Investors who placed record bets that Sharp Corp.’s shares had further to fall have been caught out by a 20 percent rally since the Japanese display maker’s stock hit a 38-year low this month.
The number of shares held in Japanese margin-trading accounts that profit if Sharp falls rose to 35.6 million yesterday, the most since Japan Securities Finance Co. began reporting daily data in August 1997. Short-interest, a measure of bets that the stock will decline, climbed to 84.6 million shares last week, the highest ever, according to weekly data compiled by Bloomberg. The stock, which jumped 6.2 percent yesterday, is up 20 percent since Oct. 17, when it closed at 143 yen, the lowest since 1974.
Shares have rallied amid speculation the 100-year-old inventor of mechanical pencils will forge alliances with major customers that include Apple Inc. Sharp may post a net loss of 296 billion yen ($3.7 billion) in the year ending March 2013, according to the average estimate of 17 analysts surveyed by Bloomberg. The company has already put up its Osaka headquarters and some factories as debt collateral after its credit ratings were cut to junk.
“It’s a tough short,” Yashwant Bajaj, a Singapore-based fund manager at Juggernaut Capital Management Pte, said. “Sometimes equity investors get fixated on the financial situation of the company and don’t really focus on what made it a decent quality company when things were better. What the company has is pretty good technology.”
Sharp jumped 6.2 percent to 172 yen yesterday. The company is in talks with Apple, Google Inc. and Microsoft Corp. to jointly develop tablet computers and supply display screens to the U.S. companies, Kyodo News reported on Oct. 29, without saying where it got the information. Miyuki Nakayama, a spokeswoman for Sharp, declined to comment on the report and options trading.
Sharp, already a supplier of panels for Apple’s iPads, needs to win new customers to help stave off losses from its LCD business. Global TV shipments fell 8 percent to 51.6 million units in the quarter ended June 30 from a year earlier, a second straight quarterly decline, DisplaySearch said Sept. 11.
None of the 22 brokerages covering Sharp that are tracked by Bloomberg have a buy rating, with 13 recommending sell and 9 telling investors to hold the stock, the data show. At least seven brokerages have downgraded ratings for the stock since the company predicted a second year of annual losses on Aug. 2.
“Short selling may be piling up as people aren’t expecting good results to come out,” Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees about $6.6 billion. “With declining panel prices, slumping TV sales, and slowing European economy, people are expecting its earnings will be tough.”
The company may report tomorrow a loss of 71 billion for the quarter ended Sept. 30 after posting a 138 billion loss in the previous three months, according to the average of three estimates compiled by Bloomberg.
Sharp needs to repay 565 billion yen of debt in 2013 and 130 billion yen the following year, data compiled by Bloomberg News show.
The maker of Aquos TVs secured 360 billion yen of funding from its lenders last month after pledging to cut 18 percent of its workforce and sell overseas plants as well as U.S. solar developer Recurrent Energy LLC, people with knowledge of the proposal said Sept. 26. Standard & Poor’s said Oct. 1 the loan that must be repaid by June 2013 leaves Sharp dependent on short-term debt.
“For this year, maybe Sharp is going to avoid bankruptcy as they’ve got some short-term financing,” Amir Anvarzadeh, a Singapore-based manager for Asia equity sales at BGC Partners Inc., said by phone yesterday. “The question mark is whether the company is going to generate enough cash flow to stay afloat. The losses are going to be colossal.”
Speculation that the worst may not be behind Sharp pushed the number of shares held in Japanese margin-trading accounts that profit when the stock falls to more than twice the level of those that make money if it gains, according to data from Japan Securities Finance as of yesterday. Investors could be betting on a scenario where a white knight fails to ride to the company’s rescue, Juggernaut Capital’s Bajaj said.
Foxconn Technology Group founder Terry Gou, who agreed in March to invest 67 billion yen for a 9.9 percent stake in Sharp, sought to renegotiate the deal as the shares tumbled to a record low after the company predicted a second consecutive year of losses in August. Sharp plans to continue collaboration with Foxconn even without the investment from the Taiwanese manufacturer, President Takashi Okuda said Sept. 14.
“Sharp must find an investor within this year,” said Mitsushige Akino, who helps oversee about $626 million in assets at Ichiyoshi Investment Management Co. in Tokyo. “In this volatile global economy, you don’t know what will happen a month ahead. The company isn’t showing a V-shaped recovery even after a huge loss. We can’t expect a cyclical recovery.”