Morgan Stanley’s Masahiro Ono today cut his rating on the ordinary shares of Sony (6758JP) to Equal Weight from Overweight, and cut his price target to �1,200 from �1,800, arguing that while the shares are cheap, assigning almost no value to the electronics business, nevertheless there is a lack of catalysts and too much uncertainty about what kind of restructuring may be in store.
In particular, Ono speculates Sony could end up leaving the television business, which is likely to keep losing as much as $628 million annually through 2015.
Ono reflects on the company’s strategy meeting�on April 12th, when CEO Kazuo Hirai and his team admitted the company needed to deal with eight years of continual losses in the TV set business. (See this slide in the deck of slides prepared for the meeting.) The response to that meeting was generally downcast among Sony analysts.
The main issue that concerns Ono today is the what he considers an unrealistic forecast for fiscal 2015, which ends in March of that year.
Of the �8.5 trillion sales target for F3/15, the firm aims to secure �6 trillion from electronics, with the three focus business areas furnishing a total of �4.3 trillion of this � digital imaging �1.5 trillion, gaming �1.0 trillion and mobile �1.8 trillion. Out of a total operating profit target of �425 billion-plus, Sony looks to electronics for �300 billion, including �225 billion from the focus areas, and an operating profit margin of approx. 6% [�] Gaps between our and company forecasts for F3/15 run to �1.5 trillion for sales and some �165 billion for operating profit. Our sales forecast is thus far below Sony�s mid-term target, but if fixed cost cuts in TV business go according to plan, we would be looking for an overall (company-wide) operating profit margin of 3.7%. Our forecasts assume that TV business continues to carry losses of �50 billion in F3/15, though this would still be a major reduction compared with F3/12.
Ono figures one that Sony’s ordinary shares are already pricing in a one-time charge to write-off the TV business, somewhat anticipating such a move:
Sony�s market cap excluding SFH is �724 billion. Given ex-SFH shareholders� equity of �1,600 billion, this implies that the market is pricing in equity erosion of �876 billion (�1,600bn – �724bn). In our view, this �876 billion seems a reasonable approximation of the restructuring costs required to exit TV operations.
As for the rest of Sony, Ono was unimpressed with the formal unveiling this week of the company’s “PlayStation Vita” mobile game machine at the E3 video game conference. And he sees the stock currently reflecting no value for the electronics business and the video game business given the continued competition from Samsung Electronics (005930KS) and from Apple (AAPL):
If financial and entertainment segments are valued at average multiples for the industry, electronics (CPS) and games (NPS) segments are being valued at almost zero.�The stock market�s main concerns for the consumer electronics industry are (1) that the digital AV equipment market focused on TVs is already ex-growth, (2) although the mobile equipment market will grow, an era of twin dominance by Apple and Samsung is underway, leaving little prospect for Japanese firms to prosper if they choose to compete, and (3) companies that supply devices for Apple�s mobile equipment will be seen in a relatively more positive light.
Analysts have, of course, increasingly speculated that Apple could have a big impact on the television market if it decides to build its own TV set, as, for example, this note out Monday from Bernstein’s Mark Newman.
Sony’s ordinary shares today traded up by 2% to �1,072.00. Sony’s American Depository Shares (SNE) traded in New York are down 27 cents, or almost 2%, at $13.32.
No comments:
Post a Comment