Socionext defies chip slump with Japan's biggest IPO this year

A visiter watches a 8K TV screen at Socionext booth, the Panasonic-Fujitsu SoC joint venture corporation, during the annual Computex computer exhibition in Taipei
A visiter watches a 8K TV screen at Socionext booth, the Panasonic-Fujitsu SoC joint venture corporation, during the annual Computex computer exhibition in Taipei, Taiwan June 1, 2016. REUTERS/Tyrone Siu/File Photo

TOKYO, Oct 12 (Reuters) - Making its market debut on Wednesday, Japan's Socionext Inc (6526.T) bucked softening sentiment toward chips by surging 15% in Tokyo's biggest initial public offering of the year so far.

Shares in the fabless system-on-chip design company closed up 15.07% at 4,200 in their debut on Tokyo's prime market from the initial offer price of 3,650 yen.

The total deal size was 76.8 billion yen ($525 million), including an overallotment of 2.74 million shares. Wednesday's closing price values the company at around 141 billion yen, according to Refinitiv data.

"I would say that the deal has done decently well as there was a lot of positive sentiment going into the deal," said Clarence Chu, an analyst at Aequitas Research who covers IPOs in Asia. He pointed to the upsizing and high number of long-only investors as reasons for optimism.

Ahead of the listing the company had "upsized" the deal -increasing the number of shares on offer to 18.3 million from 11.8 million, not including the overallotment.

Based in Yokohama, Socionext was formed in 2015 out of a merger between chipmaking units at Fujitsu Ltd (6702.T) and Panasonic Holdings Corp (6752.T). The Development Bank of Japan was also a part-owner, taking an initial 40% stake.

Systems-on-chip, or SoCs, are complex products that combine multiple core components of an electronic device onto one chip, which can help optimise for cost and power efficiency.

Socionext says it designs SoCs for clients including major automakers and 5G vendors. As a so-called fabless company, it solely designs chips and relies on the likes of Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) for the actual assembly and manufacture of the products.

"In our view, its transition towards a focus on custom SoCs in recent years is where the firm's growth angle really starts to take shape," said Chu, citing Socionext's move into areas like lidar, a 3D depth-sensing technology used in autonomous cars.

"Notably, its sales exposure towards the faster growing automotive segment, wherein its chips are used in lidar, car navigation etc, has been increasing," he said.

The strong debut comes amid a lacklustre environment for both semiconductor stocks and Japanese IPOs.

The Philadelphia semiconductor index (.SOX) is down nearly 15% since the start of last month, having been hit by reports of slowing iPhone production, earnings warnings from companies including Advanced Micro Devices AMD.O and Samsung Electronics 005930.KS, and U.S. chip sanctions on China.

Adding to the headwinds, recent IPOs in Japan do not have a strong track record. Data from Aequitas Research posted on Smartkarma shows the last three major deals made negative returns by the end of their first week.

But Chu said Socionext was coming in at a "wide discount" to international peers.

"So even if peers traded downwards, Socionext still appears cheap next to them."

($1 = 146.2400 yen)

Reporting by Sam Byford; Editing by Simon Cameron-Moore

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