August IPO Market Summary and Outlook
Since most companies in Japan end their fiscal years in March, there should be a relatively small number of IPOs in July and August. This is because companies planning an IPO often apply for an exchange listing following their shareholder meetings to approve financial statements for the past fiscal year. Nevertheless, there were 11 IPOs in August, the same as in August 2005.
By market, there were four Osaka Hercules IPOs, two on TSE Mothers, two on JASDAQ, and one each on the Nagoya Centrex, Sapporo Ambitious and Fukuoka Q Board markets. For all 110 IPOs in Japan thus far in 2006 (as of August 25), the average opening price is 96.25% higher than the average offering price. But for the August IPOs, the opening price of only two issues exceeded this average: Gomez Consulting (253%) and Netage Group (100%). Five August IPOs (JIN, e-Support Link, Bic Camera, eZuz Japan and Medical Care Service) managed to keep their opening prices above the offering prices, but only by less than 10%. Furthermore, the market prices of these five companies subsequently weakened even as the Nikkei Average was strong.
As is true for all 2006 IPOs, the opening prices of the August IPOs were either very strong or weak. It is important to note that the average opening price premium of 96.25% noted above is an average, not an intermediate figure. There is a widening gap between the levels of opening prices. Therefore, investors can no longer make a substantial profit by simply purchasing IPOs and secondary offerings.
The most notable August IPO is that of Bic Camera, which operates large consumer electronics stores near major JR stations. Bic Camera’s IPO raised ¥35.4 billion, making it the second largest in 2006 after the March IPO of Alpen. Furthermore, awareness of Bic Camera is much higher among investors than for the other IPOs. Following the start of trading, Bic Camera’s share price has been about the same as the offering price. Investors have given the company a valuation that is roughly equivalent to those of other consumer electronics retailers. Due to Japan’s healthy and growing consumer spending, this is a company that investors should take a good look at.
Netage Group, which was listed on August 30, also warrants the attention of investors. This company holds 16.5% of the equity of mixi, which will be listed on September 14. mixi’s estimated market capitalization of ¥110 billion based on its offering price is approximately equal to the entire market capitalization of Netage Group, based on its offering price. If mixi’s stock price increases, this will further raise the volume of unrealized capital gains at Netage Group. Therefore, investors can hope for an increase in Netage Group’s stock price if mixi’s stock price rises in a manner similar to what happened after the Drecom IPO, which took place early in 2006.
Due to the large number of March year-end companies in Japan, the number of September IPOs is normally high. This year, 15 companies have received approval to conduct an IPO during the month.
However, September is also a time when Japan’s stock markets are often sluggish. One reason is official holidays in the U.S. and Japan, which hold down the volume of securities company trading for their own accounts. In addition, September is the end of the fiscal year’s first half for many companies in Japan. Beginning in the middle of September, it is difficult for institutional investors to alter their portfolios because they do not want to have an impact on first-half operating results.
However, there is almost no correlation between IPO opening prices and the Nikkei Average. In fact, there is at times an inverse relationship. Therefore, investors should not adopt a negative view merely because the stock market as a whole is declining. The most important aspect of 2006 IPO opening prices is the absence of a clear trend. Consequently, investors need to make judgments based on the merits of each company.
Nishibori Takashi
Tokyo IPO.com Chief EditorEmail to :editor@tokyoipo.com