TOKYO — Kokusai Electric witnessed a remarkable 28% increase in their market debut in Tokyo on Wednesday, an event spurred by private equity firm KKR’s strategic sale of shares in the chip equipment manufacturer, securing $724 million. This initial public offering (IPO) is celebrated as Japan’s most substantial in half a decade.
The closing price of Kokusai Electric’s stock was set at 2,350 yen, thereby ascribing a valuation of 541.5 billion yen ($3.61 billion) to the company. Investors fervently embraced this unique opportunity to invest in a pivotal chip tool manufacturer.
Kokusai Electric had originally priced its shares at 1,840 yen, marking the most significant listing in Tokyo since the momentous IPO of telecommunications giant SoftBank (TYO:9984) in 2018. This significant offering facilitated a partial divestment for KKR, resulting in a decrease of their stake from 73.2% to 47.7%, without the utilization of an overallotment.
Tomochiro Kubota, an analyst at Matsui Securities, commented on the unforeseen performance, stating, “The market for chip-related stocks outside of AI is weak, so some were wondering what would happen. In the end, the company had a good start.”
While manufacturers of chip tools have experienced a slump due to decreased demand for electronic devices, such as smartphones and PCs, Kokusai Electric is poised to capitalize on an anticipated market rebound. The company also possesses the potential to expand into various other industry segments, as highlighted by Kazuyoshi Saito, an analyst at Iwai Cosmo Securities.
Compared to industry heavyweights like Tokyo Electron, Kokusai specializes in producing machines for silicon wafer film deposition, with a notable 40% of its revenue attributed to giants like Samsung Electronics (KS:005930), TSMC, and Micron Technology (NASDAQ:MU).
In its financial projections, Kokusai Electric anticipates an operating profit of 29.1 billion yen for the fiscal year ending in March, representing a 48% decrease compared to the preceding year. The company’s President, Fumiyuki Kanai, acknowledged the challenging circumstances, observing, “The situation is still difficult, and some question if we have hit bottom, but it is a fact that customer inventory has started to decrease.” Kanai expressed optimism, foreseeing a return to growth starting from the end of the next year into 2025.
The history of Kokusai Electric’s ownership is noteworthy. KKR’s acquisition of Hitachi’s electronic equipment unit in 2017, valuing the business at 257 billion yen ($1.72 billion), marked the beginning of a conglomerate’s operational streamlining. KKR subsequently spun off Kokusai Electric the following year. In 2019, KKR’s attempt to sell Kokusai Electric to competitor Applied Materials (NASDAQ:AMAT) in a $3.5 billion deal was thwarted, as it failed to secure regulatory approval in China. Kokusai Electric now anticipates a gradual reduction of KKR’s stake over time.
Participation in Kokusai Electric’s IPO was strong, with Capital Research and Management and Lazard (NYSE:LAZ) Asset Management committing to acquiring shares. The portion allocated to foreign investors was oversubscribed by more than ten times, as previously reported by Reuters. Over the past three years, Applied Materials has accumulated a 15% stake in Kokusai Electric. While the two companies have embarked on collaborative efforts, Kokusai Electric does not anticipate a further increase in Applied Materials’ ownership, as clarified by President Fumiyuki Kanai.
The grand debut of Kokusai Electric coincides with an upsurge in equity offerings in Tokyo. Japan’s advantageous position is attributed to lower interest rates than many other countries, support from billionaire Warren Buffett, and a shift by investors away from the Chinese market.
