TOKYO -- Japan's electronics makers and materials producers are most attractive in terms of price-to-book-value ratio, according to a Nikkei survey. These two sectors have been promoting business structure reforms.
The Nikkei ranked listed companies with a PB ratio of less than 1 by their projected pretax profit growth in fiscal 2014.
The PB ratio compares a stock's market value to its book value and is often used to determine whether stock prices are overvalued or undervalued. A ratio below 1 indicates that a company is assessed at less than the theoretical breakup value and the stock is undervalued.
Sony took the No. 1 spot. The company's pretax profit for the year ending March 2015 is expected to surge 400% on the year, thanks in part to the strong performance of its game operations. Meanwhile, the electronics giant is seen to log a net loss for the second straight fiscal year. Shares in Sony are trading about 15% lower than their year-to-date high of 2,030 yen ($19.98), marked on April 1, due to the projected loss and other factors. Mitsushige Akino, executive director at Ichiyoshi Asset Management, said a recovery in the company's flat-panel TV business will be needed for its PB ratio to exceed 1.
Japan Display came in second. The maker of small and midsize liquid crystal display panels is involved in growing price competition with companies at home and abroad. The focus of attention is the company's shipments for Apple, as the U.S. tech giant will likely release new models of its popular iPhone smartphone this autumn.
Materials maker Mitsui Chemicals came in fifth, amid fierce competition from rivals in China and elsewhere. The company has been working on structural reforms. In fiscal 2013, the company announced that it will close its Kashima plant, which produces raw materials for urethane, in Ibaraki Prefecture, northeast of Tokyo. Mitsui Chemicals expects a net profit for the year ending March 2015 for the first time in four years.
Amada came in third. The metal-processing machinery maker's stock gained strong momentum after it said it would use all of its net profit in the current and next fiscal years to reward shareholders. To send its stock even higher, Amada needs to increase profit in its core business.
The averaged PB ratio among companies listed on the first section of the TSE is around 1.3. As for companies that see their PB ratios below 1, investors are skeptical of such companies' plans to boost earnings. Even so, if progress in structural reforms helps these companies come close to their profit goals, investors may take a new look at them.