May 29 (Bloomberg) -- Shares of Sanyo Electric Co., the world's largest maker of rechargeable batteries, rose the most in 18 months after its fourth-quarter loss narrowed and the company forecast its first annual profit in four years.

The stock gained 10 percent to 213 yen at the Tokyo Stock Exchange close. Nomura Securities Co. analyst Eiichi Katayama increased his rating on the Osaka-based company by two levels to ``neutral'' on optimism a recovery is on track.

Sanyo, controlled by creditors including Goldman Sachs Group Inc., has sold parts of its consumer electronics division and is seeking buyers for the chip unit. The company is expanding its battery business under President Seiichiro Sano, whose appointment in April marked the first time no member of the founding Iue family held an executive position at the company.

``Sano said no parts of the company will have any sanctuary from a reorganization,'' Katayama, a Tokyo-based Nomura analyst, wrote in a report dated today. ``The foundation for getting out of the long tunnel is being built.''

Sanyo is expected to remain profitable over the next three years, said Katayama, who raised his rating from ``sell.''

The company yesterday forecast a net income of 20 billion yen ($164 million) this fiscal year, after reporting a 45.4 billion yen net loss in the year ended March 31. The fourth- quarter loss shrank by 50 percent to 34.4 billion yen.

Preferred Shares

``Earnings for the period were ultimately better than anticipated,'' Nikko Citigroup Inc. analyst Kota Ezawa wrote in a report dated today. Still, he kept his ``sell'' rating on Sanyo on concern more preferred shares will be converted, diluting the common stock's value.

Goldman, Daiwa Securities SMBC Co. and Sumitomo Mitsui Financial Group Inc. last year bailed out Sanyo in return for 300 billion yen of preferred shares. None of the shares have been converted as of today, Sanyo spokesman Aaron Fowles said.

``We cannot help having some concerns that, with the bulk of Sanyo Electric's corporate value given over to preferred shares, there is only a small portion of value left over for holders of common stock,'' Ezawa wrote. ``We continue to feel there is little justification to support the current trading price.''

Ezawa has a 12-month target price of 160 yen.

Sanyo's book value per share, or assets minus liabilities divided by common stock, fell to 1.96 yen in the year ended March 31, from 16.76 yen a year earlier, partly on asset sales and the 300 billion yen bailout.

Share Conversion

Nomura's rating upgrade is based on an assumption that the preferred shares won't be converted into ordinary shares ``for the time being,'' Katayama wrote.

The company sold its entire 17 percent stake in Sanyo Electric Credit Co., a leasing unit, this month to General Electric Co., the world's second-largest company by market value, for 21.6 billion yen. In the past year, Sanyo also sold stakes in a Thai refrigerator unit and a liquid-crystal display venture.

The company is also putting its chip-making unit, Sanyo Semiconductor Co., on the block. Potential bidders include Cerberus Capital Management LP, a group led by Blackstone Group LP, Vestar Capital Partners and the U.K.'s CVC Capital Partners Ltd., Jiji Press reported earlier this month, which cited people it didn't name.

A separate group of bidders for the chip unit includes Japan's MKS Partners Ltd., Jiji reported.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

Last Updated: May 29, 2007 06:17 EDT