(Oct 22): The trading debut of Tokyo Metro Co, which runs one of the world’s largest subway systems, is set to support the bull case for the Japanese stock market after an oversubscribed public offering.

Japan’s biggest listing in six years got more than 15 times demand, some of the underwriters said on Tuesday. The sale is a key gauge of appetite for Japanese shares just days before a crucial election that may shape expectations for further interest-rate rises.

The initial public offering (IPO) of Tokyo Metro, which runs an extensive network of underground train services in the world’s most-populous metropolitan area, raised ¥348.6 billion (US$2.3 billion or RM10.01 billion) as investors were attracted by its reputation for safety and reliability. The IPO priced at the top of the range, indicating hot demand for a stable stock with a juicy dividend yield that drew in retail buyers. 

The listing brings into focus the contrast between Tokyo’s efficient, government-owned subway system, and counterparts in major global cities such as New York and London, which are weighed down by debt and ageing infrastructure.

“This is an attractive asset with brand recognition,” said Kirk Boodry, an analyst at financial-advisory firm Astris Advisory Japan. “The financials are generally stable, not a lot of volatility.”

Foreign investors in particular sought more than 35 times the amount of shares on offer to them, the underwriters said, asking not to be identified because the information isn’t public. 

The IPO price of ¥1,200 and Tokyo Metro’s estimated dividend of ¥40 per share for the fiscal year ending March 2025 gives a 3.3% yield. That compares with less than 2% for ground transport companies in Japan, according to data from the Tokyo Stock Exchange as of end-September.

On top of that come perks for investors such as free train tickets and golf, which Hiroaki Tomori, an executive fund manager at Mitsubishi UFJ Asset Management Co, estimates would increase the dividend yield to 4.9%. That’s an attractive in a country where years of ultra-low rates have starved investors of returns. 

“Investors who have had no experience in stock trading felt that it was like a festival and wanted to apply for the commemorative issue,” said Yutaka Tokushige, the manager of the business promotion division at the head office of FFG Securities Co, one of the underwriters.

Kazumi Tanaka, an IPO analyst at DZH Financial Research Inc, expects the shares to start trading Wednesday at around ¥1,500. 

The IPO price gave Tokyo Metro a market value of US$4.7 billion, less than a quarter of East Japan Railway Co and Central Japan Railway Co, which run wide-ranging services across the archipelago. It priced at 13 to 14 times earnings for the year ending March 2025, more expensive than Central Japan Railway.

Tokyo Metro, which carries more than 6.5 million people daily, posted a ¥46.3 billion profit for the year that ended in March 2024, up 67% from a year earlier. The company estimates that will increase to ¥52.3 billion in the current year ending March 2025. 

Tokyo’s subway operates with an efficiency that can seem astonishing to visitors from other major global cities, where the metro systems are dogged by delays, breakdowns and strikes. The smooth operation is comprehensively integrated with other networks, such as Japan Rail and the Tokyo metropolitan-owned Toei subway. 

“Metro systems built a long time ago, including London’s and New York’s, are facing infrastructure problems,” said Taku Fujiyama, an associate professor who studies transport systems at University College London. Tokyo Metro is relatively well maintained due to the sheer volume of passengers as well as the fact that it’s government-backed, he said.

This means investors can be sure of getting a fair price, said DZH Financial’s Tanaka. “There is an unspoken agreement that the government will not inflate the price when selling,” he said.

Conversely, Tokyo Metro’s conservative growth prospects and stable cash flows may mean the upside in secondary trading over time will be limited. 

For the moment, it may keep its edge in profitability over other railway operators in Tokyo, thanks to millions of daily passengers and a highly concentrated operation, said Bloomberg Intelligence analyst Denise Wong. But Japan’s declining population will be a risk and expansion may gradually slow through 2030, she said.

Yoichi Murata, 71, a former high school teacher who owns about 30 company stocks, including Advantest Corp., said he decided not to buy Tokyo Metro because he doesn’t see large gains. 

“The share price won’t be going to double or triple,” he said. “I can’t see much growth for Tokyo Metro in the future as the number of lines in Tokyo is probably at its limit.” 

Tomori at Mitsubishi UFJ Asset said that risks also include Tokyo Metro merging with the smaller Toei subway, which is less profitable, along with potential increases in some government-set operating costs. 

“This is not a high-growth asset,” said Jon Withaar, the head of Asia special situations at Pictet Asset Management SP Pte Ltd, who runs an equity strategy that seeks to capture long-term trends such as improving corporate governance in Japan. “This is not a tech company or a semiconductor company, but for a certain subset of investors, particularly those that are more conservative, it’s a pretty good, high-yielding investment proposition.”

The world’s fourth-biggest economy is emerging from decades of stagnation as the government seeks to cement wage growth and inflation, increasing scrutiny on the outcome of the Oct 27 election.

“Large IPOs would be positive for the market, as they increase attention on Japanese stocks because we don’t have many large-cap names that global investors can buy,” said Chisa Kobayashi, a Japanese equity strategist at UBS SuMi TRUST Wealth Management Co. 

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