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| Fundamental Equity Research |
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We derive our Sony target price using a SoTP approach. In Sony's case, we sample 58 companies in similar industries in our coverage, derive a fair value EV/EBITDA for each of the business domains, calculate business value, and sum them.
The fair value EV/EBITDAs for Sony's various businesses range from 9x to 16x: using weighted averages based on profit levels etc., we calculate a fair value multiple of 12.4x (FY3/27E basis). We use this as our target multiple. This gives a fair value of ¥4,700, which we set as our target price.
For reference purposes we also calculate fair value share prices using PER (¥4,700) and PBR (¥4,800)
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Downside risks to our target price include 1) multiple compression fueled by a decline in equity market risk tolerance, 2) yen appreciation, and 3) macro-level factors like trade friction, etc. If these factors materialize to a greater extent than anticipated, it could cause the share price to undershoot our target price.
Upside risks to our target price include 4) announcements of major M&A deals, 5) major progress with new businesses such as anime and autos, and 6) the announcement of mass production of new products like PSVR and other sensor types. If these factors materialize to a greater extent than anticipated, it could cause the share price to overshoot our target price.
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