Terrie's Take 448 -- IPO market update, ebiz news from Japan
terrie at mailman.japaninc.com
terrie at mailman.japaninc.com
Sun Dec 2 22:39:45 JST 2007
* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
General Edition Sunday, December 2, 2007 Issue No. 448
- What's new
- Candidate roundup/Vacancies
- Upcoming events
- News credits
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+++ WHAT'S NEW
As many readers will know, we like to follow the IPO
market. Largely this is because for most companies, the IPO
is the fitting climax (but only the start of many
challenges to come) to 10 or more years hard work put in by
the founding team and comprises an endorsement of both
their leadership as well as the quality of their business.
Doing an IPO is a coming of age for many Japanese start-ups
and the promise of doing one has a galvanizing effect on its
Over the years, we have successfully identified a number of
companies which have gone on to go public -- and some we
have been lucky enough to come in as investors. One that
readily comes to mind is OK Web, now known as OK Wave,
which listed in 2006. We were their first corporate
However, like many small cap companies that have listed in
the last two years, the OK Wave stock is currently under
water, meaning that it is trading at less than its original
opening price of JPY150,000 per share. It now trades at
around JPY63,000. According to one of our favorite IPO
websites, www.tokyoipo.com (another company we were early
investors in, although no longer), this is not an unusual
phenomenon. Apparently as of October 31, 2007, a full 51 of
104 companies that IPO'd this year were trading at prices
below their original listing price.
Because of the high probability of an issue dropping below
its original asking price, it is no wonder that until
September, the bottom had pretty much dropped out of the
IPO market. Individual investors who make up the bulk of
buyers of such stocks would only take so many loss-making
issues before assuming that the something was rotten. And
that something had been the overeagerness of companies and
their underwriters to launch at a high price -- i.e.,
But things are changing.
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Recently, a new reality seems to have taken place, and as a
result, IPO prices have headed in the opposite direction.
Essentially underwriters are now insisting that companies
drop their launch prices significantly. TokyoIPO.com says
that it reckons most listings occurring recently are
undervalued by as much as 30% to 40%.
With such a large discount, the action is back on again for
investors, and in the case of software maker Ubiquitous,
the first IPO on JASDAQ's new NEO market, the IPO price was
set at a remarkably low JPY100,000. As it turned out there
was a flood of buy orders for the company's stock (90% of
their business is with Nintendo), and it went bid-only,
resulting in an opening price of JPY400,000. If we were the
owners of the company, we'd be kind of mad at the
underwriters (Nomura) for getting such a small portion of
cash into the business and leaving such a lot on the table.
But we suppose that Nomura was thinking of the bigger
Despite the discounting, the Ubiquitous IPO result was
still a reasonable one for the company, though. For many
other companies thinking of doing an IPO the outlook is
much bleaker. As an example, for a company with a market
capitalization on the launch day of JPY10bn (US$90m
approx.), and letting out a typical 10%-20% of their
shares, the current discounting means a full JPY400m to
JPY800m less is taken in proceeds. Considering that the
late-stage institutional investors pretty much want their
money back on the opening day (they might leave their
profits in), this doesn't leave much cash on the table for
the founding team and the company itself.
Indeed, it might be argued that for many CEO's, apart from
the short-term ego-boost, doing an IPO isn't really worth
doing these days. The Ubiquitous CEO for example, held
4.4% of the stock, and his take from the proceeds would
have been no more than JPY10m-20m (our guess), less than a
typical investment banker might make as a bonus. Of course,
on paper he is worth much more, currently around JPY1.4bn,
but as soon as he starts selling some of those shares the
company's share price will tank, as investors look for a
reason (read, trouble in the company) for his selling. It's
a tough catch-22 situation and a good reason for owners to
consider doing a trade sale.
One CEO who won't have a problem with owning too small a
percentage of shares at IPO-time, though, is Eigo Nosaki of
Treasure Factory. Some of our long-term readers may
remember that we covered this company back in the February
2004 issue of Japan Inc. magazine
then, Nosaki was 31 and had just become Japan's third
largest recycling chain, with annual sales of JPY1.8bn
(US$16m). Nosaki's company is now slated to go public on
the Mother's market on December 27th. He and his wife
currently control about 84% of the outstanding stock. No
word on what the pricing will be, however, we expect it to
result in a market cap of around JPY10bn. Not bad for a
34-year junk trader.
October was supposedly a good month for IPOs, and market
experts have been saying that maybe the anemic small-cap
market has started to turn around. However, on closer
review, one finds that the high level of funds raised in
October was mainly thanks to the JPY217.6bn (US$1.978bn)
IPO of Sony Financial Holdings. If you take that single
issue out of the mix, the amount raised by the other 11
issues was just JPY11.9bn (US$108m) -- indicating the
continued lack of liquidity for small cap issues. It looks
like there will have to be a few more Ubiquitous-type
issues before individual investors really start to come
back and start boosting prices again.
...The information janitors/
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- New platinum-free fuel cell catalyst
- National Chauvinistic Husbands Association
- US military bases hit by workers' strike
- Rakuten and President to set up Taiwan shopping site
- Solar cell output to increase
-> New platinum-free fuel cell catalyst
A development by a consortium from Asahi Kasei, Kyushu
University, and the Noguchi Institute may open the way for
mass production of home ethanol-based fuel cells as an
alternative power source. The group has figured out a way
to replace expensive platinum as a catalyst by using a
copper-based compound reacted with dithiooxamide (rubeanic
acid). The new material is still low in efficiency and
needs to be about 100 times more effective before it can be
practically substituted for platinum. (Source: TT
commentary from nikkei.co.jp, Nov 29, 2007)
-> National Chauvinistic Husbands Association
The advent of a new law back in April this year which
allows women to seek half of their husband's pension has
spawned both a boom in divorces (up 6.1% in April alone) as
well as a reactionary protest group called the National
Chauvinistic Husbands Association (NCHA). The group says
that the "chauvinistic" part of their moniker, "kanpaku" in
Japanese, refers more accurately to the top assistant to
the emperor in days gone by, rather than the current
negative meaning that it has today. Regardless, the
association faces an uphill battle. Apparently 70% of
Japanese women are staying single until 29 or later, versus
75% of them being married at that age twenty years ago, and
95% of all divorce applications come from women. (Source:
TT commentary from kansascity.com, Nov 29, 2007)
-> US military bases hit by workers' strike
Japanese workers from at least 40 US military bases and
related facilities around Japan have gone on strike for a
second time in two weeks. More than 16,000 Japanese workers
in a base-workers union are protesting the Japanese
government's plan to cut their salaries by 10% and benefits
by JPY6,000 per month. The workers look after the
facilities for an estimated 50,000 US troops stationed in
Japan. Japan shells out JPY217.3bn (US$1.98bn) as its
contribution to keep the bases going. (Source: TT
commentary from IHT.com, Nov 30, 2007)
-> Rakuten and President to set up Taiwan shopping site
Rakuten has teamed up with the operator of 7-Eleven stores
in Taiwan, President Chain Store, to create an online
retailing venture similar to Rakuten's highly successful
business in Japan. The new site will launch in Q2 2008,
and is expected to start with about 3,000 online tenants.
This is the first foreign venture for Rakuten in online
shopping. The Taiwan online shopping market is
estimated to be worth US$5.6bn. (Source: TT commentary
from reuters.com, Nov 29, 2007)
-> Solar cell output to increase
Sharp has said that it plans to increase the thin-film
solar cell capacity of its Nara plant by 10 times, to meet
soaring demand from customers worldwide. The company will
invest JPY22bn (US$200m) to increase generation capacity
from 15MW to 160MW a year. Thin-film cells are in big
demand because they use far less semiconductor-grade
silicon, which is in short supply. Sharp is also building
a huge new solar cell plant in Sakai, in Western Japan.
When that plant goes online in 2010, it will be the world's
largest, capable of producing 1GW of solar cells annually.
(Source: TT commentary from nikkei.co.jp, Nov 29, 2007)
NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.
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+++ CANDIDATE ROUND UP/VACANCIES
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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.
-> In TT447 we wrote about the rapid take-up of 1-seg
equipped cell phones, and whether the technology comprised
a genuine trend or just a fad.
*** Our reader responded saying: I just wanted to comment
on the 1-seg phones article. It is strange that the article
doesn't really mention that almost every single phone out
there has almost everything that anyone would want. No one
wants to buy last month's model when this month's model is
out and is not much different as far as price goes. Besides
1-seg, the makers include all sorts of other features to
give you far more options than you probably really need --
for example, lots of colors, etc.
So in saying 1-seg is booming, I wonder if your article
really gives a true picture? For example, my
brother-in-law, a normal Japanese guy, bought a 1-seg
option for his DS. He turned it on once, turned it off, and
said he won't bother using it until he is stuck on a train
and wants to watch a sporting event.
So the idea is basically not that you want to watch it
every day on your way to work on the train while the old
man next to you peers over your shoulder, but to have it
handy when your boss makes you work late and you are
missing your favorite sport. Drop the phone on the desk,
and listen in or just watch, while you work.
It's more of an added convenience rather than a fad or a
must-have. Since most phones have it installed, the
apparent big boom or rush in sales mentioned in your
article is a misreading of the market. Since I work with a
lot of people in Europe and the USA, in IT as it relates
to phones, including mobile options, your article hit 3
people who already wrote to me asking what's the deal about
1-seg. I told them the truth, it's a new toy, not big and
*** We respond: Thanks for reading the article and taking
time to respond. We point out that there are still plenty
of phones being sold without 1-seg (more than 60%), and
for those people not valuing the feature, they don't have
to pay for it. We would also point out that in the last few
weeks some amazing new models have appeared on the market,
such as the new Panasonic Viera. These devices
significantly improve the reception quality and make
watching TV on the train a reality. A modest investment in
a polarizing screen film for the phone display will stop
the old geezer next to you getting in a free show.
You're right that it is not clear yet whether 1-seg is here
to stay, however, we suspect that with the current level of
investment being pumped into technology and programming for
the standard, it will soon become a genuine media in its
own right. As 1-seg progresses, we wouldn't be surprised to
see it graduate to regular consumer devices (or at least an
upgraded version), and interactive TV will finally hit the
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+++ ABOUT US
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)
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