The first trade of the Honyaku Center (2483 HRLS) IPO, the final IPO of April, did not take place in April. As we predicted, the opening price was ¥1.03 million per share, which was 2.94 times higher than the offering price of ¥350,000. The stock price subsequently continued to climb, reaching a closing price today of ¥1.21 million, which is 3.45 times higher than the first trade.

There were 20 IPOs in April with an average price appreciation of 196% relative to the offering price, meaning that the opening price was about three times higher than the offering price. Every April, the opening price of IPOs is typically higher than in other months because of the very small number of IPOs in the following month. By comparison, there were 17 IPOs in April 2005 with an average price appreciation of 218%, about the same as this April.

The following list shows a year-on-year comparison of IPOs for individual markets. One noteworthy point is the large number of IPOs on the Osaka Hercules market. This is mainly because a new transaction processing system at the Osaka Securities Exchange became fully operational in April. As a result, this exchange granted at once approvals to all the companies that had been waiting since the second half of 2005 for the approval of their listing applications.

In April 2006, funds procured through IPO public and secondary offerings totaled ¥31.2 billion. This resulted in an average of ¥1.56 billion per offering, which was about the same as the average of ¥1.52 billion in April 2005.

In April 2006, most of the highest opening price ratios occurred in the first week of the month. There were six IPOs during that week that had an average ratio of 400% compared to the IPO price. Demand was so strong for one issue, the April 4 IPO of JTEC Corporation, that the first trade did not occur until April 6 at a 773% of the offering price. The stock price rose by the maximum amount allowed the following day and has since climbed to 11.4 times the offering price.

Normally, there is almost no relationship between IPO opening price ratios and overall stock market trends. However, in April 2006 these ratios increased during the first week of the month just as the Nikkei average was posting record highs as the new fiscal year began.

As the Nikkei average began to decline in April’s second week, the stock prices of all six companies that conducted an IPO in the month’s first week dropped below the opening price. By the end of April, some of these stocks fell to half of the opening price.

On the other hand, ALCONIX Corporation (3036 JASDAQ) is an example of a company that began trading at only 38% above the offering price but subsequently posted a strong price increase. This company conducted its IPO on April 24, a day when selling pressure pushed down the Nikkei average from the market’s opening. The average fell almost ¥500 that day. As the market regained its composure, ALCONIX shares began to climb. Today’s closing price was ¥6,400, 60% higher than the ¥4,000 offering price.

Trends in the initial trading prices of April’s IPOs therefore indicate that these prices are determined as part of the overall movements of equity markets. We expect that this trend will continue because only individual investors place orders to buy IPOs on small-company stock markets at the opening price.

There will be four IPOs in May. The first is on May 2, but the second will not take place until May 29, almost one month later. Each year, May IPOs attract large inflows of capital because of the small number of issues during this month. As a result, the opening price ratio tends to be high. However, this year the opening prices may be influenced by trends in Japan’s equity markets as a whole.

Nishibori Takashi
Tokyo IPO.com Chief Editor

Email to :editor@tokyoipo.com