Valuing an IPO: P/E, book value & fair value

An offer price on its own is meaningless. RM0.30 can be expensive and RM8.00 can be cheap. Valuation is always relative, and two anchors do most of the work for IPO purposes.

The earnings anchor: P/E

Price-to-earnings divides the offer price by profit per share. A P/E of 12 means you are paying 12 years of current profits for the business. Compare it to listed peers in the same sector: an IPO priced at 11× earnings in a sector trading at 15× leaves room, while one priced above its peers needs a growth story to justify it.

The book anchor: P/B and NA per share

Net assets (NA) per share is the accounting value of what the company owns, per share. Price-to-book compares the offer price to that. It matters most for asset-heavy businesses (property, plantation, manufacturing) and least for service businesses whose value is people and contracts.

Putting them together

Applying the sector's median multiples to the IPO's own numbers gives a rough "peer-implied" value band. If the offer price sits below the band, the deal is priced conservatively versus peers; above it, aggressively. It is a starting point, not a verdict, because it ignores growth, quality and sentiment.

• A "cheap" P/E can be cheap for a reason: shrinking profits, one-off earnings, or governance concerns.
• A premium P/E backed by real growth has often outperformed a discount on a stagnant business.
• First-day moves are driven more by demand (oversubscription, scarcity) than by valuation. Valuation matters more for holding.