[Overseas Stocks Spotlight] "Sony's Gaming Industry to Lead Profits This Year"

[Asia Economy Reporter Eunmo Koo] Sony (SONY) posted earnings that exceeded market expectations in the first quarter of this year. It is forecasted that Sony's profits this year will be driven by the gaming industry.

Sony recorded sales of 1.97 trillion yen in the first quarter (April to June) of fiscal year 2020, surpassing consensus estimates by 19%. Operating profit and net profit reached 228.4 billion yen and 233.3 billion yen respectively, exceeding consensus by 67% and 68%. The management presented a somewhat conservative annual operating profit guidance of 620 billion yen, which is below consensus. However, the sales guidance of 8.3 trillion yen and net profit guidance of 510 billion yen exceeded consensus by 5% and 12%, respectively.

This year, Sony's profits are expected to be led by the gaming industry. On the 8th, Asim Hussein, a researcher at KB Securities, stated in a report, "The content production and distribution business is benefiting from COVID-19," and explained, "Sony indicated in this year's guidance that 66% of total operating profit will come from gaming, music, and film businesses, with gaming accounting for 39% of that."

Sony adjusted its PlayStation 5 (PS5) orders to suppliers from the previous 5 to 6 million units to 10 million units. Additionally, the PlayStation 4 (PS4) games 'The Last of Us Part II' and 'Ghost of Tsushima' were released in the first quarter, selling 4 million and 2.4 million copies respectively within three days of release, marking the fastest sales in PS4 history.

The image sensor segment is also expected to record an earnings surprise. Researcher Hussein explained, "Sony anticipated a 45% year-on-year decline in image sensor sales despite the upcoming launch of 5G smartphones, but market research firm IC Insights forecasts only a 3% decrease in smartphone sales this year." Sony holds a 49% market share in image sensors, with major customers including Apple, which is launching 5G smartphones, and Huawei, which is increasing its market share in China.

Meanwhile, Sony announced a 100 billion yen share buyback (1.64% of market capitalization), and there is speculation that additional buybacks may occur as a shareholder return measure, similar to last year. Researcher Hussein noted, "Sony rejected activist investors' proposals for business spin-offs and instead acquired the remaining 35% stake in Sony Financial. Sony Financial will be excluded from Sony's subsidiary list in September."