September IPO Market Summary and Outlook
There were 15 IPOs in September, including seven on the JASDAQ market and five on the TSE Mothers market. The remaining three issues were listed on the OSE Hercules market, Nagoya Centrex market and TSE second section. Since there were 14 IPOs in September 2005 and 16 in September 2004, this level of activity is typical for this month.
For all 127 IPOs thus far in 2006, the average opening price is 89.3% higher than the offering price. However, the opening prices of three of the 15 September IPOs were below the offering prices. As a result, this month alone accounted for half of the six IPOs during the first nine months of 2006 that started trading below the offering price.
Monthly averages for opening prices vs. offering prices are as follows: 96% in January and February, 78% in March, 196% in April, 149% in May, 53% in June, 63% in July, 55% in August, and 37% in September. After May, the opening price premium in every month has been far below the 2006 average.
One reason is weakness in secondary markets. Japanfs small-company stock markets dropped sharply in the wake of the so-called Livedoor shock in January 2006. After recording the first bottom in early June, these markets hit a second bottom in the middle of July. In the middle of September, small-company stocks were once again heading downward. At the same time, the stocks of large companies making up the Nikkei and TOPIX indexes have been performing very well. It appears that investors have been shifting their positions from small-company to large-company stocks.
Among the September IPOs, the September 14 listing of mixi (TSE Mothers, 2121) attracted the most media coverage, lasting from the time its application was approved until the IPO. mixi is an Internet media company that operates a social networking service (SNS) with about 5 million members. But the stock price reflects unreasonable expectations. Based on estimates for the current fiscal year, mixifs offering price of ¥1.55 million equates to a PER of 110. At the opening price of ¥2.85 million per share, the projected PER was 210 and market capitalization was ¥208 billion. The ordinary income forecast for mixi for the current fiscal year is ¥1.7 billion. Since its PER of about 200 is roughly 10 times above the market average of 20, investors are awarding mixi the same value as a company with ordinary income of ¥17 billion.
By comparison, TV Asahi has a market cap of ¥240 billion, TV Tokyo has a market cap of ¥86.5 billion and SKY Perfect Communications has a market cap of ¥140 billion. Although the operations of these media companies are completely unlike those of mixi, all three should obviously have a greater value than mixi. One can only be amazed and bewildered at the decision of investors to give mixi such a high valuation.
What about October? A total of 17 IPOs are planned for this month including three listings on the TSE first section. One is the very large IPO of Nomura Real Estate Holdings scheduled for October 3. A second large IPO will take place on October 24 when Idemitsu Kosan goes public. The first IPO will procure ¥164.5 billion and the second will procure ¥62.3 billion. Total proceeds of the 17 October IPOs are expected to total ¥267.6 billion, which is almost half of the funds raised by all IPOs during the first nine months of 2006.
Normally, very large IPOs like these would exert even more pressure on the opening price premium vs. the offering price. Nevertheless, the Nomura Real Estate and Idemitsu Kosan IPOs may succeed because their shares will be purchased in small amounts by a large number of individuals. If these IPOs are successful, we may see renewed vitality in Japanfs equity markets.
Nishibori Takashi
Tokyo IPO.com Chief EditorEmail to :editor@tokyoipo.com