TOKYO: Shares in Kyushu Railway Co jumped 12% in their market debut on Tuesday, helped by fat dividends and hopes the company will benefit from its real estate business and increased tourism to Japan.
The strong first day of trade comes after its IPO - the world's third-largest this year - priced at the top of its range, raising US$4 billion for the Japanese government which sold off all shares in the company.
Shares in JR Kyushu, as the company is better known, opened its trading at 3,100 yen in early morning trade, 19% higher than their IPO price of 2,600 yen and just above levels seen in the grey market ahead of its debut of around 2,800 to 3,000 yen.
"Considering the potential of JR Kyushu's growth in the future, the opening price of 3,100 yen is reasonable," said Masayuki Kubota, chief strategist at Rakuten Securities Inc. "The company has become completely free from the government control, which means it has more freedom to manage."
JR Kyushu was at 2,922 yen by the morning trading break.
JR Kyushu runs trains, including bullet trains, across the southern island of Kyushu. Last year, a record 2.8 million foreign tourists visited the island, many from Taiwan and South Korea, drawn by the region's hot springs and scenic landscapes.
The number of tourists to Kyushu has grown every month from a year earlier in 2016, local government data show, despite part of the island being hit earlier this year by a series of deadly earthquakes.
While a declining population across its operating region could hit JR Kyushu's local train service earnings, Kubota says the company could boost profits by expanding its real estate businesses.
In the last financial year, the firm posted 69.1 billion yen (US$665 million) in EBITDA (earnings before interest, taxes, depreciation and amortisation). Its railway business accounted for 38% of that while its real estate businesses accounted for 40%.
JR Kyushu has developed a large retail complex at its Hakata station in Fukuoka city, drawing more people from Fukuoka's traditional shopping districts. The company plans to develop more stations in other cities on the island such as Nagasaki and Kumamoto.
JR Kyushu said in its prospectus the company would target a payout ratio of about 30% through March 2019. It is also offering 50% discount coupons for its railway services to shareholders. Owners of more than 100 shares can also receive discount coupons for hotels and retail stores run by JR Kyushu.
That dividend payout ratio would translate into about a 2.5% annual return per stock, which is about double the return on shares in East Japan Railway Co, also a formerly state-owned railway company that went public in 1993.
JR Kyushu is the fourth spin-off of the Japanese National Railways, which was privatised by the government in 1987.
West Japan Railway Co and Central Japan Railway Co were listed in the late 1990s. - Reuters
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