Sony Group Corporation (6758.T) is the third-largest consumer electronics company in the world by market capitalization. The company that once started as a manufacturer of rice cookers has become well known with some iconic products such as walkmans, digital cameras, videocams, PlayStations, and some famous blockbuster movie productions.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
The company operates today six business segments. The picture business grew the fastest over the first three quarters of this fiscal year 2021/22. Sales were up by 68 percent, and profits increased by even 158 percent. The segment accounts for 12 percent of the company’s total revenues. Sales in the music segment grew by 22 percent over the same period and made up 11 percent of the revenues. The electronics products and solutions business grew by 16 percent and contributed 24 percent to the revenues and 21 percent to the profits. Games and network services make up 27 percent of the revenues and 24 percent of the profits but grew by only 4 percent. The imaging & sensing solutions segment contributed 11 percent to the revenues but grew by 5 percent only.
Japan is Sony’s largest geographic market, accounting for one-third of the total revenue in FY2021, followed by the US with 24 percent and Europe with 20 percent.
Sony was founded in 1946 and is headquartered in Tokyo, Japan. The company has been listed on Tokyo’s stock exchange since 1958 and New York’s stock exchange since 1970. Its shares can also be traded in Argentina, Austria, Brazil, Germany, Mexico, Russia, Switzerland, and the UK. The major shareholder is Nomura Asset Management, with ownership of around five percent, followed by The Vanguard Group, with ownership of roughly three percent. Over 98 percent of the shares are in the public hand.
With over 109 thousand employees, Sony reported revenues of 7,658bn JPY (62.8bn USD) and profits before tax of 1,028bn JPY (8.4bn USD) over the first three quarters of its fiscal year 2021/22. This is an increase of 13 and 8 percent, respectively, compared to the same period a year ago. Over the full FY 2020/21, revenues and profits increased by 9 and 49 percent, respectively. The increase is partially due to a 13bn JPY sales and business transfer in its music segment. The operating margin (TTM) of 11 percent is well its industry peers. Sony’s cash reserves increased by 2 percent to 1,823bn JPY (15bn USD), while borrowings and debts increased by 17 percent to 2,880bn JPY (23.6bn USD) over the first nine months of FY 2021/22.
The company shows a stable balance sheet with satisfactory profitability but only acceptable financial strength. The equity ratio is at 25 percent, and the gearing, defined here as total liabilities to total equity, is at a poor 303 percent. Moody’s current rating of Sony has nevertheless been upgraded to A3 with a stable outlook, while Sony’s daily credit risk score is 6, indicating a medium risk, based on the day-to-day movements in market value compared to the company’s liability structure. The next earning results will be announced 10th of May.
Sony’s shares have been in an uptrend since February 2016 and gained almost 400 percent in value since. But the stock is down this year by 23 percent. Sony’s gaming business is increasingly attacked by its old adversary Microsoft and by new competitors entering the market. Currently, the company is priced at 14 times earnings, two times book value, and 12 times operating cash flow. The dividend yield has been around 0.3 percent. 20 out of 25 analysts currently have a ‘buy’ or ‘outperform’ recommendation with an average price target of 16,426 JPY.
Our conclusion: Sony shows stable financial positions with satisfactory profitability but a financial strength that needs improvement. The valuation is reasonable and comes with a compounded annual growth rate of 3 and 35 percent for revenue and profits over the last three years. The global consumer electronics industry is expected to grow at yearly rates of roughly 2 percent only over the next five years. The gaming industry on the other hand is expected to grow at 9 percent annually.
Sony has a stable position in an intensely competitive environment but depends highly on its future innovation power. Assuming that global economic conditions will stabilize, we expect the share price to increase about 10 percent this year.
AIS Rating: ★★★☆☆
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 Q1-3 only |
|
|---|---|---|---|---|---|---|
| EPS (JPY) | 57 | 380 | 708 | 461 | 937 | 616 |
| Change (%) | (52) | 568 | 86 | (35) | 103 | (20) |
| DPS (JPY) | 20 | 28 | 35 | 45 | 55 | 65 |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* (%) |
ROE (%) |
LIAB./ Equity** (%) |
Div YLD (%) |
|---|---|---|---|---|---|---|---|
| 14 | 18 | 1.9 | 12 | 25 | 15 | 303 | 0.3 |
* Equity / Total Assets, ** Total Liabilities / Equity
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