Analysis and Comments

There were 26 IPOs in June, the highest number for this month since 2000.

The average opening price of these 26 issues was 53.6% higher than the offering prices, well below the 104% average for 2006 IPOs thus far. Results by securities market were as follows.

Obviously, Hercules was superior to the other markets in terms of the opening price. However, markets with the higher ratios of opening prices to offering prices had lower subsequent price appreciation for these IPOs. Compared with the opening price, the average closing price five trading days later was down 11.6% for the Hercules IPOs, up 13.9% for the JASDAQ IPOs and down 5.5% for the TSE Mothers IPOs. A higher opening price relative to the offering price correlated directly to a bigger subsequent drop.

Looking at individual issues, the largest opening price premium was recorded by Yumenomachi Souzou-Iinkai (2484) on the Hercules market on June 5. The following day, the stock price began to fall. Overall, secondary performance of this stock has not been impressive.

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NIC Autotec, which made its JASDAQ debut on June 23, is an example of a stock with a weak opening price but outstanding secondary performance. The opening price was only 16.8% above the offering price. But five trading days later, the stock price was 120% higher than the opening price.

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Average market capitalization of the 26 IPOs, based on their opening prices, was ¥10.6 billion: ¥14.5 billion for the Mothers IPOs, ¥9.4 billion for Hercules and ¥6.2 billion for JASDAQ. These figures demonstrate the tendency for opening-price market caps on Mothers and Hercules to be high because of excessive opening price valuations relative to earnings on these markets.

Looking at stock price valuations, the JASDAQ IPOs had weak secondary performances even though their offering prices were set at extremely low levels. The seven JASDAQ IPOs in June were divided into two groups. One is made up of the four companies with prices currently below the offering price. They are CDG (2487), Atect (4241), Tokuden (3437) and Keyware Solutions (3799). All have a PER of between 12 and 14, far below the JASDAQ average of 23.5.

The June 8 IPO of Kobebussan (3038) on the OSE second section and the June 20 IPO of Adways (2489) on the TSE Mothers market were of particular interest.

Kobebussan was the first IPO of 2006 where the opening price was lower than the offering price. The stock has remained weak since the IPO and, as of July 10, was about 15% below the offering price.

Adways shares were affected by a mistaken securities company sell order that pushed down the opening price. The stock price then rose significantly because investors expected the securities company to settle the sell orders by borrowing stock from a major Adways shareholder. This incident follows the December 2005 trading error involving J-Com stock.

In July, prices of most June IPO companies have been weak. However, issues that have been sold off appear to be reaching attractive levels from which prices could begin to recover.

There will not be many IPOs in July. Depending on market conditions, even more investors may lose interest in the June IPO companies.

 

Nishibori Takashi
Tokyo IPO.com Chief Editor

Email to :editor@tokyoipo.com