Sony Corporation

SNE Details

Strengthening Governance in Financial Services Business: Sony Corporation (NYSE: SNE) is a world’s leading consumer electronics and appliances company with a market capitalization of ~$92.84 billion. The company is also involved in a variety of businesses, including games and network services (G&NS), music, movies, image and sensing solutions, financial services and many more. In order to achieve further growth and strengthen governance within its financial services business, the company recently completed the acquisition of Sony Financial Holdings Inc. (SFH), making it a wholly-owned subsidiary of SNE. The company now plans to leverage Sony's technology in the financial services business to create unique customer value that only Sony Group can deliver.

June Quarter Highlights: For the quarter ending 30 June 2020, the company reported total sales and operating revenue of ¥1,968.9 billion, up ¥43.2 billion on the pcp, due to significant increases in sales in the G&NS and Financial Services segments, partially offset by a significant decrease in sales in the Electronics Products & Solution segment. Further, the company reported net income (attributable to Sony Corporation’s stockholders) of ¥233.3 billion, up by ¥81.1 billion on pcp. As at 30 June 2020, the company had cash and cash equivalent of ¥1,448.6 billion.

June 2020 Quarter Performance (Source: Company Reports)

Recovering from COVID-19 Impacts: Due to the coronavirus epidemic, the company’s production, development, sale and distribution of the products and services in each of its business segments were negatively impacted. However, the company has started observing recovery in some of its segments. For example, in the Imaging & Sensing Solutions segment, the company has experienced recovery in factory operations and supply chains at most of its major mobile customers. In the Electronics Products & Solutions segment, the business is beginning to show signs of recovery, at a relatively slower pace compared to other product categories.

Key Risks: The company’s businesses are exposed to the risks and uncertainties surrounding the impacts of COVID-19 pandemic. The company is also exposed to the risks associated with the fluctuations of foreign exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs. The company is also exposed to the risk associated with the changes in the business environment, such as increasingly intense pricing pressure from competitors, shrinking markets for certain key products and services, as well as shorter product cycles, are impacting each of Sony’s business segments.

Long-term Outlook: Looking ahead, the company intends to change its group organizational structure in order to drive the evolution of each business and further leverage the diversity of its business portfolio. In the long term, the company intends to create value through group synergies and business incubation.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of SNE has provided a return of 25.9% in the last six months. On the technical analysis front, the stock has an immediate support level of ~US$75.56 and resistance level of ~US$81.06. For FY20, the company’s debt to equity multiple stood at 0.36x, lower than the industry median of 0.48x. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). Considering the company’s diversified business model, its decent performance in June 2020 quarter, signs of recovery in Imaging & Sensing Solutions segment and Electronics Products & Solutions segment, and long-term growth, we give a “Buy” recommendation on the stock at the closing price of $76.01, down by 2.12% on 8 September 2020.

SNE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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