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Sony Corp ADR SNE

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The Negative Impact of Huawei Sanctions Offset by Robust Game Sales; Raise Sony’s FVE to JPY 10,000

Kazunori Ito Senior Equity Analyst

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.

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Company Profile

Business Description

Sony is a conglomerate with consumer electronics roots, which not only designs, develops, produces, and sells electronic equipment and devices, but also is engaged in content businesses, such as console and mobile games, music, and movies. Sony is a global top company of CMOS image sensors, game consoles, professional broadcasting cameras, and music publishing, and is one of the top players on digital cameras, wireless earphones, recorded music, and movies, and so on. Sony’s business portfolio is well diversified with six major business segments. The company fully consolidated Sony Financial in September 2020, which provides life and non-life insurance, banking, and other financial services.

7-1, Konan 1-Chome, Minato-ku
Tokyo, 108-0075, Japan
T +81 367482111
Sector Technology
Industry Consumer Electronics
Most Recent Earnings Dec 31, 2020
Fiscal Year End Mar 31, 2021
Stock Type
Employees 111,700