Japan Markets ViewWatch for Potential Stocks to be Listed on the Prime Market

 

 

TSE announced the results of market selection associated with the restructuring on January 11. The result was in line with the prior forecast and without any disturbance, as more than 80% of the listed companies of the TSE 1st Section chose the Prime Market, the highest level. However, many people may have felt uncomfortable that none of the emerging market stocks that met the criteria for maintaining a listing on the Prime Market (800 shareholders or more, 20,000 units or more of tradable shares, JPY10bn in market capitalization of tradable shares, 35% are tradable shares, etc.) were selected for the Prime Market.

 

■ Some potential stocks for listing on the Prime Market
This was due to the fact that only stocks on the TSE 1st Section were eligible to select and apply for the Prime Market. In the case of stocks that are currently under review for a change to the Prime Market, the 2nd Section stocks and JASDAQ Standard stocks are tentatively classified as the Standard Market, and Mothers and JASDAQ Growth stocks as the Growth Market. The Prime Market selections from outside the TSE 1st Section will be treated as equivalent to direct listing on the TSE 1st Section. Therefore, in addition to the criteria for maintaining the Prime Market listing, the hurdles are high with criteria such as market capitalization of at least JPY25bn, consolidated net assets of at least JPY5bn, and total profit of at least JPY2.5bn for the last two years (or sales of at least JPY10bn and market capitalization of at least JPY100bn).

 

While some stocks such as Seria (2782), a major 100-yen store, have announced their selections for the Standard or Growth Market even though they meet the criteria for the Prime Market, there are still a few stocks such as McDonald’s HD Japan (2702) that have yet to disclose their selections. As for these, it is believed that they are applying for reclassification to the Prime Market, and there is a possibility that the Prime Market listing will be approved before the market change. If stocks that are not currently listed on the TSE 1st Section are listed on the Prime Market on the day of transition to the new market, they will be added to TOPIX at the end of May. This is likely to attract the attention of passive funds, which are expected to buy the stocks.

 

Mercari (4385), listed on Mothers, which had announced its readiness to apply for the Prime Market status in order to achieve medium- to long-term growth and enhance corporate value, filed an application for reclassification to the Prime Market on January 14. The application is expected to be approved, but it will take some time for the TSE to review it, and it may not be possible to get the approval in time for the restructuring date.

 

In addition to Mercari, there are other stocks that have announced their intention to move to the Prime Market. Uzabase (3966) and Medley (4480), listed on Mothers, have chosen the Growth Market, while Furuya Metal (7826), listed on JASDAQ, has chosen the Standard Market, but will prepare to apply for a change to the Prime Market. Loadstar Capital (3482), listed on Mothers, applied for a market change to the TSE main board (TSE 1st or 2nd Section) in December 2021, and if the market change to the 1st Section is approved, the company is expected to select the Prime Market and then list on it.

 

■ Also interested in index events
The impact of the market restructuring on the indices should also be kept in mind. Stocks currently listed on the TSE 1st Section will continue to be included in TOPIX after the restructuring, not only those selected as the Prime Market but also those selected as the Standard Market. However, regardless of market classification, stocks with a tradable market capitalization of less than JPY10bn will be subject to a gradual reduction in weight every quarter from the end of October 2022. However, the TOPIX weighting will be restored in stages if the revaluation in October 2023 results in the market capitalization of tradable shares exceeding JPY10bn and the stock is no longer subject to the reduction. That is why it will be extremely important to exceed the JPY10bn market capitalization of tradable shares, which is also the criteria for maintaining their listing.

 

As for the stocks to be included in the Nikkei 225, currently only stocks on the TSE 1st Section are covered, but after the market restructuring, only stocks listed on the Prime Market will be covered. Therefore, Shinsei Bank (8303), which is now a subsidiary of SBI Holdings (8473), will be automatically excluded from the constituents of Nikkei 225 by choosing Standard. Orix (8591), SBI HD, and Monex Group (8698) are the most likely candidates for the replacement. It will be interesting to see the announcement of the replacement stocks.

 

 

 

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