Deutsche Securities cuts its investment rating on Sanyo

Deutsche Securities said on Friday it had cut its investment rating on Sanyo Electric Co Ltd to "sell" from "hold", citing concerns about the consumer electronics maker's financial health. Earlier this week, Japan's third-largest consumer electronics maker raised its loss forecast for the current business year by 50 billion yen to 121 billion yen ($1.14 billion) due to sluggish demand for digital electronics and a tax-related loss.
Deutsche Securities analyst Yasuo Nakane estimated the loss would push Sanyo's shareholder equity ratio down to 14.5 percent and said it looked increasingly likely that the company would have to issue new shares, diluting per share value.
"A delayed recovery in profit and cash flow is likely to hold back an improvement in the company's weak financial condition," Nakane said in a note to clients.
It was Sanyo's third downward revision to its full-year estimates this business year.
The Osaka-based company had given the 71 billion yen figure in December after a major earthquake in the Niigata region north of Tokyo caused severe damage at one of its chip factories.
Besides the earthquake damage, Sanyo, one of the world's largest producers of digital cameras, has also suffered from sliding prices in the digital camera market.
Over 90 percent of Sanyo's output is supplied to Olympus Corp and other makers, many of which have scaled back production plans due to tough competition and slowing growth in soem major markets such as Japan.
In light of the loss, which will be its worst ever, Sanyo plans to cancel its year-end dividend. It paid 3 yen per share for the first half, and had planned a 3 yen year-end payout.
Deutsche lowered its target price on Sanyo to 290 yen from 320 yen. Sanyo's stock ended Friday morning unchanged at 336 yen.
"The stock could rebound if the overall market does, but we think Sanyo Electric's earnings and financial condition are likely to improve slower than all of the other consumer electronics companies'," Nakane said.
Earlier this month, Sanyo announced that it would raise 100 billion yen through a syndicated loan for capital investment and to repair equipment damaged by the earthquake.
Nakane also cited concerns that restructuring costs could increase in the next financial year starting April 1, limiting any recovery in earnings.