they had visited over the preceding 12 months. ‘It’s a place that’s growing and getting a bit more attention, [though] it’s still not a market that’s warranting a great deal of attention,’ comments Kevin Langdon, senior director of advisory services for Asia-Pacific at NASDAQ OMX. ‘It’s at the nascent stage in terms of pulling its own weight in investment capital.’

The city’s buy side is dominated by three government-linked investment companies: Permodalan Nasional (PBN), Employees Provident Fund (EPF) and Khazanah Nasional, which between them account for 82 percent of the equity assets under management of the top 10 institutional investors, according to data from Lipper. Indeed, the whole market is very concentrated, with the top 10 investors managing 96 percent of all equity assets.

The largest private institutions are Public Mutual, CIMB-Principal, AmInvestment Bank, Hwang Investment Management and RHB Asset, while insurance companies include AIA, Prudential and Great Eastern Life, says Julia Hashim, head of ASEAN sales and Malaysia equities at CIMB Investment Bank. ‘Bigger funds tend to be indexed to various benchmarks, while there is an increasing focus toward Shariah-compliant stocks and sectors,’ she adds.

Spreading the wealth

For Hashim, the growing attraction of KL to IR teams is being driven from both the demand and supply sides. ‘In recent years, we have seen more foreign-listed companies making a stop in KL for non-deal roadshows as the companies themselves feel they are reaching out to a new audience,’ she explains. ‘On the other hand, we have seen many local government-linked funds, pension funds and large insurance and mutual funds putting more money overseas as a result of [central bank] Bank Negara Malaysia’s (BNM) liberalization policy for asset managers.’

EPF, for example, has been boosting its international asset allocations for the last couple of years. In its most recent annual report, released in April this year, the public pension fund said overseas assets now stood at 21 percent, up from 17 percent a year before.

Looking at the broader market, the Malaysian fund management industry current has RM306.14 bn ($95.6 bn) in equity assets under management, of which 19.5 percent is invested outside the country, reveal the latest figures from the local Securities Commission.

One IRO to pick up on the trend of greater foreign investment is Thomas Küter, IR manager at German car maker Volkswagen. Küter is based in Beijing and covers the Asia-Pacific market for his company. His roadshow activity includes annual stops in Kuala Lumpur where he regularly meets with EPF and PNB, as well as BNM and Nomura Asset Management Malaysia. ‘They all have a good fundamental overview of the company and have analysts who follow our stock closely,’ Küter says. ‘In general, I can clearly see a trend of these funds broadening their investment universe overseas during the last [couple of] years.’

Changes to the local broking scene are also pulling in more companies from the region. ‘Another driving force for change is the fact that many local brokers are now seen as regional brokers… who have grown over the years through M&A, and this has accelerated the process,’ says Hashim.

Regional focus

While KL funds are starting to look further afield than their domestic market, the focus of their investment is still very much within Asia-Pacific: PNB, EPF and Khazanah have close to 100 percent of their equity assets invested in the region, says Lipper. The same is true for the region as a whole, which is one reason why IR teams in Europe and North America are often cautioned against expecting too much from a roadshow to investment centers in Asia-Pacific.

As a result, it’s not surprising that Kuala Lumpur doesn’t rank highly as a roadshow destination on a global basis. The IR Magazine Global Roadshow Report 2013 finds that the city slips out of the top 20 most-visited roadshow destinations when you consider all companies from around the world, rather than just Asia-based issuers.

For companies considering a trip there, Langdon says it’s important to note the dominant institutions are government-owned, because this dictates the kind of companies they like to meet. ‘For government assets and capital, they tend to go for the stable companies,’ he explains. ‘When we’re looking at it from an ownership analytics perspective, we’re trying to put forward the companies with the right type of balance sheet, the more blue chip companies.’

In terms of which brokers to travel with, several major firms conduct roadshows within KL. Küter has traveled with Macquarie for the last three years and tips the Australian bank as a good partner. ‘Its sales person for this market is well connected to the local investment community and I had good-quality meetings during all my roadshows,’ he says.

A typical non-deal roadshow would last one or two days, depending on interest and company size, explains Hashim, following the usual pattern of one-on-one meetings in the morning and afternoon, plus a group lunch. Investors are spread out so leave 15-30 minutes between meetings, she adds.

Another factor boosting KL’s profile is Malaysia’s developing IR industry, notes Langdon. The country has an active IR society that holds regular events and training sessions. Certain sectors have also demonstrated IR leadership in the region: Malaysian banks, for example, regularly score highly for their IR performance in IR Magazine’s surveys of investors and analysts across Asia.

Malaysia has its ‘own IR industry, which is looking out for itself, trying to elevate the stature of investor relations and the function of IR,’ says Langdon. ‘That’s helping to lay the framework for other foreign IR teams to come in.’