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Sony Shares Hit Five-Year High on Bullish Profit Report

Reuters
Thursday, 12 Apr 2007 | 11:04 PM ET

Shares of Sony jumped nearly 5% to a five-year high on Friday after a newspaper said its operating profit would more than sextuple this year on strong sales of flat TVs and the
PlayStation 3.

Sony will likely post a group operating profit of more than 400 billion yen (US$3.4 billion) in the business year started in April, the Nikkei business daily said, compared with the consensus of 367 billion yen in a poll of 20 analysts by Reuters Estimates.

The electronics and entertainment conglomerate has estimated a profit of 60 billion yen for the year ended in March. A company spokeswoman declined to comment on its earnings projections, which are due to be unveiled on May 16.

Deutsche Securities analyst Yasuo Nakane said in a note to clients that a forecast of more than 400 billion yen would be positive since he had expected management to project between 350 and 380 billion yen. His own forecast is for 392.5 billion yen.

Sony closed the Tokyo morning session up 4.9% at 6,650 yen after rising as high as 6,660 yen. It is at its highest since June 2002 and poised to mark its biggest one-day gain in three months. The Nikkei 225 Average was slightly higher.

Sony is now trading at a price-to-earnings ratio of 20 based on Nakane's 2007/08 forecast. Matsushita Electric Industrial has a price-to-earnings ratio of 21 while Sharp has a price-to-earnings ratio of 23, based on the Reuters Estimates consensus.

Zenshiro Mizuno, senior managing director at Marusan Securities, said investors were attracted to Sony because its game division seemed to be recovering and the weaker yen should also boost its profit.

"But the share price would seem limited considering its PER. Investors are likely buying the stock with the 7,000 yen level as a target," Mizuno said.

Sony should enjoy increased demand for its liquid crystal display (LCD) televisions in the U.S. and European markets, the newspaper said, noting Sony's plans to boost unit sales of LCD TVs by about two-thirds to 10 million in 2007/08.

But the biggest boost should come from its game division, which is expected to book an operating loss of 200 billion yen ($1.7 billion) for the past business year due to costs to launch the PlayStation 3 video game console, the Nikkei said.

Sony will boost PS3 shipments this business year by about 67% to 10 million units, and should also benefit from higher production yields on semiconductors used in the game console and cost cuts, the newspaper said.

Sony will also not be burdened by heavy restructuring costs and expenses related to the recall of its lithium-ion batteries, which weighed down profitability in 2006/07, the Nikkei said.

Sony's group sales are expected to rise 6% to 8.7 trillion yen in 2007/08, the paper said, citing a consensus of analysts polled by its financial information service Quick.

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