TOKYO -- Sharp's restructuring efforts have just begun, but its stock price as of Wednesday indicates that investors expect a full earnings recovery at the troubled Japanese electronics maker.
Sharp, which plans to rebuild itself under Taiwan's Hon Hai Precision Industry, better known as Foxconn, saw losses accumulated over eight years reach 1.5 trillion yen ($13.6 billion).
The company said on May 12 that its debt exceed assets by 31.2 billion yen at the end of March, meaning that shareholders will not be able to recoup their investment if Sharp were to be liquidated.
Citing uncertainty, Sharp has declined to disclose earnings forecast for the current fiscal year, but investors are already buying its shares in anticipation of an earnings recovery. Based on the company's closing stock price of 139 yen on Wednesday, Sharp is valued at 236.4 billion yen.
With debt exceeding assets, it is impossible to calculate Sharp's price-to-book ratio by dividing market capitalization by net worth. So let's look at net worth after Foxconn's planned 388.8 billion yen investment. Since Foxconn is to take a 66% stake in Sharp, the remaining shareholders' equity will amount to 121.5 billion yen.
"Despite many uncertainties, market players are looking to a Sharp turnaround," said Tetsuo Seshimo, portfolio manager at Saison Asset Management.
Sharp's closing price on Wednesday was 58% higher than Foxconn's planned acquisition price of 88 yen per share. This tells us that investors have higher expectations for Sharp than does Foxconn.
With Foxconn's involvement, "Sharp's restructuring is moving ahead at unprecedented speed," said Ryosuke Katsura, a senior analyst at SMBC Nikko Securities.
Tai Jeng-wu, executive vice chairman of Foxconn, is slated to become Sharp's next president. During a press conference on May 12, current President Kozo Takahashi expressed concern about the exodus of skilled workers, noting that he understands employee anxiety.
According to a bit of anecdotal evidence, though, office moral is improving. A Sharp veteran in his 50s said employees are now motivated to create something new.