(Bloomberg) -- Tokyo Metro Co.’s stock is primed for healthy gains when trading starts on Wednesday after its initial public offering drew strong demand from investors.
The operator of one of the world’s biggest subway systems sold the shares at ¥1,200 ($8) a piece, raising ¥348.6 billion in Japan’s largest IPO since mobile carrier SoftBank Corp. listed in 2018. The deal was oversubscribed more than 15 times, according to several of the lead underwriters.
Tokyo Metro is likely to start trading in the Tokyo Stock Exchange at around ¥1,500, said Kazumi Tanaka, an IPO analyst at DZH Financial Research Inc., pointing to gains of about 25%. The share price of Japanese companies that have gone public this year has risen 34% on average, according to data from Ichiyoshi Securities Co.
A high dividend yield and stable earnings are making Tokyo Metro shares attractive, investors and analysts said. That’s because the company’s business in concentrated in an urban area, and is thought to be less affected by Japan’s declining population.
The IPO comes after legislation required the government to sell shares in Tokyo Metro by March 2028 to repay debt sold in the aftermath of the 2011 earthquake and tsunami. The combined shareholding of the Japanese government and the Tokyo metropolitan government will halve following the offering.
The public nature of the railway business means that it will be difficult for it to rapidly raise fares and pursue profits, said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management Co.
For investors, “as long as the share price doesn’t fall below ¥1,200 and remains stable, it’s good enough to be able to reliably receive dividends and shareholder benefits,” Fujiwara said. He added that Tokyo Metro’s property business also has limited room for growth, so “the results will be solid, but there is no sense of a steady upward trend.”
With more than 6.5 million riders daily, Tokyo Metro forecasts that net profit will rise 13% to ¥52.3 billion in the current fiscal year ending March 2025. Due to an increase in inbound tourism and other passengers, it expects operating income for the transportation business to rise 18% to ¥75.3 billion. The company forecast operating income from its real estate business to remain at about ¥4.5 billion.
Japan’s securities industry is paying close attention to Tokyo Metro’s listing not only because it is the first major deal in six years, but also because its services are used by so many people in their daily lives.
Tokyo Metro operates nine lines and 180 stations, and is used by almost double the amount of people riding the New York City subway.
“It will have a very significant benefit in terms of expanding the investor base” for Japanese stocks, Toshio Morita, chairman of the Japan Securities Dealers Association, said at a press conference on Oct. 16, adding that he hoped it leads to an increase in the number of individual investors who buy shares.
--With assistance from Takahiko Hyuga.
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