Japan’s biggest equity rally in four decades is driving a boom in initial public offerings, with new listings this year poised to reach the most since 2007 and every stock rising on its debut.
About 60 companies have gone public in 2013 or plan to do so by year-end, the most since 121 offerings in 2007, according to projections by Nomura Holdings Inc. The 36 IPOs since December have climbed on their first trading day, the longest streak of gains since 39 listings advanced in 2006, data compiled by Bloomberg show. The average opening-day advance this year was 131%, according to the data. Reprocell Inc., a stem-cell medical research company, soared more than fivefold in June for the largest of the year.
“The IPO boom will maintain its momentum for some time to come given the current market environment,” said Koji Uchida, who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. in Tokyo. “Many companies listing this year have interesting business ideas and good growth potential.”
Initial share sales peaked at 203 in 2000 before declining as Japan’s economy shrank and a 2006 raid on Internet service provider Livedoor Co. for suspected violation of securities regulations sent the TSE Mothers Index, the benchmark gauge for startup stocks, down more than 10% in two days. This year’s revival signals companies are increasingly confident about accessing capital from the world’s best-performing developed stock market, while the perfect IPO winning streak is helping sustain demand from individual investors.
The benchmark Topix index increased 62% in the four quarters through September, the steepest rally since the period ended March 1973, as Prime Minister Shinzo Abe and the Bank of Japan pushed policies to end deflation. Local individual investors accounted for 71% of trading on the TSE Mothers Index by value in the week ended Nov. 8, according to Tokyo Stock Exchange data.
About 80% of companies that completed IPOs this year are trading above their offering price, according to data compiled by Bloomberg. Eneres Co., an energy data service provider, has surged almost fivefold since listing. N Field Co., which provides nursing services, has climbed almost sevenfold.
About 80 companies will go public in Japan next year, with even more slated for 2015, according to Keiji Kuramoto, an executive director at Nomura’s IPO department.
“We continue to hold IPO seminars in Tokyo, Osaka and Nagoya,” Kuramoto said. The number of companies applying to attend has risen about 10% to 20% from last year. “The reaction to the seminars is good.”
A total of 770 companies went public globally this year through October, according to data provided by the World Federation of Exchanges. In the U.S., 187 listed on the New York Stock Exchange or Nasdaq Stock Market, while there were 56 IPOs in Hong Kong and 84 in London, the data show.
Improving investor sentiment spurred Oisix Inc., which sells food online, to list after preparing since the fall of 2011, according to Chief Financial Officer Tetsuya Hasegawa. The company more than tripled on its trading debut in March, and it forecasts net income will climb 48% in the year ending March 2014.
“When we talked to potential investors before listing, the reaction was really good and we felt a tailwind from the market environment,” Hasegawa said. “Sentiment pretty much determines the supply of funds to startup companies and the current conditions gave us the final push we needed.”
IPO shares are becoming so attractive that getting the chance to buy them is like winning the lottery, according to Yukio Yamaguchi, who manages a small building firm. He’s subscribed to every public offering since June but hasn’t been successful yet, he said.
“IPO companies are really attractive because you’re practically guaranteed a profit once you manage to buy the shares at the offering price,” said Yamaguchi, who has traded stocks for 15 years.
While individuals are the primary participants in the IPO market, institutional investors are also showing appetite. Fidelity Investments Japan Ltd. holds 8.8% of N Field, making it the second-largest shareholder after the founder, according to data compiled by Bloomberg. The health-care service provider more than doubled to 3,800 yen on its debut in August and closed at 10,360 yen yesterday.
Nippon Life Insurance Co., Japan’s biggest life insurer, owns 14.3% of IT services provider Broadleaf Co., data compiled by Bloomberg show. JP Morgan Asset Management Japan Ltd. holds 5.8% of PeptiDream Inc., a biopharmaceutical company, the data show. Broadleaf jumped 74% this year, while PeptiDream gained 406%.
Annual listings in Japan peaked at 203 in 2000, nearly doubling from 107 the year before, according to data compiled by Bloomberg.
“The IPO market is recovering after crashing and the number of companies listing shares is still quite low given the size of the economy,” said Takashi Nishibori, senior adviser at Finantec Co., an IPO advisory firm, and a director at several startup companies.
Data show the number of companies going public in Japan in a given year says little about future market performance. Since 2000, the number of IPOs in Japan exceeded 60 in eight of the years; in the following 12 months, the Topix fell four times and rose four times.
Tatsuro Nigauri, a small-cap fund manager who helps oversee 5 trillion yen ($50 billion) at Daiwa SB Investments Ltd., isn’t optimistic about the outlook for the IPO market and says the boom may end as early as December.
“The way some mediocre IPO companies such as System Information are priced signals the endgame will be on us soon,” said Nigauri. “I gave up buying some IPOs this year because the offering prices were pushed up by underwriters and the valuations became too high.”
System Information Co., which designs business applications and IT solutions, forecast earnings per share will fall 17% to 71.35 yen in the fiscal year ending September 2014. The company traded at 2,729 yen yesterday, 38 times forecast earnings, according to data compiled by Bloomberg. It surged as high as 6,060 yen after listing last month.
“The share price reflects investors’ views or outlook for the company’s business and earnings,” Hideto Ubui, a spokesman for System Information, said by phone yesterday. “When it rose to 6,060, I felt it had overheated, but the price has settled a bit recently to a level where investors can consider buying.”
Net income at venture-capital company Jafco Co. jumped seven-fold to 5.5 billion yen in the six months through September, buoyed by the recovery in IPOs. It invested in Reprocell and N Field before they debuted this year, according to Hiroaki Matsuda, a corporate officer at the company.
“The strong IPO market brought us very good earnings this year,” Matsuda said. “Inflows to our funds have been stable and executives at startup firms are getting more bullish.”
The Topix has moved in a narrow range since reaching an almost five-year high in May. Average trading volume on the gauge fell to 2.4 billion shares in October from 4.6 billion in May. With share gains from larger companies faltering, the current market environment is favorable for Japan’s emerging stocks, according to Nobuyuki Fujimoto, senior market analyst at SBI Securities Co., Japan’s biggest online brokerage.
“Investors who are at a loss for companies to invest in the current stagnant markets are rushing to IPOs for easy profit opportunities,” Fujimoto said. “The markets have been very comfortable both for investors and startup companies, and the situation won’t change any time soon.”