On Monday, Citi reaffirmed its Sell rating on Sharp (OTC:SHCAY) Corporation (6753:JP) (OTC: SHCAY), maintaining a price target of JPY570.00. Currently trading at $1.52, the stock has declined about 12% year-to-date. The decision follows a series of strategic divestitures by Sharp, aimed at streamlining its operations and improving its financial standing.
According to InvestingPro data, Sharp has been struggling with weak gross profit margins of 16% and hasn't been profitable over the last twelve months. The company has entered into agreements to sell approximately 60% of its Sakai plant area to Softbank (OTC:SFTBY) for JPY100 billion and its head office production facility at the same plant to Sekisui Chemical for JPY25 billion.
In addition to these sales, Sharp has also planned to divest its camera module business to Hon Hai (TW:2317) Precision Industry. This transaction is expected to result in a loss of JPY15.5 billion. Despite the anticipated loss, Citi analysts project that these three deals could generate a cash flow between JPY130 billion to JPY140 billion for Sharp. The positive cash flow is anticipated to bolster Sharp's financial position by approximately JPY60 billion.
The prices at which Sharp has agreed to sell parts of its Sakai plant have exceeded expectations, which will enable the company to report profits from these transactions. Citi's analysis suggests that Sharp's financial position may further benefit from the planned sale of the remaining portion of the Sakai plant to KDDI (OTC:KDDIF), as well as the potential sale of its semiconductor business to Hon Hai.
The strategic divestitures are part of Sharp's broader efforts to optimize its asset portfolio and improve profitability. By shedding non-core assets, Sharp aims to focus on more profitable segments and strengthen its balance sheet, which currently shows a high debt-to-equity ratio of 4.42. Citi's reiteration of the Sell rating indicates that, despite these positive developments, the firm remains cautious about Sharp's overall prospects.
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