TOKYO (Reuters) -Tokyo-based satellite maker Axelspace plans to list its shares as early as June, two sources said, the latest in a steady stream of domestic space startups tapping the Japanese capital markets amid mixed investor views on the sector's prospects.

Axelspace's initial public offering (IPO) is expected to be approved by the Tokyo Stock Exchange later this month, the people who had knowledge of the matter said.

If successful, it would be the fifth such listing of a Japanese spacecraft venture over the last two years.

Japan's private space industry, estimated at roughly 4 trillion yen ($27.8 billion), has traditionally been dominated by heavy industry conglomerates. Of the more than 100 space startups active, most are loss-making, and the handful that are listed have a mixed record in delivering stock market returns to investors.

What is, however, providing a tailwind to the private space ventures is the support from the Japanese government, which is in the midst of its biggest postwar defence buildup in the wake of China's growing technological and military clout. Axelspace and other prospective IPO candidates in the sector are banking on that support to draw in investors.

Axelspace's valuation in the IPO could be comparable to those of radar satellite makers Synspective and iQPS, one of the sources said. Synspective is currently valued at 121 billion yen, and iQPS at 72.5 billion yen.

Axelspace has previously considered going public but faced delays attributed to satellite malfunctions and applications for government subsidies, and may push it back again, the person said, adding SMBC Nikko Securities is the lead manager.

Axelspace did not respond to requests for comment on its listing plans when contacted by Reuters.

SMBC Nikko Securities and Tokyo Stock Exchange declined to comment.

Founded by University of Tokyo aerospace researcher Yuya Nakamura in 2008, Axelspace has launched five optical Earth observation satellites and built some small satellites for external clients including Weathernews. It plans seven more satellite launches next year to expand its in-house observation data business.

The company, in which trading house Mitsui & Co and airliner ANA have invested, previously completed a Series D round in 2023. With that, it raised a cumulative 14.3 billion yen, according to its website.

LIMITED FUNDRAISING ALTERNATIVES

The rise of space startups in Japan is "not a fleeting boom" but a result of decade-long government support through space law legislation and funding, said Masayasu Ishida, chief executive of commercial space conference organiser Spacetide.

The government, in the past two years, has set aside 600 billion yen for its newly established Space Strategy Fund to subsidise private rockets, satellites and other ventures, targeting to double the industry's size to 8 trillion yen by the early 2030s.

Analysts said space IPOs in Japan have been relatively active compared even to the United States, where new public offerings have been slow after the SPAC listing boom in 2020-2021.

Japanese startups may have fewer fundraising alternatives. In the U.S., private funding rounds and M&A deals are more common for space ventures, including Elon Musk's unlisted industry leader SpaceX.

Amid limited fundraising options in Japan, government aid is "quite effective" for nascent space ventures, said Motoyuki Arai, chief executive of Synspective. A listing enabled more financing options, including debt and potentially additional public offerings, he said.

Going public could also increase recruitment and tie-up opportunities, said Norihide Kanehara, IPO project lead at Space BD, an eighth-year startup and Asia's largest payload service provider for SpaceX launches. Kanehara, however, said Space BD plans a listing only "in a few years", given the current murky market environment especially for Japanese small-cap firms.

GROWING INVESTOR SCRUTINY

While government support for private space ventures has energised these startups' fundraisings, investors are scrutinising their growth potential.

"Japanese investors are becoming increasingly rigorous about feasibility," KPMG Consulting associate partner Susumu Miyahara said, citing clients' due diligence requests on how much money space ventures could make.

Shares of Synspective and iQPS are up roughly 50% and 75%, respectively, since their listings, but on-orbit servicing provider Astroscale is down about 40% since it started trading and ispace only recovered recently to its debut price ahead of a second moon landing attempt next month.

Few in the industry have achieved sizeable sales volumes or have a clear path to profitability, said Masahiro Honda, senior corporate analyst at Daiwa Securities' private capital unit, adding that he did not see a rush of space sector IPOs in the near future.

"A second wave of space IPOs in Japan might take a while to emerge," he said.

($1 = 143.8800 yen)

(Reporting by Kantaro Komiya and Miho Uranaka; Editing by Muralikumar Anantharaman)