All aboard for the Tokyo Metro IPO!

Last week, a reader suggested I write a post about the upcoming Tokyo Metro IPO. This seemed like a great idea, except I have paid precisely zero attention to the offering and would have to spend some time getting up to speed. I don’t really know much about IPO processes and generally see them as a scheme where retail investors provide exit liquidity to venture capital while banks make off with huge fees. Hmmm, I thought maybe I’ll look into it when I have time…

Then, the next day, my wife texted me from work about it. She works with a couple of shrewd investors who were excited about the IPO. Ok, now my wife wants to participate, so I really do have to figure out what the deal is!

First of all, this is clearly going to be a popular offering. You don’t have to be a high-level analyst to determine that the Tokyo Metro is profitable and occupies huge swathes of prime Tokyo real estate. Additionally, this is not a start-up exit to public markets. The Tokyo and national governments are selling half of their holding to the public. (the central government plans to use the proceeds to repay reconstruction bonds issued after the 2011 Tohoku earthquake and tsunami)

What’s the deal?

Tokyo Metro Co. Ltd will be newly listed on the Tokyo Stock Exchange on Wednesday 23 October, 2024. In total, 232,400,000 shares of common stock will be sold to the public. An additional number of shares may be offered depending on demand.

How to participate

Investors who wish to participate can apply through participating securities companies during the application period. If you have an online brokerage account, you will most likely find advertisements and guidance for the offering when you log in.

The price of shares will be determined through a ‘bookbuilding’ process, which is a method to gather investor interest and determine the final price based on demand. The bookbuilding period will be from 8 October to 11 October. This is when you submit your purchase request via your brokerage account. The minimum number of shares you can apply for is 100 – and increments of 100 thereafter. The indicative price per share is ¥1,100. This means the IPO would raise ¥319.55 billion, giving the company an overall value of ¥639.1 billion.

The final offering price and the number of shares to be allocated will be announced on 15 October and the actual public offering period runs from 16 October to 21 October. This is when participants need to deposit sufficient funds to pay for the shares in their brokerage account – make sure you follow the instructions here or you will end up missing out.

There is no guarantee that participants will be allocated all of the shares they apply for. It will depend on the demand for the offering.

Need more info?

For those interested, a Zoom webinar will be held on 3 October at 14.00. You can find details of the offering and a Zoom link here.

About Tokyo Metro

Tokyo Metro operates an extensive subway network with 9 lines mainly in Tokyo’s 23 wards. The most used stations are Ikebukuro (2.487 million daily passengers), Shinjuku (2.165 million), and Shibuya (1.955 million). Total average daily ridership in 2023 was 6.574 million passengers.

The real estate business manages many major properties, including Shibuya Stream, Shibuya Scramble Square, and Tokyo Plaza Ginza. There is also the Shinjuku West Gate Area Project, which is scheduled for completion in 2029.

Tokyo Metro also operates retail businesses such as Echika, a shopping street in some of the metro stations. In-station advertising is, of course, another major business area.

Show me the money!

Tokyo Metro suffered a severe drop in revenue during Covid, but recovered to 95% of pre-pandemic levels by July 2024. The return of inbound tourism, increased population and infrastructure investments played key roles in the recovery.

As part of its growth strategy, Tokyo Metro is focussing on improving accessibility and expanding partnerships with other transport services to increase ridership.

A new trip-planning app is planned for launch this year along with an updated rewards program for frequent passengers – gotta have a point card strategy in Japan!

Tokyo Metro aims to integrate its services better with tourist facilities and provide tailored travel experiences via the app. This is part of the strategy to create more reasons for passengers to use the metro, especially for leisure and tourism. The company is also promoting more contactless payment methods, such as QR codes and credit cards, to streamline fare collection and enhance convenience for passengers.

Tokyo Metro is also working on the expansion of certain metro lines, including the Yurakucho and Namboku lines, which are projected to be completed by 2030.

What to expect from the investment

The share offering is clearly going to be in high demand, with investors looking for a long-term position in a profitable business with a solid dividend. (I’m hearing rumours of a dividend around 3.5% but no idea how accurate that is) There will always be plenty of passengers/customers and the real estate value alone makes the company highly attractive.

On listing, I can imagine a scenario where the share price increases significantly in the first few weeks/months. That may well be followed by a correction in price. Many will view this as a trading opportunity, but remember that you will be trading against every investor in Japan (and many abroad), all of whom will think they have come up with a winning strategy!

My view is that Tokyo Metro will be a solid long-term hold, but admittedly the temptation to sell the initial rally to buy back lower will be strong. If you are going to do so, it’s probably better to be first!

So, there it is. If you are looking to get involved, check your brokerage account and make sure you are prepared to make your bid on 8-11 October.

Best of luck!

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.