Bloomberg News

Japan Display Plunges 15% in Debut on Business Model Concerns

March 19, 2014

Japan Display Inc. plant stands in Mobara

The Japan Display Inc. plant stands in Mobara, Chiba Prefecture, Japan. Photographer: Kiyoshi Ota/Bloomberg

Japan Display Inc., a merger of three struggling screen-makers that’s supported by a government-backed fund, posted the worst debut of any Asia-Pacific initial public offering worth at least $1 billion since 2008.

Shares plunged 15 percent to close at 763 yen in Tokyo, compared with the 900 yen price paid in the IPO and a 0.1 percent drop in the benchmark Topix index. The company, which supplies screens for Apple Inc.’s iPhones, raised 318.5 billion yen ($3.1 billion) in its initial offering.

Japan Display was created when Sony Corp., Toshiba Corp. and Hitachi Ltd. spun off their panel businesses to state-backed Innovation Network Corp. of Japan after failing to keep pace with South Korea’s Samsung Electronics Co. Competition to manufacture displays is intensifying as Chinese and Taiwanese companies boost yields, said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore.

“Japan Display is the merger of three companies that have been bleeding red ink and haven’t undergone any drastic business model changes,” said Makoto Kikuchi, Tokyo-based chief executive officer for Myojo Asset Management Co. “Today’s IPO offered a good example that it will end up in failure if the government simply force companies to merge.”

The company is taking the share price reaction seriously, President Shuichi Otsuka told reporters in Tokyo today. Japan Display plans to use the IPO proceeds to expand production to meet display demand from manufacturers of mid-priced smartphones.

Investment Return

INCJ sold 186 million shares in the IPO to Japanese and international investors. At the IPO price of 900 yen, that stock is valued at 167.4 billion yen.

The fund will retain 214 million shares, which is about 35 percent of Japan Display’s issued capital and valued at 163.3 billion yen at today’s close.

The fund’s total investment in Japan Display is valued at 330.7 billion yen based on the IPO and closing price today, or about 65 percent more than its initial investment of 200 billion yen.

Sony, Hitachi and Toshiba each made investments valued at about 10 billion yen in Japan Display. Those stakes are worth about 16.5 billion yen each.

Japan Display had planned to sell shares in the range of 900 yen to 1,100 yen, according to terms for the deal. The company sold 140 million new shares and investors including Sony offered 213.9 million existing shares, according to a filing.

Nomura, Goldman

The offering led by Nomura Holdings Inc., Morgan Stanley (MS:US) and Goldman Sachs (GS:US) Group Inc. came as the high-end smartphone market approaches saturation, with Apple reporting iPhone sales that missed analyst estimates.

Nomura, Morgan Stanley and Goldman Sachs acted as joint global coordinators for the offering, according to terms for the deal obtained by Bloomberg News March 3. Bank of America (BAC:US) Corp., Deutsche Bank AG and UBS AG (UBSN) are also among banks helping manage the sale.

Kenji Yamashita, a spokesman for Nomura, and Hiroko Matsumoto, a spokeswoman for Goldman Sachs, declined to comment. Tokyo-based spokesmen for Morgan Stanley weren’t available for comment.

Japan Display gets about 32 percent of its sales from Apple, according to data compiled by Bloomberg. Sony Corp. (6758), maker of the Xperia line of smartphones and tablets, generates 9.4 percent.

Apple reported iPhone sales for the quarter including Christmas that missed analysts’ estimates and projected that revenue in the current period may shrink from a year earlier, in what would be the first quarterly sales decline since 2003.

Pricing Pressure

For the quarter ended Dec. 28, Apple said it sold a record 51 million iPhones, missing analysts’ estimates of 54.7 million devices.

Global smartphone shipments will slow to 8.3 percent annual growth in 2017 as mature markets become saturated, Framingham, Massachusetts-based IDC Corp. said in a Feb. 26 report. That is pushing down average selling prices, with some Chinese makers selling phones for as low as $100.

“Compared to corporate performance, the IPO price was set too high,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. in Tokyo. “The smartphone market has been ailing from oversaturation, and that is causing concern among some investors.”

Underperforming Market

“Recently there has been some pricing pressure in panels, so fundamentally that is a weak trend in the near-term,” said David Rubenstein, a managing director at Advanced Research Japan in Tokyo. “Also the Japanese stock market in general has been underperforming this year.”

Japan Display’s performance trailed that of BrisConnections Unit Trust (BCS), an Australian toll-road operator which raised $1.1 billion from a June 2008 initial public offering and fell 59 percent on its trading debut, the data show.

Hitachi Maxell Ltd., an electronics and memory storage manufacturer, fell 14 percent below its IPO price on March 18, its first day of trading in Tokyo.

Lawson Inc., a convenience-store operator, fell 23 percent when it debuted in March 2000 after raising $2.4 billion, while Japan Tobacco Inc. slumped 24 percent when it first started trading in 1994, according to the data.

To contact the reporters on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net; Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Aaron Clark


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