Tokyo Metro Co.’s stock price surged 45% on Wednesday in its trading debut after the initial public offering drew strong demand from investors looking for a steady stream of dividends from the firm.
The shares closed the trading session at ¥1,739 (S$15.06) and rose as high as ¥1,768 after the operator of one of the world’s biggest subway systems sold them at ¥1,200 (US$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.
“We thought the IPO price was too low and its fair value would be around ¥1,600,” said Taku Ito, chief equity fund manager at Nissay Asset Management. “This is a typical dividend stock. It is also a defensive stock. I doubt there’s much upside to its stock prices but it is a stock you can hold for a long time at current levels.”
A high dividend yield for Japan and the firm’s earnings outlook are making Tokyo Metro shares attractive, investors and analysts said. The company’s business is concentrated in an urban area and is less affected by Japan’s declining population.
The share price of Japanese companies that have gone public this year has risen 34% at debut on average, according to data from Ichiyoshi Securities Co.
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Tokyo Metro shares could rise another 13% from Wednesday’s high to around ¥2,000 given their popularity among retail investors, said Mitsushige Akino, president of Ichiyoshi Asset Management. Foreign investors’ appetite could increase once they are included in a major index, he added.
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.
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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.
