April 1, 2014 7:00 pm JST

Hoping for a hot IPO? Japan's fiscal 2013 listings show having a niche helps

JUMPEI KAWAKAMI and AMI SATO, NQN staff writers

TOKYO -- Japan tallied 52 initial public offerings in the just-ended fiscal year, roughly on a par with the previous year's total. Companies that offer niche products and services, in particular, attracted plenty of interest from investors. 

     On Monday, the final day of fiscal 2013, a real estate escrow company's stock opened for trading on the Jasdaq market. Escrow Agent Japan brought the number of listings to 52, excluding foreign businesses and the Tokyo Pro Market. For comparison, 98 Japanese companies hit the market in 2007.

     Freshly listed stocks performed well, too, with opening prices topping IPO prices by an average of 2.1 times. In fiscal 2012, the average was 1.7 times.

     The Japanese stock market's overall strength fueled investors' appetite for new shares. The notion that IPOs can be profitable spread. "The prospects for IPOs improved significantly compared with last year," said an official at kabu.com Securities, an online brokerage.

Excitement generator

Forty-nine companies saw their opening prices exceed their IPO prices, compared with 45 the previous year. ReproCell, which produces a reagent for growing stem cells, had the greatest opening price differential. It opened at 3,560 yen, after a stock split -- about 5.6 times its IPO level of 640 yen.  

     Many investors apparently bet that ReproCell will benefit from the Japanese government's goal of making the medical sector an engine for the economy. The fact that Shinya Yamanaka, the Nobel Prize-winning scientist and professor at Kyoto University, uses the company's products likely gave the stock some extra magnetism.

     PeptiDream, another biotechnology company, opened at 3.2 times its offering price, giving it the ninth-best differential.

Short-term surges

ANAP, which sells apparel for young women, System Information, a developer of professional software, and Media Do, which distributes electronic books, all had far higher opening prices than IPO prices.

     But growth potential is not always the catalyst for a post-listing surge. "The strong flow of capital stirred further buying," an official at a securities company said. Many issues were boosted by short-term investment focused on exploiting price movements. In a lot of cases, when opening prices were too high to be explained by fundamentals, stocks eventually plunged due to profit-taking.  

     Shares in ANAP, mostly bought after opening, are now hovering around the IPO price of 1,000 yen. O-uccino, which runs a real estate information website, fell to roughly 80% of its IPO price.

Upward trajectories

Some companies that had strong starts, though, kept on rising. N Field, which provides home care mainly for patients with mental disabilities, opened at 3,100 yen -- 2.1 times the IPO price of 1,500. On March 28, the stock closed at 18,300 yen, 12 times the IPO price.

     N Field's "business is unique and it has operations nationwide," explained Masatoshi Nagata, a senior analyst at Ichiyoshi Research Institute. "There are high expectations for its future profit growth." 

     Sanwa, which sells building materials over the Internet, is trading considerably higher than its opening price of 190 yen, after a stock split. The company's strength lies in its strategy of selling products at consistent prices, regardless of order volumes and the scale of a buyer's business. Sanwa's "unconventional marketing method" caught investors' attention, a securities house official said.

     Eneres, which offers energy management services that reduce electricity costs, is trading at roughly six times its IPO price of 280 yen.