Party is on – Kokusai Electric's IPO strikes the right chord

Data InsightECM Explorer 30 October

Party is on – Kokusai Electric's IPO strikes the right chord

Kokusai Electric’s USD 724m initial public offering (IPO) – one of the most exciting Japanese listings in recent years - has served as an affirmation of renewed interest among global equity investors in the world’s third largest economy.

The KKR-backed, Tokyo-based maker of NAND memory-chip manufacturing machinery shot up 28% on its debut on the Tokyo exchange on Wednesday (25 October) after pricing its maiden share sale at JPY 1,840.

Kokusai Electric raised the most amount of money from a Japanese IPO since June 2018, when Mercari [TYO:4385], Japan’s Amazon, pocketed USD 1.2bn from its first-time share offer. Based on day-one performance, Kokusai Electric came in second among the Japanese IPOs sized USD 200m or above  - a deal size threshold for this news service's coverage - so far this year, after only Rakuten Bank’s [TYO:5838] 37.9% first-day gain, based on Dealogic data.

To be clear, Kokusai had ARM Holdings to thank when finalizing the IPO price range. The company, which initially targeted an offer price of JPY 1,890, trimmed it to a JPY 1,830-JPY 1,840 range after ARM’s losses since listing. And eventually Kokusai Electric fixed its IPO at the top end of JPY 1,840.

Around midday Hong Kong time on Monday (30 October), Kokusai Electric advanced roughly 3% to JPY 2,742, a 49% gain in a matter of days.

“The semiconductor sector is different thanks to inventory adjustments, which has started showing signs of hitting a bottom,” said an asset manager at Shinkin Asset Management. “Kokusai came at the right timing. We rarely see a large semiconductor company IPO. Though it is not cheap, investors find it easy to draw a growth story for Kokusai.”

Taiwan Semiconductor Manufacturing [TPE: 2330], the world’s largest contract chip maker widely considered as the industry bellwether, has recovered 40% since hitting a recent bottom in October 2022. Arm Holdings, meanwhile, remains under water.

Analysts including Travis Lundy at Quiddity Advisors are hopeful of further gains on expectation of the stock’s inclusions into indices from TOPIX, MSCI to Nikkei 225, within possibly the next 24 months, as long as the stock stays on its current trajectory, according to a Smartkarma report.

Even a global multi-strategy investor who told this news service in May he continued to go short on Japan, based on the country’s unimpressive track record on various reforms, acknowledged to this writer he has changed his view.

“Generational changes” at corporate boards are driving decisions that help Japan Corp. catch up with the rest of the world, and that’s favoring investors more than ever.

Another fund manager, at Ichiyoshi Investment Management, agreed that once inventory concerns are addressed, the stock will surely rise further “because there are no issues regarding the company’s fundamentals.”

While most of the Tokyo-based fund managers consider it premature to expect Kokusai Electric’s IPO to re-open Japan’s IPO market meaningfully, we are seeing Japanese corporates finally waking up to stricter regulations on investor returns imposed by authorities.

This should at least prevent Japan Corp. from falling back into hibernation.

For more details on Japan’s upcoming IPOs, please check out the IPO pipeline on Dealogic’s next-generation platform.

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