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Tokyo's AI startup Heroz scores record IPO gains

Japanese-chess king's frenzied rise points to irrational exuberance in the market

Heroz went public on the Tokyo Stock Exchange's Mothers market on April 20. (Photo by Shoji Yano)

TOKYO -- The company whose robot software beat a renowned player at Japanese chess notched a record tenfold jump in share price between Friday's initial public offering and opening for trading Tuesday, fueling a sense that the IPO market is overheating.

Days after listing on the Tokyo Stock Exchange's Mothers market, Heroz had finally settled down enough to open at 49,000 yen -- 10.9 times the offering price of 4,500 yen. It took a bumpy ride before closing limit-down at 42,000 yen.

Tokyo-headquartered Heroz is home to an engineer who developed software for the Ponanza shogi-playing robot, which has racked up attention-grabbing wins in the traditional board game against renowned player Amahiko Sato. A shogi app from Heroz boasts well over 4 million users, and the company also provides artificial-intelligence solutions for such industries as construction and finance.

Investors smelled growth and rushed to buy the newly listed Heroz. The company raised just 800 million yen ($7.35 million) through its listing, but "order value from retail investors reached nearly 1.4 trillion yen," according to one online brokerage.

Heroz's ratio of offering to opening price was the loftiest since Japan adopted book-building, a method of gauging investor demand in advance, as a mechanism for IPOs in 1997. The previous record-holder, mobile content provider MTI, achieved a ratio of 9.1 in 1999 at the height of the dot-com bubble.

For companies listing in 2018, opening prices have averaged out at 3.5 times offering prices, according to SMBC Nikko Securities. This is higher than during the 2005-06 boom in up-and-coming stocks and approaches 1999's average ratio of 4.5.

Taking advantage of the Bank of Japan's large-scale monetary easing, cash-flush investors appear to be rushing into the promising IPO market. The number of listings remains on a growth trend as well, and this year's total will likely be "about 90 companies, on a par with 2017," said Tomohiro Suzuki of auditing firm KPMG Azsa.

But wariness is rising. The bursts of the dot-com and mid-2000s bubbles dragged equities down. And "the present pattern of high opening prices is unlikely to continue," predicted Tomoichiro Kubota of Matsui Securities.

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