Japan Display, Inc., the largest manufacturer of LCD displays for smartphones and tablets in Japan, launched their initial public offering (IPO) on Wednesday this week amid great anticipation. It was a big listing – with a total value of $3.2 billion, it was the biggest IPO since Suntory’s food-and-beverage unit raised $3.9 billion in 2013.
So how did Day 1 of their stock offering go? ‘A disaster, no doubt…“
How is it possible that Japan’s largest LCD display maker – a company that holds #1 global market share – have a bad IPO launch on the stock market? Simple. The stock was listed and started trading at ¥900 per share…but closed at the end of the day at ¥763 for a 15.2% decline on opening day. To financial analysts, this is clearly a “disaster.”
Not only that, but in trading during the day, the stock at times traded down more than 20%. To make matters worse, the market overall actually closed up 0.36% higher Wednesday. So Japan Display can’t blame a down day on the market for their stock’s performance.
Who are these guys?…
So just who is Japan Display? This is a company with an interesting background. Back in 2012, competition in the display market was brutal…nobody was making any money and competition continued to drive down panel pricing. The future looked bleak.
That’s when a group of money-losing Japanese companies came up with the idea that by combining forces, they would be able to better leverage their collective volume to lower costs and improve profits. Seemed like a good idea…so Hitachi, Toshiba, and Sony executed Step 1 of this plan by merging their money-losing LCD display companies together to create Japan Display, Inc.
Creating a monster…
The combination of these huge company’s display divisions immediately created the biggest display manufacturer in the business, with a market-leading 16% of the global display market…just as they planned. Step 2 of their plan was to raise capital through a public offering on the first section of the Tokyo Stock Exchange. Unfortunately, they hit a speed bump on the road to success with an embarrassing drop in the price commanded by their stock. And, by the way, we checked again the day after and the stock was down another ¥6 or just under 1%.
The underwriter of the security insists that demand for the stock at its original price was strong. However, according to news service AFP-JIJI, the stock offering was actually priced at the low end of the expected range, suggesting that investors were already somewhat wary.
Analysts not impressed…
Stock market watchers were not impressed and pretty brutal in their assessment of the situation. Seiichi Suzuki, a market analyst for Tokai Tokyo Securities said that Japan Display should not have “forced its listing” saying the market is facing a tough environment right now. The Nikkei average is down 10% so far this year.
Suzuki also said, in reference to Japan Display, “This is a company that was made up of units offloaded by their parent firms. (It doesn’t) have a bright future.”
Lots of sellers…
Leading up to the IPO, Japan Display said it was planning to offer 140 million new shares of stock at between ¥900 and ¥1,100, while major private shareholders would sell another 213.9 million shares. There are several theories about why the stock dropped like a brick.
“The deal must have been either badly mispriced or the investor base was misjudged,” Lorne Steinberg, head of Montreal-based Lorne Steinberg Wealth Management told Dow Jones. “In North America,n dealers routinely support IPOs so that this type of opening performance could only happen if the entire marekt was also going suddenly bad at the same time.”
But this performance of Japan Display? “A disaster, no doubt,” Steinberg said.
Disappointing and overpriced…
The report also quoted Chris McGuire, chief executive of Chicago-based hedge fund Phalanx Capital Management, which dumped all of the shares of Japan Display stock it had purchased at market open.
“The steep price fall is extremely disappointing and shows that the deal was overpriced at issue,” McGuire complained.
A huge connection to the Japanese government…
It is interesting to note that Japan Display gets about 33% of their revenues from key customer Apple. While that is a huge share of their revenue (and some would say an unhealthy share), the company also sells display panels to Samsung and Microsoft. Some analysts have conjectured that the drop in the stock could be a vote of no-confidence in the direction of the smartphone/tablet future.
Japan Display was 70% owned by the Japanese government-backed Innovation Network Corp; each of the three primary partners owned about 10% each. It will be interesting to see where their stock goes over time.
But it is fair to say that the company’s stock is certainly off to a rocky start.