SHARP CORP’s RECORD FISCAL YEAR

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SHARP CORP’s RECORD FISCAL YEAR

 user 2006-05-10 at 10:50:00 am Views: 72
  • #15399

    Sharp Corp’s Record Fiscal Year
    Results Illustrate Challenge of Expanding Profitability
    Sharp
    Corp’s  full fiscal year earnings (year-ended March 31, 2006) look
    pretty nice at first glance and actually set new records for sales and
    net income for the third consecutive year. Net income increased by
    15.4% y-o-y, operating income +8.4%, and net sales +10.1%. Net income
    per share came in at 80.85 yen versus 70.04 yen last fiscal year.
    However, in order to make money you usually have to spend money and
    spend is what Sharp did to the tune of a 10.5% increase y-o-y in COGS
    and 9.1% in SG&A. The Japan Times reported that 148 billion yen of
    219 billion yen (68.0%) in investments was allocated to LCD TVs, of
    which sales increased 33.0% y-o-y.Sharp’s profitability growth was less
    impressive where on a y-o-y basis Sharp maintained its 5.9% operating
    margin and added 0.2% to its profit margin now at 3.2%. The Nikkei
    Shimbun commented that although Sharp’s 5.9% operating margin is ahead
    of an estimated 4.5% by rival Matsush*ta Electric Industrial (MC) it
    lags Samsung’s 11.5% (Note: that figure was reported for the
    quarter-ended this past March). Sharp’s operating income increase of
    8.4% is respectable but a significant drop from the 20-30% level it
    achieved from Mar. ‘03-Mar. ‘05. The Nikkei article points out the
    obvious that intensifying competition is resulting in a huge CAPEX
    necessity in order to not only meet demand but also to innovate ahead
    of rivals while simultaneously reducing unit costs. Sharp remains
    committed and announced it will focus on larger screen LCDs going
    forward in order to boost margins (see its financial forecast for the
    current fiscal year below).
    As of the fiscal year ended March 31st,
    Sharp had 299.47 billion yen (US$2.6b) in cash and cash equivalents, an
    increase over last fiscal year by 1.5%.
    Sharp’s forecast for the fiscal year ending March 31, 2007 is as follows (projected increase in parentheses):
        • Net sales: 3 trillion yen [US$26.1b] (+7.3%)
        • Operating income: 180 billion yen [US$1.57b] (+10.0%)
        • Net income: 100 billion yen [US$870m] (+13.0%)
        • EPS: 91.67 yen [US$0.80] (+13.4%)
        * I used a conversion rate of Y115/US$1 for convenience.
    Sharp
    said it will increase its year end dividend by 2 yen for a total of 12
    yen, meaning its annual dividend for FY2005 will be 22 yen (including
    the 10 yen interim dividend).Sharp’s ordinary shares  are up 1.5%
    intra-day at 2,045 yen following the firm’s earnings release after
    yesterday’s market close. With its revised year-end dividend Sharp has
    a yield of 1.08%. Its TTM P/E is 25.3 versus the 28 to 29 it was before
    its latest earnings release. Its forward P/E is 22.3.Sharp’s ADRs
    gained 1.71% today to close at $17.80. Over the past year it has traded
    between $13.40 and $19.70.I believe Sharp’s latest financials have
    proven the company can remain profitable, generate cash and still
    squeeze out growth in the face of huge CAPEX. With its new strategy of
    focusing on larger screen LCDs there appears to be at least a 10% (to
    13.4%) upside to its ordinary share price. For American investors this
    upside could be even larger due to what will seemingly be a stronger
    yen against the dollar for the remainder of the year on into 2007.