The trading debut of Tokyo Metro Co., which operates one of the world’s largest subway systems, is expected to boost the bull case for the Japanese stock market following an oversubscribed public offering.
Japan’s largest offering in six years had more than 15 times the demand, according to some underwriters on Tuesday. The selling is a critical indicator of desire for Japanese stocks, coming just days before a crucial election that could shape expectations for more interest rate hikes.
Tokyo Metro IPO
Tokyo Metro’s IPO raised ¥348.6 billion ($2.3 billion) with investors drawn to the company’s reputation for safety and reliability. The IPO was priced at the top of the range, showing strong demand for a steady company with a high dividend yield which attracted retail buyers.
The listing highlights the contrast between Tokyo’s efficient, government-owned subway system and counterparts in large global cities like New York and London, which are burdened by debt and outdated infrastructure.
This is an attractive asset with brand recognition,” said Kirk Boodry, an analyst at financial advice firm Astris advice Japan. “The financials are generally stable, not a lot of volatility.”
Foreign investors, in particular, sought more than 35 times the number of shares on offer, according to the underwriters, who requested anonymity because the information is not public.
The IPO price of ¥1,200 plus Tokyo Metro’s anticipated dividend of ¥40 per share for the fiscal year ending March 2025 yields 3.3%. This compared to less than 2% for ground transportation companies in Japan, according to statistics from the Tokyo Stock Exchange as of the end of September.
On top of that, investors will receive benefits such as free train tickets and golf, which Hiroaki Tomori, executive fund manager at Mitsubishi UFJ Asset Management Co., says will raise the dividend yield to 4.9%. That’s appealing in a country where years of ultra-low interest rates have deprived investors of profits.
Investors who had no prior experience in stock trading felt it was like a festival and wanted to apply for the commemorative issue,” said Yutaka Tokushige, manager of the business promotion section at FFG Securities Co.’s headquarters, one of the underwriters.
Kazumi Tanaka, an IPO analyst at DZH Financial Research Inc., predicts that on Wednesday, the shares will begin trading at about ¥1,500.
Tokyo Metro’s market value, as determined by the IPO pricing, was $4.7 billion, which is less than a fifth of East Japan Railway Co. and Central Japan Railway Co., which provide substantial services across the archipelago. It is priced higher than Central Japan Railway, at 13 to 14 times profits for the fiscal year ending March 2025.
With a daily passenger volume of over 6.5 million, Tokyo Metro reported a ¥46.3 billion profit for the year ending in March 2024, a 67% increase over the previous year. In the current fiscal year, which ends in March 2025, the company anticipates growth reaching ¥52.3 billion.
Visitors from other large international cities, where metro systems are plagued by delays, malfunctions, and strikes, may find Tokyo’s underground system to be remarkably efficient. The seamless operation is fully connected with other networks, including the Toei subway operated by the Tokyo metropolitan area and Japan Rail.
“Long-standing metro systems, such as those in London and New York, are having infrastructure issues,” stated Taku Fujiyama, an associate professor at University College London who specializes in transport systems research. He claimed that because of the enormous number of passengers and the government’s support, Tokyo Metro is comparatively well-maintained.
According to Tanaka of DZH Financial, this implies that investors can be certain they will receive a fair price. “The government will not inflate the price when selling,” he remarked, referring to an unwritten agreement.
On the other hand, Tokyo Metro‘s steady cash flows and cautious growth prospects might indicate that secondary trading’s long-term potential will be constrained.
Because of its highly concentrated business and millions of daily passengers, it may be able to maintain its economic advantage over other railway operators in Tokyo for the time being, according to BI analyst Denise Wong. However, she noted that Japan’s population decline poses a problem and that growth may progressively slow through 2030.
Former high school teacher Yoichi Murata, 71, who owns interests in roughly 30 companies, including Advantest Corp., stated that he chose not to purchase Tokyo Metro because he does not anticipate significant profits.
He predicted that the share price would not double or triple. “The number of lines in Tokyo is probably at its limit, so I don’t see much growth for Tokyo Metro in the future.”
The merger of Tokyo Metro with the smaller, less lucrative Toei subway is another concern, according to Tomori of Mitsubishi UFJ Asset, as is the possibility of higher running costs set by the government.
According to Jon Withaar, head of Asia special circumstances at Pictet Asset Management SP Pte., who oversees an equity strategy that aims to capitalize on long-term trends like better corporate governance in Japan, “this is not a high-growth asset.”
“This is not a tech or semiconductor company, but it is a good, high-yielding investment proposition for a certain subset of investors, especially those who are more conservative.”
As the government works to stabilize inflation and wage growth, the fourth-largest economy in the world is rising from decades of stagnation, raising concerns about the outcome of the election on October 27.
According to Chisa Kobayashi, Japan equity strategist at UBS SuMi TRUST Wealth Management Co., “large IPOs would be positive for the market, as they increase attention on Japanese stocks because we don’t have many large-cap names that global investors can buy.”
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