Analyst Note| Kazunori Ito |
After reviewing our earnings forecast, we revise no-moat Sony’s fair value estimate to JPY 10,000 from JPY 8,000, as we apply a lower discount rate to the company. Led by the current CEO Yoshida, who has been in the management for seven years, Sony’s profitability is now higher and more stable than in the past, when the consumer electronics business often recorded an operating loss in downturns. On digital content businesses such as games, music, and movies, Sony has reinforced its product portfolio through acquisitions and leveraged its IP effectively to improve its profitability. On the consumer electronics side, Sony has focused its resources on products that can generate higher margins, such as televisions, audios, and digital cameras, while divesting PCs and restructuring handsets. Lastly, the company fully consolidated Sony Financial Holdings, which also can generate solid profits. As a result, we forecast that the consumer electronics business accounts for only 10% of Sony’s operating income in fiscal 2020. Our new fair value estimate implies 19 times price/earnings, up from 15 times previously, which seems reasonable from our sum-of-the-parts analysis. We view Sony’s shares as currently fairly valued.