Sony Reaches 22-Month High as Analysts Predict Record Profit

  • CEO Kazuo Hirai’s turnaround effort seen nearly complete
  • Game sales, demand for phones with dual cameras fueling growth

Kenichiro Yoshida Photographer: Akio Kon/Bloomberg

Sony Corp. shares jumped to their highest since May 2015 after a bullish earnings report triggered analyst predictions that the electronics maker could achieve record profit this year.

The Tokyo-based company rose 3 percent to 3,873 yen at the close in Tokyo on Monday after forecasting operating profit of 500 billion yen ($4.5 billion) for the fiscal year through March 2018, thanks to continued dominance in gaming and strong growth in phone-camera chips.

While that was mostly in line with the 507 billion yen average estimate, analysts from Goldman Sachs Group Inc. to Jefferies Group said Sony could surpass its previous record profit of 525.7 billion yen in 1998. Chief Executive Officer Kazuo Hirai, who took the helm in 2012, has steered the company through years of restructuring and put more focus on gaming, camera chips and finance.

“We expect Sony to achieve its medium-term plan operating profit target for the first time in 10 years and believe it may surpass its record high,” Goldman analysts Masaru Sugiyama and Yusuke Noguchi wrote in a note to clients. Nomura Holdings Inc. analyst Yu Okazaki said investor interest is now shifting to what Sony will do to fuel further growth, as anticipation builds for the company’s investor day on May 23.

Sony’s stock, which has doubled since 2013, is up 18 percent this year, outperforming the Topix Index.

Operating profit in the fiscal year through March 2017 slipped 1.9 percent to 288.7 billion yen, while net income halved to 73.3 billion yen as earthquakes in Kyushu a year ago derailed the company’s chip and camera businesses. Revenue fell 6.2 percent to 7.6 trillion yen.

Games were a big boost, with operating profit climbing 53 percent to 135.6 billion yen. Sony is leaning more than ever on its PlayStation business. Operating profits for the division are expected to climb to 170 billion yen, accounting for about a third of total profit, as the company cashes in on the PlayStation 4’s later life-cycle stage, typically the most profitable period for consoles. For the first time, sales from online games, downloads and streaming services exceeded that of hardware sales, Sony said. PS4’s install base hit 60 million at the end of March, and the company plans to sell 18 million more this fiscal year, slightly lower from the 20 million it sold last year.

Kenichiro Yoshida, right.

Photographer: Akio Kon/Bloomberg

“Having completed a number of re-organizations, we believe that each of our businesses have achieved independence as individual businesses,” Chief Financial Officer Kenichiro Yoshida said at a news conference on Friday.

Outside of games, Sony is counting on strong growth at its chip division, where operating profit is forecast to climb to 120 billion yen, reversing a loss. The company controls half of the market for image sensors, the chips inside phones that convert light particles into digital photos and videos. With more models including the upcoming iPhone expected to adopt multiple sensors to improve image quality, analysts say Sony is well positioned to recover from last year’s earthquakes.

“If you look at near-term, dual-camera sensor usage is ramping up,” said David Dai, an analyst at Sanford C. Bernstein & Co. “That’s really good for Sony.”

Image sensor production will be boosted by about 20 percent to 100,000 wafers a month, Yoshida said at the news conference on Friday.

For now, analysts said Sony will focus on reaching, and possibly exceeding its targets. The movies and television business, after a string of box-office disappointments, is looking to bring in a new chief. Sequels to “Blade Runner” and “Trainspotting” are due out this year, and there are high hopes that Sony’s collaboration with Marvel Entertainment will breathe new life into its “Spider-Man” franchise.

With the turnaround now mostly behind him, focus is starting to shift to how Hirai plans to switch from fighting fires to igniting more growth.

“The question is what story comes after this? That’s what’s on everyone’s mind,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities. “Do you have killer hardware? Do you have killer entertainment? The answer is they’re lacking something.”

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