Tokyo Metro IPO is a big deal with big caveats
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to remove broken link in fifth paragraph.
By Hudson Lockett
HONG KONG, Oct 7 (Reuters Breakingviews) -There's plenty for investors to get on board with in Japan's biggest listing in half a decade. The government is selling 320 billion yen ($2.2 billion) of shares in subway operator Tokyo Metro, and trends are broadly on its side.
Cost-cutting measures launched during the pandemic, plus the return of rail-reliant Tokyo commuters to the office, helped boost the company's EBITDA more than 50% in the fiscal year to March, to 150 billion yen. More impressively, at 39%, the EBITDA margin was nearly 10 percentage points higher than the previous year and well above the average 23% for listed rivals. Tokyo Metro is also experimenting with credit card payments to cater to foreign tourists and plans to reduce headcount by about a tenth by 2031, partly through increased automation.
All that bodes well for the upcoming initial public offering. The deal’s indicative price of 1,100 yen per share will give Tokyo Metro a valuation of 1.7 trillion yen including debt. Assume revenue increases 14% this fiscal year - the average forecast growth for listed peers - and that margins hold steady, then the forecast 171 billion yen of EBITDA implies a valuation multiple of just less than 10 times its enterprise, a slight discount to double-digit ratios enjoyed by rivals with less impressive margins, including Tokyu 9005.T and Odakyu Electric Railway 9007.T.
Rising indebtedness is one factor. As of March, net debt stood at 6.9 times EBITDA, up from less than 4 times pre-Covid, due to rail extension and other projects. The company, which is not raising any funds in the listing, warns in its prospectus that it does not expect its long-term debt to fall significantly in the medium term.
Then there's the fact that, unlike the last big railway privatisation in 2016, Tokyo Metro’s government owners are not fully divesting.
The Ministry of Finance and Tokyo Metropolitan Government will together still hold 50% of shares outstanding after the IPO, which is required by law to be conducted before March 2028 to repay debt sold after the Tohoku earthquake and tsunami of 2011. Japan’s Ministry of Land, Infrastructure, Transport and Tourism has indicated that future divestment should take a backseat in light of the ongoing expansion projects, which are expected to finish in the 2030s.
That creates a massive stock overhang for investors. It also limits Tokyo Metro’s ability to carry out share buybacks on top of regulations that limit its ability to raise fare prices.
That may be why Tokyo Metro has proposed an initial dividend that implies a yield of 3.6% using the IPO price - double the sector average. Investors will have to weigh whether that and a solid earnings outlook are enough to offset the deal's caveats.
Follow @KangHexin on X
CONTEXT NEWS
Subway operator Tokyo Metro plans to raise about 320 billion yen ($2.2 billion) from its upcoming initial public offering in Tokyo, with shares set to price on Oct. 15. The company has provided an indicative price of 1,100 yen per share, suggesting a market capitalization of 639 billion yen.
The privatisation will reduce the combined holdings of Japan’s Ministry of Finance and the Tokyo Metropolitan Government to 50% of outstanding shares in the company.
Graphic: Tokyo Metro: high margins, high dividend https://reut.rs/47Xw3Iz
Editing by Robyn Mak and Ujjaini Dutta
Eng oxirgi yangiliklar
Javobgarlikdan voz kechish: XM Group korxonalari har biri faqat ijro xizmatlarini koʻrsatadi va onlayn savdo platformamizdan foydalanish huquqini beradi, bu odamga veb-saytda yoki veb-sayt orqali mavjud boʻlgan kontentni koʻrish va/yoki undan foydalanishga ruxsat beradi hamda uni oʻzgartirishga moʻljallanmagan va uni oʻzgartirmaydi yoki kengaytirmaydi. Bunday kirish va foydalanish huquqi doimo quyidagilarga boʻysunadi: (i) Shartlar va qoidalar; (ii) Risklar haqida ogohlantirish; va (iii) Javobgarlikni toʻliq rad etish. Shuning uchun bunday kontent umumiy maʼlumot sifatida taqdim etiladi. Xususan, shuni esda tutingki, bizning onlayn savdo platformamiz mazmuni moliyaviy bozorlarda biror bitimni amalga oshirishga oid maslahat yoki taklif emas. Har qanday moliyaviy bozorda savdo qilish sizning kapitalingiz uchun jiddiy risk darajasini oʻz ichiga oladi.
Onlayn savdo platformamizda chop etilgan barcha materiallar faqat taʼlim/axborot maqsadlari uchun moʻljallangan va unda moliyaviy, investitsiya soligʻi yoki savdo maslahatlari va tavsiyalar; yoki bizning savdo narxlarimizning qaydlari; yoki har qanday moliyaviy vositalar bilan bitim tuzish maslahati yoki taklifi; yoki sizga kerak boʻlmagan moliyaviy reklama aksiyalari hisoblanmaydi
Har qanday uchinchi tomon kontenti, shuningdek XM tomonidan tayyorlangan kontent, masalan: fikrlar, yangiliklar, tadqiqotlar, tahlillar, narxlar va boshqa maʼlumotlar yoki bu veb-saytda joylashgan uchinchi tomon saytlariga havolalar umumiy bozor sharhi sifatida "boricha" taqdim etiladi va investitsiya maslahatini tashkil etmaydi. Har qanday kontent investitsiya tadqiqoti sifatida talqin qilinsa, siz bunday kontentni investitsiya tadqiqotlarining mustaqilligini ragʻbatlantirish uchun moʻljallangan qonun talablariga muvofiq moʻljallanmagan va tayyorlanmaganligini eʼtiborga olishingiz va qabul qilishingiz kerak, shuning uchun unga tegishli qonunlar va qoidalarga muvofiq marketing kommunikatsiyasi sifatida qaraladi. Mustaqil boʻlmagan investitsiya tadqiqoti va yuqoridagi maʼlumotlarga oid risk haqida ogohlantirishimizni oʻqib chiqqaningizga va tushunganingizga ishonch hosil qiling, unga bu yerdan kirish mumkin.
