July IPO Market Summary and Outlook for August
The number of July IPOs dropped to four compared with eight in July 2006. The highly anticipated IPO of Chinafs Nineyou International Limited, an online game company, was postponed. By market, OSE Hercules accounted for two July IPOs and JASDAQ and Fukuoka Q-Board for the other two. There were no TSE IPOs, making July an extremely quiet month. Furthermore, there were only 77 IPOs during the first seven months of 2007, well below the 101 offerings during the same period of 2006.
Looking at opening prices, Kichiri, the first July IPO, started trading on July 6 at a level relative to its offering price that was similar to the pattern in June. But the remaining three July IPOs took place later in July as stock prices were declining. As a result, some opening prices were below the offering price. Samty, which started trading on July 31, had an opening price that was 23.33% less than its offering price. Samty is involved in real estate securitization. Apparently, there was little interest in this stock because of generally negative sentiment concerning the real estate sector caused by subprime loan problems in the United States.
On the secondary market, prices on Japanfs small-company stock markets bottomed out in May and then dropped to another low in July. Amid this trend, the few 2007 IPO stocks where prices increased in May and June have remained strong since then. But since opening prices for the June IPOs were a very high 92% above offering prices on average, only three of the June IPOs are still trading above their opening prices.
There are 13 IPOs scheduled for August compared with 11 in August 2006. China Boqi Environmental Solutions Technology, which plans a TSE listing, is attracting the most interest. This company is a major provider of desulphurization technologies and water treatment equipment. Investors are very interested in this company as a way to participate in Chinafs environmental protection sector. In addition, there is much interest in the IPO of Kito, a manufacturer of hoists and cranes, as a company that has completed a successful revitalization. Kito had financial problems resulting from real estate investments. In 2003, The Carlyle Group acquired Kito, which was traded on JASDAQ, making it a privately owned company. Since Carlyle still owns almost 75% of Kitofs shares, there are concerns about the supply/demand balance. But the stock price may increase following the IPO because the company is posting consistent growth in sales and earnings.
As I noted in last monthfs report, the number of IPOs in 2007 will probably be well below 150. Based on what I have heard from securities companies, the number of IPOs in the second half of 2007 will probably be smaller than in the first half, when there were 73 offerings. Enactment of Japanfs Financial Products Exchange Law is forcing companies to tighten their internal controls. The new standards are apparently creating a fairly high hurdle for companies considering an IPO. In fact, the number of 2007 IPOs may fall to the lowest level since the emergence of Japanfs small-company stock markets like TSE Mothers and OSE Hercules.
Despite the low level of activity, there may be several significant IPOs during the second half of 2007: Sony Financial Holdings, Willcom (a PHS carrier), MID Urban Development (formerly Matsushita Investment and Development), and Nikko Asset Management. All these companies have highly effective internal control systems because they are subsidiaries of large corporations. Furthermore, there is little risk of a sudden drop in earnings. Consequently, these four companies will probably conduct their IPOs as planned unless there is a major drop in stock prices.
Due to the low prices on Japanfs small-company stock markets, we will probably see low valuations for the offering prices of companies newly listed on these markets. Furthermore, there are few worries about an oversupply because of the small number of IPOs. As a result, if the stock price of a recent IPO falls below the offering price, we will probably see a quick rebound as the low valuation draws the attention of investors. I recommend that investors remain vigilant to take advantage these opportunities while selecting stocks carefully.
Nishibori Takashi
Tokyo IPO.com Chief EditorEmail to :editor@tokyoipo.com