Japan’s largest IPO in 6 years- Tokyo Metro’s cash dividend is high, soaring nearly 50% on the first day of trading

On Wednesday, Tokyo Metro marked its debut on the Tokyo Stock Exchange, experiencing a remarkable first-day surge of nearly 50%. This strong performance highlights investor enthusiasm for Japan’s largest initial public offering (IPO) in six years.

The metro company, which serves up to 6.5 million passengers daily, priced its shares at ¥1,200 each, successfully raising ¥348.6 billion (approximately $2.28 billion). This IPO represents the largest since SoftBank’s listing in 2018 and is also the most significant divestiture of a privatized entity since Japan Post’s IPO in 2015. Tokyo Metro opened at ¥1,630, peaked at ¥1,768, and ultimately closed at ¥1,739—a gain of 44.9%.

Taku Ito, Chief Securities Fund Manager at Nikko Asset Management, commented, “We believe the IPO price was set too low, considering its fair value should be around ¥1,600. This stock is a classic high-dividend play and defensive investment. While I’m skeptical about how much higher the stock price can go, at the current level, it’s a nice option for long-term holding.”

Investors and analysts see Tokyo Metro’s appeal stemming from its robust cash dividends and continuous profit growth. Additionally, the company operates mainly in urban areas, making it less vulnerable to Japan’s declining population.

Tokyo Metro anticipates a dividend of ¥40 per share for the fiscal year ending March 2025, translating to a cash yield of 3.4%, notably higher than the sub-2% yield of most publicly listed transport companies in Japan.

Furthermore, shareholders will enjoy perks such as free subway passes and golf vouchers. Hiroaki Tomori, Executive Fund Manager at Mitsubishi UFJ Asset Management, estimates that these benefits effectively boost the yield to 4.9%.

Mitsushige Akino, President of Ichiyoshi Asset Management, noted the stock’s popularity among retail investors, predicting a potential rise of 13% from Wednesday’s peak, possibly reaching around ¥2,000. He added that if this stock is included in major indices, foreign investment interest could intensify.

This IPO was primarily a move to sell half of the 53% stake that the Japanese government holds in Tokyo Metro, with proceeds aimed at repaying debts incurred from reconstruction efforts following the 2011 earthquake and tsunami.

The Tokyo Metropolitan Government retains the remaining 47% stake, reducing the joint holdings of the national and local governments to 50%, with plans to offload the rest over the coming years.