Report

Sony (6758 JP) FY17 Outlook and SoTP

Main Points
• FY17 Q3 saw yet another revision up to the full year earnings…
• …but the new forecasts continue to look conservative.
• We show the Sum of the Parts valuation on an EV/OP basis, both with and without Financials;
• There are also “other adjustments” to consider, which include holdings in M3 Japan (2413 JP) and Olympus (7733 JP), that will affect Sony’s EV/OP;
• And finally, we attempt to value Sony’s Contents Business.
• Our Sum of the Parts analysis demonstrates that Sony is worth substantially more than it is currently valued today.

Underlyings
Alphabet Inc. Class C

Facebook Inc. Class A

Facebook is building and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices. The company's products include: Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, which is a place where people can express themselves through photos, videos, and private messaging, and explore their interests in businesses, creators and communities; Messenger and WhatsApp, which are messaging applications; and Oculus, which connects people through its Oculus virtual reality products.

LG Electronics Pfd.

M3 Inc.

M3 is mainly engaged in the operation of medical-related Internet websites "MR-kun" and "m3.com" for health-care professional. Along with its affiliates, Co. operates in five business segments. Co. is engaged in the development and provision of marketing support services to medical professional, pharmaceutical companies, medical equipment companies and consumers; the provision of support services utilizing Co.'s support management system called "CapTool" for clinical researches; the provision of sales, marketing and support services as well as research services in overseas; and the development, sale and support of electronic health record system; and the consignment of sales and marketing.

Olympus Corp.

Olympus is a manufacturing company. Co. operates in four business segments. The Medical segment is engaged in the manufacture and sale of gastrointestinal endoscopes, surgical devices and peripheral devices for endoscopic surgery, endoscopic devices, and ultrasonic endoscopes. The Scientific Solutions segment is engaged in the manufacture and sale of biological microscopes, industrial microscopes and endoscopes, and non-destructive testing equipment. The Imaging segment is engaged in the manufacture and sale of digital cameras, IC recorders, and binoculars. The Others segment is engaged in the provision of bio-materials, system development and others.

Rakuten Inc.

Rakuten is mainly engaged in the Internet-related business. Along with its affiliates, Co. operates in two business segments. The Internet Services segment is engaged in the operation of electronic commerce sites, including an Internet shopping mall "Rakuten Ichiba," an online cash back site, a travel booking site, portal sites and digital contents sites; the sale of advertising on Co.'s sites; the provision of messaging and communication services; and the management of a professional baseball team "Tohoku Rakuten Golden Eagles." FinTech segment is engaged in the provision of Internet banking services and online securities trading services, and the credit card and life insurance businesses.

SoftBank Group Corp.

SoftBank Group is a holding company. Domestic Telecommunications business provides mobile communication services, mobile devices, broadband services to retail customers, and telecom services to corporate customers in Japan. Sprint business provides mobile communication services and fixed-line telecommunication services in the U.S. Yahoo Japan business operates Internet-based advertising and e-commerce business. Distribution business distributes mobile devices overseas, and sells software and mobile device accessories in Japan. ARM business designs microprocessor intellectual property and related technology. SoftBank Vision Fund & Delta Fund business is engaged in the investment activities.

Sony Corporation

Sony is engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and semiconductors. Co. is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles. Co. is also engaged in the production, acquisition and distribution of motion pictures and television.

Sony Financial Holdings Inc.

Sony Financial Holdings is a holding company mainly engaged in the insurance business. Co. has three business segments. The Life Insurance segment provides customized life insurance products through sales staff and agencies, as well as variable annuity products. The Non-life Insurance segment is engaged in the provision of automobile insurance and medical insurance focused on cancer through Internet and telephone. The Banking segment provides deposit, foreign currency deposit, housing loan, investment trust and foreign exchange margin trading services, as well as financial product agency services. In addition, Co. is also engaged in the nursing care business.

Walt Disney Company

Walt Disney is an entertainment company. The company's segments are: Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, and television production and distribution; Parks, Experiences and Products, which includes theme parks and resorts, and consumer products operations; Studio Entertainment, which includes motion picture production and distribution, music production and distribution, and post-production services; and Direct-to-Consumer and International, which includes international television networks and channels, direct-to-consumer streaming services, and other digital content distribution platforms and services.

Provider
Pelham Smithers Associates Ltd
Pelham Smithers Associates Ltd

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries. 

The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012. 

Analysts
Pelham Smithers

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