Japan Post IPO and what it portends for China’s postal bank

(From Hong Kong Economic Journal)

By Paul Pong Po-lam

The IPO success of Japan Post Holdings and its two subsidiaries will benefit the nation’s stock market in the medium and long term.

The holding company saw its shares close up 26 percent on its debut on the Tokyo Stock Exchange on November 4, while the banking and insurance subsidiaries — Japan Post Bank and Japan Post Insurance — finished with gains of 15 percent and 56 percent respectively.

The three companies together raised nearly US$12 billion for their listing, marking the biggest IPO in the world this year, after pricing the shares at the top end of a marketed range.

An essential part of the life of Japanese citizens, Japan Post has 24,000 post offices nationwide, more than the combined outlets of Japan’s banks across the country, and 40 percent more than the total branch number of the nation’s largest convenience store chains.

The company has over 400,000 employees. And Japan Post Bank has total deposits of 177 trillion yen (US$1.44 trillion), representing 16.3 percent of Japan’s household savings.

Japan Post Holdings recorded a 60 percent slide in its net profit to 32.9 billion yen last year, a result which contributed to the partial privatization of the company.

The parent company is the cheapest of the three entities, as its profit mainly comes from its two financial units. Investors are concerned about the growth prospects. However, Japan Post boasts the largest customer base and biggest branch network. Therefore, the parent company is the most sought-after, in particular among retail investors.

Underwriters failed to obtain enough quota to satisfy the demand from individual investors, prompting the investors to flood into the secondary market after the IPO.

Post service includes mail, parcel, finance, logistics, etc, and it has many outlets across the nation. Therefore, Japan Post would see improving valuation and earnings if it can leverage on online service. The privatization will help boost the company’s bottom line, and benefit retail investors.

That would lure more retail investors into the stock market, channeling more capital into the system. Japan’s benchmark Nikkei index rose 5.3 percent last week.

China Post branch in China

China Post branch in China

Given the success of Japan Post’s IPO, what can we expect from Postal Savings Bank of China (PSBC), which is preparing for its own listing in 2016?

The Chinese bank, a unit of China Post Group Corp., could seek up to US$20 billion in a Hong Kong IPO sometime next year, according to latest reports.

PSBC has more than 40,000 branches across China, more than double that of ICBC (01398.HK), which has the most extensive network among China’s four state-owned banking giants.

The postal bank has about 500 million clients. Total assets stood at of 6.8 trillion yuan (US$1.1 trillion) at the end of September. Non-performing loan ratio was 0.64 percent last year, 60 percent lower than the average level of 1.58 percent of the nation’s top five banks.

PSBC is very conservative when compared to its rivals, and that explains its better asset quality despite China’s recent gloomy economic picture.

The company, the nation’s top logistics firm, has implemented the “Internet Plus” strategy in its business. It has shipped items such as crabs, tea, potatoes and other produce and helped farmers lift their income.

Farmers in Guizhou and some remote regions can place orders online, and sell their products to cities through PSBC’s network. It can also provide finance to creative farmers and establish start-up funds to support entrepreneurs who produce organic food.

Compared with Japan Post, PSBC has a rosier picture thanks to its customer base and flexible policy. Investors should follow the IPO next year closely.

This article appeared in the Hong Kong Economic Journal on Nov. 13.

Translation by Julie Zhu with additional reporting

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Categories: Asia Unhedged, China, Japan

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