LDN - Business

Japan's Sharp swings to profit under Foxconn's watch as costs slashed

[February 03, 2017] By Makiko Yamazaki and Ayai Tomisawa

TOKYO (Reuters) - Sharp Corp lifted its full-year profit guidance after posting its first quarterly net profit in more than two years as the Japanese liquid crystal display (LCD) maker pressed ahead with cost-cutting measures under new owner Foxconn of Taiwan.

This was the first full quarter under the Taiwanese company's management for Sharp, and analysts have been keen to see if the results reflect Foxconn chairman and CEO Terry Gou's trademark style of a laser-like focus on costs. The Japanese company's shares have already rallied since Foxconn took charge last year.

Sharp, a major supplier of LCD panels to Apple Inc, is consolidating production lines, streamlining distribution networks and tapping Foxconn's famed parts procurement power to turn itself around.

"Speedy management is the biggest contributor to the turnaround," Executive Vice President Katsuaki Nomura said at an earnings briefing, hailing the swift decision-making style of Foxconn, the world's largest contract electronics maker.

Sharp also benefited from production cutbacks by Korean rivals in LCD panels that led to a supply shortage and pushed up market prices.

Net profit was 4.2 billion yen ($37.14 million) for October-December, compared with a 24.7 billion yen loss in the same period a year earlier, with its core display device unit also swinging back to a profit for the first time in two years.

Sharp raised its operating profit forecast to 37.3 billion yen for the year ending in March from an earlier forecast of 25.7 billion yen.

SHORT SELLERS ACTIVE

Shares of Sharp have soared 300 percent since a capital injection from Foxconn, formally known as Hon Hai Precision Industry Co Ltd, was completed in August. The price hit a near three-year high of 348 yen last month.

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A logo of Sharp Corp is pictured at CEATEC (Combined Exhibition of Advanced Technologies) JAPAN 2016 at the Makuhari Messe in Chiba, Japan, October 3, 2016. REUTERS/Toru Hanai/File Photo

Short interest in Sharp has risen dramatically over the past three months, according to financial analytics firm S3 Partners.

The number of Sharp shares on loan has doubled to 250 million as of February 1 from 125 million in November, while money at risk on the short side has more than tripled to $675 million from $200 million during the same period, S3 data showed.

While the quarterly net profit was in line with a Thomson Reuters Starmine SmartEstimate of 4.6 billion, Sharp's full-year operating profit forecast beat market expectations, leading some investors to predict further gains for what they said was an already overvalued stock.

"The share price is already too expensive and it can't be justified with valuations like PBR and PER, but since the full-year forecast beat the expectations, the stock price could get even more overvalued," said Makoto Kikuchi, chief executive of Myojo Asset Management.

(Reporting by Makiko Yamazaki and Ayai Tomisawa; Editing by Muralikumar Anantharaman)

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